John Lister has reported that

“some of America's leading ISPs have reached an agreement with movie and music companies to punish customers who breach copyright laws. But while the sanctions are lighter than rights owners would like, the move could still spark a legal debate.The deal involves AT&T, Comcast, Time Warner and Verizon, along with industry bodies for Hollywood studios, record labels and TV producers. It's being organized under the newly-formed Center for Copyright Information.” – infoPackets

This is an industry program and isn't governed by legal regulations, and arstechnica.com reported that White House officials were instrumental in pressuring the ISP’s to take this action.

So what are we talking about? Many ISPs already provide warnings to users if suspect behavior is detected, but the Copyright Alert System is intended to provide a standardized approach that all ISPs will use. In 2008 the Recording Industry Association of America (RIAA) abandoned its practice of suing individuals for online piracy in favor of working with Internet service providers to track down offenders. Since then, ISPs have issued warnings on their own terms, but this agreement creates one system that major ISPs will follow.

“Under the new system, alleged offenders will get up to six warnings when they are suspected of downloading or sharing copyrighted material without permission. After that the ISP will take action, such as slowing access speeds or blocking Internet access until the customer contacts them to discuss the issue. It's being stressed that ISPs won't permanently disconnect customers as part of the scheme. Those behind the system argue that it will act as a warning mechanism to casual offenders, and that it will make parents aware when children are downloading illegally.” – ibid

The US plan appears loosely based on a system in France by which customers get two warnings and, after a third alleged offense, are disconnected. The RIAA and MPAA aren’t really pleased with the ISP’s solution, so there’ll probably be some pressure to “toughen” punishments. Also, it should be noted that the Digital Millennium Copyright Act (DMCA) already requires ISPs to have a termination policy in effect if they want to take advantage of the law's "safe harbor" clauses. That way, if a copyright holder sues you for illegal downloading, the ISP can say it took measures to stop the activity and cannot be held liable for your activity.

The system allows you to request an independent review before any of those mitigation measures are put into place, but it will cost you $35.

Should you win one of these challenges, you get your $35 back and the "alert" is taken off your account, though no other alerts are. Your next alert will therefore begin the "mitigation" process once more.

These alerts do eventually expire; any subscriber who makes it 12 months without receiving a notice has their slate wiped clean  (arstechnica)

Appeal categories:

(i) Misidentification of Account - that the ISP account has been incorrectly identified as one through which acts of alleged copyright infringement have occurred.

(ii) Unauthorized Use of Account - that the alleged activity was the result of the unauthorized use of the Subscriber’s account of which the Subscriber was unaware and that the Subscriber could not reasonably have prevented.

(iii) Authorization - that the use of the work made by the Subscriber was authorized by its Copyright Owner.

(iv) Fair Use - that the Subscriber’s reproducing the copyrighted work(s) and distributing it/them over a P2P network is defensible as a fair use.

(vi) Misidentification of File - that the file in question does not consist primarily of the alleged copyrighted work at issue.

(vii) Work Published Before 1923 - that the alleged copyrighted work was published prior to 1923.

There are rules for each category, they can be viewed here: 

http://arstechnica.com/tech-policy/news/2011/07/the-six-ways-you-can-appeal-the-new-copyright-alerts.ars

Also, the ISP’s aren’t looking at what you download. Apparently, P2P transfers of large files or pirated files carry the senders “address”. The company whose film or music is notified and they send an email to the ISP and the ISP warns you. You are not identified by name. That probably could be subpoenaed  and the ISP would have to give your name.

A more detailed list of companies companies and groups supporting this measure includes: Motion Picture Association of American and MPAA members like Walt Disney Studios Motion Pictures, Paramount Pictures, Sony Pictures Entertainment, Twentieth Century Fox Film Corporation, Universal Studios, and Warner Brothers Entertainment; Independent Film & Television Alliance; Recording Industry Association of America and RIAA members like Universal Music Group Recordings, Warner Music Group, Sony Music North America, and EMI Music North America; American Association of Independent Music; and the ISPs mentioned above (per PC Magazine).