Yesterday the Senate Judiciary Committee held a hearing titled “Targeting Websites Dedicated To Stealing American Intellectual Property.”  Witnesses from Rosetta Stone, the Authors Guild, Go Daddy, Verizon and Visa testified about online piracy and about the strengths and weaknesses of the Combating Online Infringement and Counterfeiting Act (COICA).  This legislation was introduced by Judiciary Chairman Leahy in the last Congress and passed the Committee by a unanimous vote, but it did not pass the full Senate.  Sen. Leahy plans to introduce similar legislation later this year.  The Committee’s site for the hearing, with the witness’ prepared testimony is available here.  My notes on the hearing follow:

Tom Adams, President and CEO of Rosetta Stone said that his company is “under attack” from pirates that are able use the internet “ecosystem” to reach consumers in the US.  Rosetta Stone has found over 1,000 illegitimate websites that sell pirated copies of their software.  The sites have similar layouts and similar URLs to deceive consumers.  Their customer service lines get many calls from people who have unwittingly brought fake software and complain to Rosetta Stone that their software is not working.  This causes brand damage.

While Rosetta Stone strongly supports COICA, there’s one area where COICA could do more – search engines. Most people who knowingly or unknowingly buy fake software get to the site where they buy it through internet searches.

Scott Turow, President of the Authors Guild warned that if piracy of IP goes unchecked, it will “destroy” the creative community in the US.  He said that last May he published a best-selling novel, but that pirated versions of his book online at a fraction of the price were available within a week or two.  There was then a game of “whack-a-mole” where notices would be sent to one group of sites, but the pirated copy of the book would pop up in another.

There is more at stake than income for best-selling authors. The entire publishing industry is threatened, and it is needed to support our literary culture.  The publishing industry plays a venture capital role, supporting writers.  It needs to make enough money off the big sellers to subsidize the majority of books that do not generate a lot of revenue.  In 2008, there were only two publishing groups that reported a profit, threatening the model.

To solve the problem, we need to follow the money.  We need to look into firms that profit by advertising or collecting fees for online payment.

Christine Jones, VP of Go Daddy said their company takes an aggressive approach to helping IP owners to protect their property.  They are “more willing to help IP owners than anyone else” in the internet ecosystem.  As a registrar and internet hosting provider, Go Daddy is the “on ramp” for the internet for 46 million people, so it can be very difficult to keep piracy sites down, and they also get caught up in playing “whack-a-mole.” It is easy for pirates to launch business and start making money.

Therefore, we need a “hybrid approach,” a multi-stakeholder effort to cooperate against piracy by denying services for infringing websites. Private companies should participate, but legislation must take up slack against firms that don’t go along. Also, firms that cooperate in the fight against piracy need protection from frivolous lawsuits. The “big five” stakeholders that must be involved are domain name registrars, hosting service providers, payment processors, ISPs, and online advertisers.

Thomas Daily, VP of Verizon said his firm supports efforts to fight online piracy, but warned that COICA raised issues for a variety of different stakeholders who are concerned about its impact on things beyond intellectual property.  Verizon supports certain COICA provisions (from the perspective of a service provider who is asked to take down a site):

  • ISPs are required to take actions only after getting a judicial order
  • Immunities
  • Recognition that DNS-based restrictions are not foolproof

Verizon would like to see certain changes to COICA:

  • Clarify that service providers are required to take action only with their US-based DNS servers
  • Forbid private rights of action and require DNS action only when it is the best way to go forward
  • Notification of domains that are no longer required to be down.
  • A limit on the number of domain names that can be subject to action (since there will be a cost to service providers).

Finally, the Committee should keep in mind that government-sanctioned website blocking is a big shift in internet policy.

Denise Yee from Visa was the final witness.  She noted that the protected Visa logo is one of their most valuable assets, and that they spend millions protecting it. Visa is committed to ridding the system of piracy, and it goes beyond any legal requirement to prevent the use of our system for use by criminals. Their rules for online merchants that accept payment by Visa require that each transaction must be legal in both merchant and customer’s jurisdiction.  However, Infringing merchants often cover their tracks (by setting up shell companies, for instance) so it can be hard to find the bad actors.  IP owners are best situated to bring illegal activity to our attention, but they very rarely do.

The effective long-term solution is cooperation between law enforcement agencies around the world. Imposing a regulatory framework over existing voluntary actions will have unintended consequences.  For instance, it could increase the likelihood that we could be subject to conflicting legal requirements. We’ve been sued by merchants in Russia for cutting off access – and the Russian courts said that no local copyright law was being violated.

At this point, Sen. Leahy asked all of the participants if they thought that private sector solutions had been effective.  All of the witnesses said “no.”  Jones (Go Daddy) added that not all companies have enough resources.  Daily (Verizon) noted that there are mechanisms in place to deal with US-hosted websites, but this is not the case for non-domestic sites. Yee (Visa) added that right holders rarely come forward, but that improved collaboration could be effective.

Leahy asked the witnesses for the most essential thing that legislation must do.  Adams (Rosetta Stone) said that it must make it hard for criminals to find a market – so it needs to address advertising and search engines. Turow (Authors Guild) said that legislation must address advertisers, payment processors, ISPs, and anyone who profits from doing business with pirate sites whether they do so intentionally or not.  Jones (Go Daddy) recommended a hierarchical approach that targets the lawbreakers first and then goes up the chain. She added that legislation must protect firms that take action against pirates and have consequences for firms that do not. Daily (Verizon) supported the notions of all players in the internet ecosystem participating equally, the need to follow the money, and the importance of immunity from liability for firms fighting piracy. The requirement of a judicial order for a takedown is an important safeguard. Yee (Visa) said that it is essential to have a safe harbor to make sure companies are not penalized.

Sen. Grassley said he thinks COICA will have support this year, but we should see if there’s a need for new laws.  With PRO-IP and DMCA already on the books, is there a need for further legislation? And do witnesses agree that DOJ should have the ability to order a takedown?

Adams (Rosetta Stone) said that existing laws often do not help enforcement because we can’t cut off merchants overseas.  Therefore, we either need to change the ecosystem here or somehow get the ability to go after foreign sites. Turow (Authors Guild) says that the DMCA has not worked well because not all private sector companies are doing what they need to do.  Jones (Go Daddy) said that under DMCA they’ve taken down tens of thousands of websites, but that they need a safe harbor.  She thinks that DOJ should definitely be able to bring an action.

Grassley brought up Immigration and Customs Enforcement (ICE) Operation In Our Sites, which ICE claims as a success in fighting online pirates. Has it really been successful, or could it do better?

Adams said Rosetta Stone has worked with ICE and they are doing a good job with the limited resources that they have, but that they need more.  ICE is also limited by the fact that a lot of piracy activity is outside the US.  Jones said that Go Daddy cooperates with ICE and it works well.  But going after domains is not their favorite approach to fighting piracy because it will not get to the root of the problem.

Grassley asked about the role of search engines. Adams (Rosetta Stone) said that if a domain or a merchant is identified as being involved in criminal activity, search engines must stop doing business with them.  If search engines don’t then they should be penalized. Turow (Authors Guild) said that current safe harbors are not sufficient to compel firms to take action. Jones (Go Daddy) said that search engines need to stop doing business with bad actors.  There is no reason you should be able to search for a fake or pirated good, and get tons of search results.  She said it was too bad Google didn’t come to the hearing.

Senator Klobuchar noted that crooks just put up another website when one is taken down, and asked Adams (Rosetta Stone) how this should be addressed.  Adams said that this is exactly the problem, and that legislation needs to tackle problem of the internet ecosystem. We cannot change laws in other countries, so we need to deal with search engines here.  It is technically feasible for them to review sites before including them in search results. YouTube reviews stuff before posting, so why can’t Google do it for other search results?  Right now, Google takes a few days to take down a site because it does manual review when they get a request, but takes pirates only minutes to set up a new site.  We need to flip this.

Sen Klobuchar asked Daily (Verizon) about the error messages that people would get after a takedown. Would the error message be a standard 404 message, or does Verizon have the ability to have a better message that tells consumer why a site is down?  Daily answered that they can change the error message for sites that have been taken down for piracy, but that there are costs involved in doing this.

Sen Klobuchar asked Jones (Go Daddy) to comment on whether Congress should enact criminal penalties for online streaming of copyrighted material.  Jones said this would be a good idea, and that Go Daddy goes after streaming companies all the time.  They had one case where a customer had 32 dedicated servers filled with tons of data he was streaming, but he wasn’t prosecuted for a felony.

Sen. Whitehouse said that we are witnessing the “largest theft of wealth in the history of mankind,” so it is important that ISPs, search engines, and payment providers all work together.  However, he believes that each business has an incentive to let everyone else go first, which leaves the problem unaddressed.  Therefore, we can’t on “mere voluntary cooperation.”

Sen.  Blumenthal complimented Turow (Authors Guild) for his Op-Ed in the New York Times, and asked him if he thought COICA would actually be effective in stopping piracy.  Turow answered that COICA is a great first step.  It needs a private right of action because it is unrealistic to expect the government to provide more and more resources indefinitely.  This is especially true given the current economic situation and the current discussion over cutting government spending.  Private attorney generalship will allow us to respond better to online piracy.

Sen. Blumenthal liked the idea, and noted that in other areas, private right of action has incentivized the government to work better. He asked the witnesses if Operation InOurSites had been sufficient.  Jones (Go Daddy) answered that it has not been insufficient, but ICE agents are understaffed and overburdened.  They need more resources.  Turow (Authors Guild) noted that it requires the feds to mount criminal prosecutions, which requires evidence of intent, and that this requires a lot of resources.

Daily (Verizon) warned that if legislation includes a private right of action to block sites, then there will be less rigor about what is going to be blocked. If this leads to consistent overblocking of the internet, it will be a disaster for the bill.  In orders to block websites, there should be ways to make sure it is very specific, very narrow. Experts need to consult about second level and third level domains.  Congress should be careful not to block more than it intends to.

Sen. Coburn said that both the Bush and Obama Administrations have been bad on IP.  He wished that either Google or Yahoo! had accepted invitations to appear at the hearing.  He asked the witnesses why Google searches for some types of products yield a bunch of counterfeits, and others do not. Adams (Rosetta Stone) said that there is an arbitrary behavior when it comes to the way different types of companies are treated.  Google won’t say why it treats different companies in different ways, and the fact that they did not appear at the hearing is disappointing. Rosetta Stone wants to partner with other companies, and everyone would do better in a world with better cooperation.  However, there is a profit relationship between a pirate website and Google.  They’re paid per click. This is a massive issue and Google is aware of it.  It is a trade-off between “profit and protecting intellectual property.”  There is also payment processing on each of the pirate websites.

Sen. Coburn said he intends to send a letter and perhaps subpoena Google.  He asked Jones what would have happened to Go Daddy if COICA had passed last year.  She answered that not much would change at Go Daddy, because they already do most of the stuff in the bill. However, other firms, especially smaller firms, would lose some money and need to hire some more people.  There are costs.

Daily (Verizon) answered that is hard to say what would happen to Verizon if COICA passed.  If the bill is narrowed, it will be easier to comply with.

Yee once again said that right holders don’t ask Visa to help.  Visa already has voluntary procedures in place to cut off bad actor merchants, but they received only 30 inquiries from right holders in 6 months. People should take advantage of our voluntary system before considering things like private right of action.  Sen. Coburn commented that it is important to make known that IP owners can go to Visa.  Perhaps there is no need for legislation if there are private sector solutions.

Sen. Franken said that as an owner of IP and a member of the Actors Guild (which supports COICA), he understands that the industry is affected when IP is stolen. He voted for COICA last year.  However, he warned that it is essential to move cautiously before we block content at the domain level.  He is interested in the “follow the money” approach.  He asked Yee if going after financial transactions would be more effective than going after domain name.  He asked if she knew what percent of piracy could be stopped with this approach. Yee said that Visa can cut off bad actors, but they will often find another way in.  It can be as easy as reapplying using another person’s name.  Visa gets stuck playing “whack-a-mole” just like people who take down domain names, but they keep going after the bad actors.

Sen. Franken asked about concerns that blocking domain names will not only be ineffective, but will also drive users to foreign servers, leading to identify theft of other network security issues.  Daily (Verizon) said that the concerns are legitimate, and COICA could increase phishing risk and privacy theft.  However, we’ll have to wait and see how serious the problem becomes.  Switching to foreign servers is not terribly complicated to do, but it is not quite as easy as some people say.  Most people in the US use what’s provided by US companies.

Sen. Whitehouse said that he is interested in the notion of the private attorney general, and that it raises the question of how effective our judicial branch has been.  It is ready, willing and able to act but it hasn’t been used very much. Why is it that courts aren’t more often sorting through this? There’s a ton of money at stake.  Are plaintiffs disinclined to go to court?  Are there workable defenses?

Turow (Authors Guild) said there are two issues: the DCMA safe harbor that allows people to say ‘not my fault,’ and the other issue is extraterritoriality.  Jones (Go Daddy) said the reason the courts are not used is an IP owner has to do is call us and we fix the problem.

Sen. Coons said that we need to balance IP protection with our role as a country that promotes free speech, and asked how can we work in partnership with law enforcement counterparts abroad. Jones said Go Daddy is told repeatedly that foreign governments are compelled by the actions of US government.  If the US takes piracy seriously, then other governments will follow.  Go Daddy routinely works with foreign law enforcement.  However, if the activities abroad are not illegal under the laws where they take place, then we have a problem.

Turow said that the Authors Guild is strongly against anything that smacks of censorship. A law that insists on coordinated activity by everyone in the internet ecology is the best approach.  Search engines and finance are important.

Jones said that Go Daddy takes a whole site down if it has any infringing content. If the infringing content comes down, then the site goes back up.  Daily (Verizon) said that such solutions can work in a notice and takedown environment, but that it doesn’t apply to foreign jurisdictions where there is no such system set up.

Sen. Blumenthal worried that taking down a website and putting it back seems insufficient. He likes the idea of private right of action, and he wants to see damages for online piracy.  To Mr. Daily’s point that there may be overuse or abuse, that potential danger seems no different than similar things in our consumer protection laws.  Sen. Blumenthal’s view is that we’re dealing with a situation comparable to drug dealing, where the planes or transport mechanisms are seized.

Leahy closed the hearing by saying that it would have been helpful to have Google and Yahoo at the hearing, that there will be new legislation this year, and that the bill passed the Committee 19-0 last year.