Freedom Line Blog

This month, GroupM, the world’s leading media investment management company, announced that it will now require its media partners advertising on websites to receive anti-piracy certification from the Trustworthy Accountability Group (TAG).  This new initiative will go far to keep its clients’ advertisements off of rogue websites, as GroupM summarized in its announcement:

‘We’re in the business of giving the world’s most valuable brands marketing advantages with smart media strategies.  This inherently means we’re vigilant for clients’ brand safety.  Our work with TAG in the development and full adoption of anti-piracy guidelines is a major leap forward,’ said John Montgomery, Chairman, GroupM Connect, North America and Co-Chair of the TAG Anti-Piracy Working Group.  ‘With IAB, 4As, and ANA, we’ve worked for years to make the digital ecosystem more trustworthy.  Fighting pirates of copyrighted content required every ounce of our tenacity and ingenuity, but with the advent of TAG’s Brand Integrity Program Against Piracy, we have powerful new tools and safeguards.'”

Such advertising on piracy sites accounted for an estimated $209 million in ill-gotten revenue in 2014 alone, so this constitutes a significant, voluntary private sector milestone.  Summarizing the nature of the problem, Mr. Montgomery observed:

There’s no brand in the world that wants their advertising to appear on a pirate site or wants to be seen as supporting piracy, even inadvertently…  A brand’s entire reputation is at stake – something that they’ve been nurturing for decades or, in some cases, centuries.  The people who create pirate sites are the same ones who perpetrate clickbait fraud – they’re the ones who spread malware and create armies of bots that generate most of the automated clicks in the business…  Which is why being worried about ad fraud without also being aware of the role piracy plays in its perpetration is like fretting over a flood in your apartment while neglecting to turn off the tap.”

Hopefully, other ad industry players will follow GroupM’s lead in utilizing TAG, but CFIF and anyone who supports the rule of law and property rights – including intellectual property (IP) rights – owe them an enormous “thank you.”  Accordingly, please click here to join us in thanking them.

We’ve written extensively on the destructive nature of illegal online piracy, as well as various market and legal avenues to combat it.

In positive news this week, the Motion Picture Association of America launched WhereToWatch.com, a one-stop-shop for consumers to locate legal sites for their favorite films and television shows.  Visitors to the site can (1) search for films and shows on digital downloading and streaming sites, as well as at stores and kiosks;  (2) quickly and easily find theater times and locations for new movies;  (3) watch trailers and access original behind-the-scenes content;  and (4) create settings to receive alerts when movies and shows they want become available from various providers.

Studies show that almost 95% of popular films and shows are already legally available for viewing, via over 100 legal online services across the U.S. Accordingly, there’s simply no need or excuse for anyone to steal the films or TV shows they enjoy on illegal sites, when legal alternatives are now so readily available.

In that vein, WhereToWatch.com offers a welcome innovation.

Happy “International Talk Like a Pirate Day,” which can make for a bit of harmless office fun on a Friday.

Unfortunately, real piracy of the online variety is no laughing matter.  It costs the American economy billions of dollars and tens of thousands of jobs each year, and even threatens life and health through such things as counterfeit drugs.

This week, a new report was released highlighting the role played by online “cyberlockers” in facilitating worldwide piracy.  Entitled “Behind the Cyberlocker Door:  A Report on How Shadowy Cyberlocker Businesses Use Credit Card Companies to Make Millions,” the report from Digital Citizens Alliance cogently introduces and explains the nature of this problem:

Rogue ‘cyberlocker’ operators peddling stolen content are making nearly $100 million in annual revenues by operating as hubs for the for-profit distribution of infringing digital copyrighted content.  That is the finding of our research looking at the profitability of the leading cyberlockers.  Unlike legitimate cloud storage services whose clients are people and businesses that need to store, access, and share data, the cyberlocker business model is based on attracting customers who desire anonymously to download and/or stream popular, copyright infringing files that others have posted.  The cyberlocker business model is designed around content theft.  In fact, cyberlockers generally pay or provide various incentives to those who distribute popular infringing content and discourage the use of their services for reliable data storage.  As this study shows, the overwhelming bulk of files distributed by cyberlockers infringe copyright.”

For those unfamiliar with the term “cyberlockers,” here is DCA’s definition:

Cyberlockers are online services that are intentionally architected to support the massive distribution of files among strangers on a worldwide and unrestricted scale, while carefully limiting their own knowledge of which files are being distributed.  The link to a user’s file stored on a cyberlocker can be posted to any location for any user to access:  cyberlockers generally place no limits on who can download or stream a file.”

DCA studied 30 sites, and those alone accounted for some $96.2 million in total annual revenue, or $3.2 million per site (one site alone accounting for $17.6 million).  While we must avoid interfering with meritorious technological innovation and the legitimate online marketplace, we must at the same time recognize this emerging problem and advocate corrective social policy to remedy existing piracy threats and deter their spread. Legitimate market participants must therefore determine proper recourse, and elected officials must also begin to consider reasonable avenues to help put a stop to this growing form of theft.

Piracy of movies is wrong in and of itself, as it constitutes straightforward theft and deprives the creative community the right to the fruits of its labor and investment.  The sheer amount of money, time, creative energy and physical effort necessary to bring a film from concept to theaters is only possible where reliance upon return on investment exists.

For the viewing public, piracy also adds to the cost of a movie ticket.

That reality remains obvious, and the academic consensus confirms the high cost of piracy.  Of particular interest, however, is the specific issue of pre-release piracy of movies, as distinguished from post-release piracy.  In the case of post-release piracy, consumers obviously possess alternative legal avenues to see the film in question – one can view it in theaters, through legal streaming services, on DVD, etc.  Pre-release piracy, in contrast, occurs during a period in which legal options to view the film do not yet exist.  In recent weeks we witnessed an example, as the new film “The Expendables 3” was leaked online and viewed 189,000 times in just 24 hours.

Pre-release piracy is thus a particularly pernicious form, but quantification of its damages remained relatively unexplored.

Now, however, Carnegie Mellon University professor Michael D. Smith and his colleagues have conducted a study on film piracy that occurs during that pre-release period:

Our study was accepted for publication last month in the peer-reviewed journal Information Systems Research, making it the first peer-reviewed journal article we are aware of to analyze the impact of pre-release movie piracy.  In our study we applied standard statistical models for predicting box office revenue, but added a variable for whether a movie leaked onto pirated networks prior to its release using data obtained from the site VCDQ.com.  Our analysis concluded that, on average, pre-release movie piracy results in a 19% reduction in box office revenue relative to what would have occurred if piracy were only available after the movie’s release.  As we discuss in the paper, this result is robust to a variety of different empirical approaches and sensitivity tests.”

That’s an immediate 19% loss to piracy, in addition to piracy that might occur post-release.  That’s something that no creator or investor should have to suffer, and it therefore remains imperative that we pursue existing and potential methods to combat such theft.  For the time being, however, we can thank Smith and his colleagues for helping put a number on the damage involved and illustrating the significance of the problem.

Copyright infringement constitutes a multi-billion dollar problem, but free market cooperation in the form of the Copyright Alert System (CAS) has enjoyed a remarkably successful first year.

One year ago, a broad coalition of private enterprises, such as entertainment and telecommunications companies, launched CAS to proactively inform consumers of infringing activity detected involving their account.  That approach derived from the knowledge that large majorities of consumers (a) agree that it is never appropriate to engage in copyright infringement, (b) are often unaware as to which online sources are illegal, and (c) stated that they would immediately discontinue participating in copyright infringement immediately if they were alerted to it.

With that in mind, here’s how CAS works.  It involves three levels of alerts – the educational stage, the acknowledgement stage and the mitigation stage – with each stage including two alerts before moving to the next stage.  The educational stage informs users that infringing activity has occurred with their account, identifies the specific content at issue, sets forth steps to avoid further infringement and provides alternative legal sources for the content.  Then, if the infringement continues on that account, the acknowledgement stage involves up to two alerts requiring the user to acknowledge that they’ve received the alert (but does not require the user to admit or deny wrongdoing).  Finally, if the infringement continues, the user receives up to two mitigation alerts, which can involve temporary reduction in Internet speeds, temporary downgrades in Internet service tier or redirection to a landing page for a set period of time until the account holder has reviewed copyright education materials.

One year in, the results are impressive.  Most prominently, the system succeeded in stopping the alerted activity before reaching the final mitigation stage:

We can report that during the first ten months of CAS’s operation, more than 2 million notices of alleged infringement were sent to ISPs and more than 1.3 million Alerts were sent to 722,820 customer accounts.  The vast majority of those Alerts were Educational Alerts (72%), while a very small fraction were Mitigation Alerts (8%), with less than 3% at the final (or second) Mitigation level.”

The system’s success is further illustrated by the fact that very few – just 0.27% – of the alerts eligible for review were actually challenged.  And among that small number of actual challenges, some 77% were upheld as valid.

Simply put, after one year CAS has established a record of success based upon a model of market cooperation.  That obviously does not mean that continued and even additional law enforcement avenues to combat copyright infringement and online piracy aren’t necessary.  But it does provide encouraging news in this important ongoing concern.

Last week, we highlighted an important House Judiciary Intellectual Property Subcommittee hearing on the Digital Millennium Copyright Act’s (DMCA’s) critical “notice and takedown” provisions.  The hearing provided the opportunity for lawmakers to promote a modernized, voluntary and necessary campaign to achieve the DMCA’s underlying goal of fighting Internet piracy and intellectual property theft while maintaining an open Internet.

Fortunately, there’s good news to report one week later.

Almost every member of the Committee, Democrat and Republican alike, concurred that private industry actors must undertake voluntary, market-friendly efforts to correct the massive and improper scourge of online piracy and IP theft.  That is, after all, the purpose of the DMCA structure itself.

Notably, the hearing featured persuasive testimony from Grammy-winning musical artist Maria Schneider, who shared her real-life experiences to illustrate the problem to be addressed.  Ms. Schneider explained how she actually often spends more time and effort removing pirated copies of her performances than she does in the creative process.  In fact, she testified that her battle has cost her over $100,000, and she provided a demonstration of how difficult it is to remove one’s own stolen property from rogue websites.  Ms. Schneider also noted that when YouTube actually agrees to remove pirated material, it unhelpfully posts a scowling frustrated-face icon with the banner “This video is no longer available due to a copyright claim by Maria Schneider – sorry about that.”  That suggests that Ms. Schneider or others who simply seek to protect their hard work and property rights are somehow culpable for the situation, and it certainly doesn’t suggest respect for the rights of creators.

It is therefore critical, as Ms. Schneider noted, that websites, service providers and other market actors more effectively educate consumers and anyone uploading content about the dangers and costs of piracy and IP violations, and make greater efforts to confirm that content being uploaded is done legally.  The current “whack-a-mole” routine is neither effective nor justified.  But through voluntary, market-based, common-sense practices, we can collectively combat online piracy while protecting the rights of creators and consumers alike.

It was good to see the Subcommittee hearing result in steps toward that beneficial end.

On Thursday, March 13, the House Judiciary Intellectual Property (IP) Subcommittee will conduct a hearing regarding the Digital Millennium Copyright Act’s (DMCA’s) “notice and takedown” provisions.  It provides a critical opportunity for lawmakers to promote modernized, voluntary and much-needed initiatives to better execute the DMCA’s objective of sustaining the most open Internet environment possible while also combating piracy and IP theft.

Congress passed the DMCA over 15 years ago to simultaneously allow the Internet to flourish while ensuring that the IP rights of creators would be safeguarded, and wrongdoing prevented and punished.  The law’s notice and takedown provisions established the procedures for aggrieved creators to alert service providers that illegal content was being distributed by wrongful actors, and creating a “safe harbor” from prosecution for the service providers who follow the law.  When Internet entities receive takedown notices or discover violations themselves, they must remove the infringing material and terminate the accounts of flagrant actors when appropriate.  Seems fair enough.

Unfortunately, those provisions haven’t sufficiently fulfilled the DMCA’s goal of combating piracy.  In particular, Section 512 of the law, which sought “strong incentives for service providers and copyright owners to cooperate to detect and deal with copyright infringements that take place in the digital networked environment,” has instead too often provided shelter for violators because other actors haven’t taken sufficient efforts to stop infringement.  Property rights are no less sacred on the Internet than elsewhere, and theft is theft.

Fortunately, Congress can help correct the situation. Voluntary measures such as the 2007 User-Generated Content Principles, and the 2013 Copyright Alert System offer some helpful initiatives that ensure an open Internet while also protecting creators against rampant theft.  All stakeholders can pursue agreement on how to identify and address flagrant offenders, standardized technical measures such as filtering can be discussed, legitimate sites can be promoted in search results while illegitimate sites can be minimized and notice practices can be modernized and streamlined.  As another example, the Copyright Alert System (CAS) through which the music and film industries, along with the five largest Internet service providers, inform consumers about online piracy and direct them toward alternatives has received positive feedback to date.

Again, a wide array of voluntary, beneficial measures can be addressed and pursued.  What Congress shouldn’t do, however, is follow the defective advice of so-called “libertarian” and “conservative” opponents of IP rights employing flatly false scare tactics while turning a blind eye to piracy.  By working together, all interested parties can ensure continued Internet growth and enjoyment, while better protecting creators and innovators against unfair theft of their works.

At 10:00 a.m. tomorrow, the House Homeland Security Committee will hold a hearing with new U.S. Department of Homeland Security (DHS) Secretary Jeh Johnson entitled “The Secretary’s Vision for the Future – Challenges and Priorities.”  The hearing provides a perfect opportunity for Chairman Michael McCaul (R – Texas) and his committee to emphasize America’s commitment to Intellectual Property (IP) protections, and to ensure that combating IP theft – both the anti-counterfeiting operations and efforts to stop online IP piracy – remain on the front burner.

Correctly and justifiably, many divisions and agencies within the Department focus on national security, but it would also be useful for the Committee members to discuss others that have a role in our economic well-being.  A large and diverse coalition of businesses recently came together to write Secretary Johnson, stressing upon him the importance of protecting American ingenuity and our competitive edge by reinforcing the need for strong enforcement of IP.  American companies continue to create the world’s most innovative goods and products, and fully two-thirds of all U.S. exports come from industries that depend on the recognition of strong IP rights.

Unfortunately, whenever creators succeed in building brands that consumers come to trust, there will in turn be nefarious characters who seek ill-gotten profit from someone else’s good name and hard work.  Fake consumer products, medicines, apparel and other goods can be found online, and unsuspecting shoppers end up with inferior, even dangerous products from unknown sources both domestic and abroad.  Consequently, absent significant effort by U. S. enforcement agencies, those knock-off goods can end up in hurting both the purchaser and the company unfairly being copied.  Whether manifested by state-sponsored theft of U.S. military technology, Eastern-bloc crime bosses using revenue of fake goods to fund their syndicates or simply domestic swindlers trying to scam consumers, U. S. policy makers and officials need to do what it takes to stop the bad guys to help ensure fair play as well as our safety.

Emphasizing that point at tomorrow’s hearing will provide an important step in that path.

An alarming new report from the non-profit Digital Citizens Alliance (DCA) calculates for the first time the sheer advertising revenue improperly gathered by online thieves who pirate copyrighted material:  a quarter of a billion dollars in 2013 alone.

These content thieves flagrantly steal others’ artistic creations and offer them on low-cost sites, making for a low-risk/high-reward crime that deprives creators of the fruits of their efforts and imagination.  It’s a large and growing racket, and the advertising revenue at the center of this study is merely one way that online thieves obtain profit.  Content theft sites in many cases also profit from subscription fees that often dwarf ad revenues illicitly obtained (the illegality sometimes unbeknownst to the advertisers).

Among the new study’s findings:

Content theft sites reaped an estimated quarter of a billion dollars in ad revenue alone in 2013.

The largest content-theft sites in the sample made more than $3 million in ad revenue in 2013

The 30 largest sites that make revenue exclusively through ads averaged $4.4 million in 2013.

The most heavily trafficked BitTorrent and P2P sites, which rely exclusively on advertising revenue, averaged a projected $6 million per year in 2013.

Even the smallest content theft sites were projected to average $100,000 in ad revenue in 2013.

30% of the most heavily trafficked content theft sites carried premium brand advertising and 40% carried secondary brand advertising

The sites studied in the sample had a profit-margin of 80-94%.  Content thieves rely on stealing the rights-protected work of others, and distributing on low-cost sites.  It’s a low-risk, high reward business.”

Fortunately, solutions exist.  Legitimate advertisers can boost their existing best practice standards, as the technology used to identify and stop rogue sites already exists.  After all, legitimate companies and brands don’t place ads on pornography or racist/hate websites, and they can similarly increase efforts to ensure that they’re not advertising on thieves’ sites. Although no single, simple, foolproof, immediate solution exists (just as no such solutions exist to any other crime afflicting society), well-meaning and legitimate Internet participants should unite and implement voluntary, reasonable and technologically-feasible efforts to cut into online piracy.

As the new DCA report demonstrates, copyright thieves profit enormously from improper ad revenue.  The harm they inflict, however, stretches far beyond that particular method ill-gotten gain.  The works they steal cost billions to create, and such crimes deprive the innovators who pour their time, resources and hard work into creating them of the rightful rewards for their labor. Hopefully, DCA’s new data can help bring an end to that.

I had the honor this week of participating in a panel on Capitol Hill hosted by The American Consumer Institute (ACI), whose speakers also included Rep. Marsha Blackburn (R – Tennessee), ACI’s Steve Pociask,Todd McCracken of the National Small Business Association, Sandra Aistars of the Copyright Alliance and Dr. Joseph Fuhr, Jr., Professor at Widener University and ACI Senior Fellow.  At that time, ACI unveiled its new public opinion survey showing overwhelming support for intellectual property (IP) rights and legal efforts to combat IP piracy.  Remarkably, in this era of political polarization, that support approaches 90%, so political leaders should pay attention.

Today, IP rights are under constant threat not only by way of theft and counterfeiting, but also by special interests here and abroad who seek to undermine IP protections.  For example, some of the nations with whom the U.S. is negotiating free trade agreements believe that IP should receive little, if any, legal protection.  Accordingly, for my part I emphasized that IP is precisely the basis on which the U.S. has evolved into the most prosperous, innovative nation in human history.  After all, many alternative legal systems exist providing less protection for IP.  Yet it is here in America, with its strong tradition of IP protection, where the overwhelming amount of innovation has occurred over the past two centuries.  That is not by accident, and it’s not coincidence.

Our IP system has delivered a higher standard of living and record of creation than any other system that the world has ever known.

But I also emphasized that IP protections aren’t just utilitarian in nature, as some seem to claim.  Rather, IP protections also reflect our view that the right to enjoy the fruits of one’s labor and efforts is a natural, unalienable one.  As stated by John Locke, “Our handiwork becomes our property because our hands – and the energy, consciousness, and control that fuel their labor – are our property.”  That right is at the core of American society itself.  The Constitution reads, “The Congress shall have the Power … [t]o promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”  That reflects not only British common law, which is the basis for our own legal system, but also the Founding Fathers’ views.  In The Federalist No. 43, James Madison noted, “The copyright of authors has been solemnly adjudged, in Great Britain, to be a right of common law.”

Today, American IP is valued at approximately $5 trillion, which is greater than the gross domestic product (GDP) of any other nation in the world.  It also accounts for over half of American exports, which is critical at a time of increasing international competition.  Unfortunately, piracy of U.S. IP constitutes a multi-billion dollar threat, which steals our wealth and deprives our innovators the fruits of their labor.

With ACI’s new study, lawmakers can recognize where the American public overwhelmingly stands.  That data can prove critical in the ongoing battle to protect IP rights and increase legal protections to fight piracy both domestically and abroad.

On Monday, a U.K. court took the wind out of The Pirate Bay’s sails via a ruling that may sink the popular file sharing website in England’s online seas.  Like other courts in other countries, that court ruled that The Pirate Bay is a copyright infringer because it actively encourages its 30 million worldwide users to engage in widespread theft.

The operators of The Pirate Bay — alongside many other illegal file sharing websites — don’t just passively violate laws.  Rather, they’re downright brazen in using online consumers as pawns for making millions of dollars from illicit activities – up to $3 million per month, according to expert testimony in this case.  The Pirate Bay again illustrates the toxic presence of bad actors out there on the Web who couldn’t care any less about whose property is stolen, whose jobs are threatened or even whose hard drives are being infected by online piracy.  The need to combat digital theft is therefore still very prevalent, and last month’s hysterical website blackout to protest proposed Congressional rogue sites legislation did absolutely nothing to address that issue.

The court will rule this summer on whether or not to block The Pirate Bay from U.K. Internet search results, but this decision comes on the heels of last summer’s blocking of a British content aggregator, Newzbin2, which also facilitated theft of copyrighted content en mass.  Which serves to show that site blocking is already underway in other advanced democratic nations, yet the Internet continues to thrive despite the false predictions of opponents of rogue website legislation.

It all goes to show that it’s time that we here in America also face the music.  Namely, that the U.S. remains behind in enforcing property rights, especially as relating to the online realm.  To be sure, the Internet should remain free within the bounds of law.  But it is not, should not, and cannot be lawless.  Outright theft does not become sacred simply because it occurs on the Internet, and the consequences are compounded when foreign criminal networks (e.g., MegaUpload) are turning illegal clicks into pocket-lining treasures.

In the ongoing battle over Congressional legislation to target foreign rogue websites, opponents falsely characterize the battle as one pitting sinister liberal “Big Hollywood” against underdog champions of Internet freedom.

That characterization was always false, but too many conservatives and libertarians unfortunately fell for it.  The truth is that hundreds of businesses and employers, from the NFL to EA Sports to Ford Motor to 1-800-Contacts to Burberry supported the bill.  Why?  Because their property, employees and innovations actually suffer from the menace of online piracy.  Meanwhile, groups like Google have no property right at stake from online piracy.  Indeed, they benefit from uninterrupted rogue website traffic.  So no wonder they opposed anti-piracy legislation.

Today, just days before the Super Bowl, the U.S. Immigration and Customs Enforcement Agency announced a major bust of 307 rogue websites selling millions of dollars’-worth of counterfeit merchandise:

Special agents this week seized a total of 307 websites and snatched up 42,692 items of phony Super Bowl-related memorabilia along with other counterfeit items for a total take of more than $4.8 million – up from $3.72 million last year.  Sixteen of the sites the agency shut down during this operation known as Fake Sweep, were illegally streaming live sporting telecasts over the Internet, including NFL games.  Two hundred ninety-one website domain names were illegally selling and distributing counterfeit merchandise, ICE stated.”

And the bust wasn’t limited to counterfeit NFL merchandise:

During this operation, an additional 22,570 items of counterfeit merchandise and clothing representing other sports leagues, including Major League Baseball, National Basketball Association and National Hockey League were seized by law enforcement. In total, this operation netted 65,262 counterfeit items worth $6.4 million, ICE stated.”

This is a critical example to keep in mind as the battle against foreign rogue websites moves forward.  That sort of illegal activity is already subject to seizure if it occurs within the U.S., but foreign sites remain largely beyond American law.  Piracy apologists want to make this look like anti-piracy legislation is just some sort of Big Hollywood handout, but this bust illustrates the falsity of that claim.