August 10, 2012 The Honorable Victoria A. Espinel United States Intellectual Property Enforcement Coordinator U.S.

Office of Management and Budget intellectualproperty@omb.eop.gov Dear Ms. Espinel: The Motion Picture Association of America (MPAA), the National Music Publishers Association (NMPA), and the Recording Industry Association of America (RIAA) (the creative industries) appreciate this opportunity to respond to the request for written submissions issued by the office of the Intellectual Property Enforcement Coordinator (IPEC). See 77 Fed. Reg. 38,088 (June 26, 2012). The MPAA is a trade association representing some of the worlds largest producers and distributors of motion pictures and other audiovisual entertainment material for viewing in theaters, on prerecorded media, over broadcast TV, cable and satellite services, and on the internet. MPAA members include Paramount Pictures Corp., Sony Pictures Entertainment Inc., Twentieth Century Fox Film Corp., Universal City Studios LLC, Walt Disney Studios Motion Pictures, and Warner Bros. Entertainment Inc. The NMPA is the largest U.S. music publishing trade association with over 2,500 members. Its mission is to protect, promote, and advance the interests of musics creators. The NMPA is the voice of both small and large music publishers, the leading advocate for publishers and their songwriter partners in the nations capital and in every area where publishers do business. The goal of NMPA is to protect its members property rights on the legislative, litigation, and regulatory fronts. The RIAA is the trade organization that supports and promotes the creative and financial vitality of the major music companies. Its members are the music labels that comprise the most vibrant record industry in the world. RIAA members create, manufacture and/or distribute approximately 85% of all legitimate recorded music produced and sold in the United States. The MPAA, NMPA and RIAA represent the companies and people who make and disseminate American motion pictures, television programs, music, and other copyrighted works. The livelihoods of millions of Americans, as well as the cultural health and progress of our country, depend on the continued growth and vitality of these creative industries. I. Introduction

Much has changed in the digital marketplace for creative works in the two years since the IPEC released the first Joint Strategic Plan on Intellectual Property Enforcement. At the same time, however, many of the problems of copyright theft remain. One of the most striking recent developments is the accelerating proliferation of new digital services for the authorized dissemination of recorded music, motion pictures, and 1

television programming. Today, the creative industries are making far more content available through far more authorized digital services than ever before, including through a variety of offerings with diverse price points for broad access. The past two years have also been a period of important industry (and in some cases, inter-industry) agreements regarding best practices, as discussed below. We greatly appreciate the significant contribution of the Office of the IPEC in encouraging parties to reach these agreements. In addition, a number of large-scale sites and services dedicated to online infringement have been shut down in the past two years. The IPEC and other U.S. government agencies have been instrumental in a number of these achievements. The creative industries would like to take this opportunity to thank the IPEC for her role in shining a spotlight on the problems of copyright theft and counterfeiting. These achievements are especially notable because they were accomplished under tough budgetary constraints and without direct appropriation. However, considerable online infringement continues. This infringement undercuts legitimate services, thereby harming investors in content production, and, cheats law-abiding consumers. Despite the marketplace efforts made by the creative industries to meet and anticipate consumer demand for digital services, and the vigorous efforts of the creative industries and the U.S. government to take legal action against copyright theft, many avenues remain that enable profiteering from infringement. As long as these avenues are open, Americas economy and culture will be harmed. These avenues will not be closed without the commitment and cooperation of all responsible players in the online ecosystem. If all of the relevant players combine their efforts to combat the scourge of online infringement, we are confident that the legitimate marketplace for cultural products will thrive. Consumers will increasingly have access to exciting and innovative new methods of enjoying movies, television shows, and recorded music. But if anything less than full cooperation remains the norm, our country risks a steady decline in investment in the cultural products for which it is celebrated throughout the world, and irreparable harm to the livelihoods of millions of Americans who work to produce, perfect, and disseminate these creative works. The U.S. government has a critical role to play in facilitating and encouraging the interindustry cooperation and commitment needed to ensure a brighter future, rather than a scenario of continued threat to a dynamic business sector and to the cherished and unique entertainment offerings it has produced. While it is the industries involved that must actually collaborate, the actions and messaging of the federal government can make a significant contribution to creating and fostering the environment in which such cooperation develops. This submission addresses the issues raised in the IPECs request for comments. First, the submission describes the current marketplace for cultural products, which are now widely available through digital means. Second, the submission details the existing, emerging and future threats facing the creative industries and the U.S. economy. Third, the submission provides information regarding the costs of copyright infringement and the costs of fighting digital theft. In connection with that information, the submission explains that much of the online theft that drains the resources of the creative industries and injures the U.S. economy

could be averted if reasonable investments in cooperation were made by internet-industry players. Finally, the submission makes policy recommendations to help the IPEC update its strategy for increasing enforcement of, and compliance with, the intellectual property laws that make productive investment in creative products possible. II. Current Trends in the Creative Industries A. Strong Public Demand for Recorded Music, Television Shows, and Motion Pictures Fuels the Success of the Internet and the Consumer Electronics Industry.

Professionally produced entertainment content is at the core of many of the most popular online activities. Indeed, the explosive growth of many internet businesses is directly dependent upon copyrighted materials. Netflix a leading internet distributor of licensed professionally produced film and television content makes up over 24% of all North American traffic on fixed access networks.1 Pandora Radio wholly engaged in disseminating the creative output of songwriters, composers, and musical performers makes up 6.4% of all traffic on North American mobile networks.2 15 of the top 20 most followed people on Twitter are from the music or movie business.3 18 of the top 20 all time videos on YouTube are professionally produced music videos.4 Consumer electronics sales, which are at an all-time high,5 are also dependent on highquality content. For example, sales of smart televisions are surging, due in large part to the availability of on-demand or personalized access to motion picture and music content.6 Sales of 3D televisions are also rising dramatically, driven by the increasing availability of 3D programming.7 Even gadgets in automobiles are selling at a rapid pace because consumers demand music and movies in their vehicles.8

1 2 3

Sandvine, Global Internet Phenomena Report 2 (2012). Id. at 21.

The Twitter rankings are available here: http://twittercounter.com/pages/100 (last visited July 24, 2012).
4

The YouTube rankings are available here: http://www.youtube.com/charts/videos_views?t=a (last visited August 8, 2012).
5

Chris Tribbey, CEA: All-Time High for Consumer Electronics Revenue, HOME MEDIA MAGAZINE, July 24, 2012, http://www.homemediamagazine.com/consumer-electronics/cea-alltime-high-consumer-electronics-revenue-27894. Carl Marcucci, Netflix, YouTube Must-Have Apps for Smart TV Owners, RADIO AND TELEVISION BUSINESS REPORT, July 20, 2012 (Four of the top five smart tv apps are Netflix, YouTube, Amazon Instant Video, and Pandora.), http://rbr.com/netflix-youtube-must-have-appsfor-smart-tv-owners/.
7 8 6

Tribbey, supra note 5 (3DTV unit sales are projected at 5.6 million, a 104% increase.).

Mike Snyder, Smartphones, Tablets Boost Sales of Consumer Electronics, DETROIT FREE PRESS, July 24, 2012 (Spending on gadgetry included in vehicles is expected to account for $7.9 3

It is indisputable that Americans desire to access, enjoy, learn about, and discuss music, movies and television shows is a very significant factor in the successful growth of technologyoriented commerce. The next subsection of this submission briefly describes how the creative sector is meeting this insatiable demand in new and diverse ways. B. The Creative Industries Are Making Recorded Music and Motion Picture and Television Content Available Through Myriad Legitimate Services.

The entertainment industry has transformed how it does business. Audiences have not been shy about their desire for seamless access to their favorite music, movies and television shows, at the time and on the device or platform that works best for them; and we have heard them. We are relentlessly innovating to keep meeting that demand, and the choices available to audiences keep growing and diversifying. The creative industries are committed to continuing that innovation. We welcome and embrace the plethora of new forms of distribution, because they provide us new ways of offering our content to consumers in the manner they want to enjoy our products. Of course, business models must present realistic opportunities to recoup investments. But we have listened to consumers, we are attuned to their desires, and we are at the forefront of developing innovative ways to meet and anticipate those desires. 1. The Music Industry

The music business now earns more than half of its revenues from an array of digital formats. CDs are no longer the primary format for the music business or the primary way the industry generates revenues. Music is available for download through services like iTunes, AmazonMP3, eMusic, and 7digital, including in formats that allow consumers access across multiple devices for personal use without interoperability problems. Rhapsody, Spotify, MOG, Rdio, Music Unlimited, rara.com, and Zune Music Pass offer all the music you can ever listen to on your computer or smart phone for modest monthly fees. Free, advertising-supported music video and audio streaming is available from Spotify, YouTube, Vevo, Myspace Music, and AOLMusic. Music can be obtained through mobile phone subscriptions offered by Muve Music and Metro PCS/Rhapsody.

billion in revenue, up 25%, the CEA estimates. Its being driven by safety and by consumer demand to bring in content and music.), http://www.freep.com/article/20120724/NEWS09/120724017/Smartphones-tablets-boost-salesconsumer-electronics.

 iTunes Match and Amazon Cloud Music Player9 offer cloud services that enable users to access their music in a variety of locations. Specialized digital radio services that offer consumers the niche kind of music they like to hear are available from Pandora, SiriusXM, Last.fm, Yahoo!Music, and AOLMusic. U.S. Digital radio services simulcast over 750 different AM/FM radio stations in the

In total, there are nearly 2,000 digital services offering to consumers access in one form or another to 20 million music recordings. But the music industry is not stopping there. In June, RIAA and NMPA, in collaboration with the Digital Media Association, announced a groundbreaking licensing agreement that will make it easier for digital services to clear publishing rights for five categories of new business models.10 The music industry is also working on new industry-wide databases and royalty distribution systems to make royalty payment functions more efficient; and on licensing reform to update the statutory mechanism for the old mechanical licensing system. In sum, the new business models for consuming recorded music through digital means are in place and are proliferating. They provide a wide range of ways for Americans to enjoy the output of creative musical professionals through legitimate services at reasonable price points (including free, advertising supported services) and in full compliance with copyright. 2. The Motion Picture and Television Industry

Consumers enjoy watching movies and television shows on every type of screen, including television sets, computers, iPads, Kindles, and other tablets and smartphones. Motion picture studios have partnered with companies of every stripe across the globe, including Facebook, Netflix, Vudu, and Roku, as just a few examples, to meet this demand. All of these exciting innovations in distribution benefit both consumers, who receive a high-quality viewing experience, and creators, who are able to monetize their enormous investments and have the resources to reinvest those dollars into creating even more high-quality programming. With the advent of interactive televisions, Blu-ray players, Roku boxes, Microsofts Xbox 360, Sonys Playstation, Nintendos Wii, and Apple TV, consumers can watch HD movies and TV shows streamed across the internet into their home through services like Netflix, Vudu, Hulu, HBO GO, or other services too numerous to be listed. And as internet-enabled televisions continue to gain in popularity, the variety of options will expand even more. Ben Sisario, Amazon Revamps Its Cloud Music Player to Compete With iTunes, N.Y. TIMES, July 31, 2012, http://mediadecoder.blogs.nytimes.com/2012/07/31/amazon-revamps-its-cloudmusic-player-to-compete-with-itunes/. Press Release, RIAA, Major Music Industry Groups Announce Breakthrough Agreement, July, 2012, available at http://www.riaa.com/newsitem.php?id=C9C68054-D272-0D33-6EDBDF08022C7E3A.
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Almost all the great ways you can watch your favorite programs on television are also available on-line or through your mobile phone. Hulu has been a great success, allowing people to use the internet to catch up on their favorite TV shows or to explore new ones. YouTube and Facebook have entered into arrangements to distribute audiovisual content; and Netflix is for the first time providing its customers with original content, such as with newly created episodes of shows like Arrested Development. HBO GO is just one of the many services that allow cable and satellite subscribers to access online the same content that they could on television and sometimes even more. In the few short years since increased bandwidth and improved online video distribution technology have allowed for a high-quality online video experience, the motion picture and television industry has supported more than 350 unique licensed online services around the world to provide high-quality on-demand film and television shows online to consumers; more than 60 such services are available in the United States. These authorized services cater to every manner of consumer viewing model including rental viewing, licensed-download, subscription viewing, and ad-supported viewing. They are provided by every conceivable type of commercial entity, including technology companies like Apples iTunes; broadcast television networks like ABC, CBS, Fox and NBC; cable networks like Comedy Central, Disney Channel, TBS and USA; pay television channels like HBO and Epix; telecommunications, cable, and satellite providers like AT&T, and Comcast; retailers and rentailers like Amazon, Best Buy, Blockbuster, Netflix, and Walmart (Vudu); gaming systems like PlayStation and Xbox; and new ventures devoted entirely to delivering great content seamlessly like Crackle, Hulu and MUBI. Content owners and multichannel video programming distributors (MVPDs) now offer their customers unprecedented on-demand access to movies and television programs as part of cable/satellite television subscriptions, which provides users with the ability to access televised content, not just on traditional television sets at home, but on their internet-connected devices, such as mobile phones, personal computers, and tablets. Examples of such services include Comcasts XFINITY website and mobile apps, DirecTVs DirecTV Everywhere, AT&Ts uVerse Online, Cablevisions Optimum, Coxs Cox TV Online, and Verizons FiOS TV Online. TV Everywhere applications, such as Disneys WATCH apps, facilitate this manner of viewing. Some MVPDs, such as Cox Communications, allow their customers to view certain live television channels within the home via applications for mobile devices. This complements the existing access by subscribers to significant numbers of shows and movies, often in highdefinition format, on their television sets at a time of their choosing via video on demand. All of the major motion picture studios now distribute full-length films and television shows directly to consumer mobile devices through the major mobile operators. AT&Ts MobileTV service contains full-length episodes of hit television shows; television channels; and PIX, a film service for mobile phones launched by Sony. Sprint TV includes television channels and on demand television shows and movies from studios including Disney (through apps such as WATCH Disney Channel, WATCH Disney XD, and WATCH ESPN), Paramount, Sony, and Warner Bros. Verizon offers V Cast Mobile TV with channels and on demand full episodes of hit shows. Other wireless networks have similar licensed offerings. Apart from streaming to mobile devices, studios have made content available to load onto those devices through media including SD flash memory cards, like those used in digital cameras.

In addition, the Digital Entertainment Content Ecosystem (DECE) consortium of more than 60 studios, retail stores and technology firms has created UltraViolet, a digital rights locker for audiovisual content which allows consumers to choose their retailer while having confidence that the quality and experience will be seamless across a wide range of devices. When a consumer purchases UltraViolet media such as a Blu-ray, DVD or internet download she also receives the enduring right to access the content on any UltraViolet device registered to her household, and to enjoy the content via streaming through devices at home or on the go. The first UltraViolet content rolled out late last year, through services like Walmarts Vudu, Flixster, and studio offerings. Presently, over 5,000 titles are available through UltraViolet, and over 3 million consumers have set up accounts. This spring Walmart began offering consumers the ability to convert their current DVD and Blu-ray collections to digital UltraViolet copies that may be both downloaded and streamed. Other complementary digital initiatives are also being developed, such as Disney Movies Anywhere, which will provide consumers with easy access to Disney content across multiple digital video services and devices. III. Threat Level Online Theft Persists to an Intolerable Extent.

Despite the availability of all of the exciting and innovative services described above, extensive online theft continues unabated. Indeed, almost a quarter of all global internet traffic infringes non-pornographic copyrighted works.11 New methods for operating illegal services emerge at a rapid pace, while many long established forms of theft continue to thrive and adapt. The following offers a brief snapshot of the main ways in which U.S. creative content is being stolen online in mid-2012. It begins with some of the methods identified in previous filings and then examines some new or evolving trends. A. Continuing Trends and Tactics for Online Theft

Copyright thieves continue to profit from infringement using many of the methods that were common at the time the Joint Strategic Plan was drafted. Some services utilize multiple tactics from the list below to maximize the effectiveness of their efforts and thus the harm to copyright owners and the legitimate marketplace. 1. Hubs for Unauthorized Distribution

Websites that allow users to upload content to so-called lockers accessible to other users continue to be a business model of choice for copyright thieves.12 Frequently, the website
11

Envisional, Technical Report: An Estimate of Infringing Use of the Internet 3 (Jan. 2011) (23.76% of global internet traffic and 17.53% of U.S. internet traffic infringes on nonpornographic works, with a significant percentage of the remaining traffic infringing on pornographic works), available at http://documents.envisional.com/docs/EnvisionalInternet_Usage-Jan2011.pdf. See Roger Parloff, Megaupload and the Twilight of Copyright, FORTUNE, July 11, 2012 (Users upload files to lockers, though the lockers typically have no locks. (Uploading means copying a file from the users own computer onto the cyberlocker companys website, where the file is stored on one of the companys servers.) Most uploaders then publish the name of the file 7
12

operators encourage users to post infringing material or offer incentives to users whose uploaded content is frequently downloaded by others. In other words, unlike legitimate cloud storage services, these sites are focused, not on storing files, but instead on illegitimately distributing professionally produced entertainment products.13 The efforts by the U.S. government to shut down Megaupload have had an immediate and positive impact on the marketplace.14 However, significant distribution of illegal content continues through similar websites, such as Rapidgator, Turbobit, DepositFiles, and PutLocker.15 The vast majority of infringement occurring through this type of service takes place through a handful of identifiable and popular sites. 2. Peer-to-Peer (p2p) Infringing Activity Remains a Major Threat.

While its operators have been criminally adjudicated, The Pirate Bay (TPB) continues to be one of the top sites in the world providing access to unlicensed content. TPB and many other similar operators of p2p networks still enable users to illegally download complete copies of illegally copied movie, television and music content for free, while profiting from advertising, subscriptions or donations.16

and its locker URL on public blogs or link farms, from which anyone in the world can download or stream the materials stored there, using a search engine to find the link.), available at http://tech.fortune.cnn.com/2012/07/11/megaupload-cyberlocker-copyright/.
13

See id. (In a click-through agreement that appears to serve as a fig leaf, cyberlockers require their users to agree not to upload infringing materials. Nevertheless, most cyberlockers seem to encourage users to do just that. Until they started getting hit with civil copyright suits, many cyberlockers offered cash bounties to users based on, for instance, the number of times other people downloaded whatever the users uploaded $15 to $25, say, per every 1,000 downloads.); id. (At the time of the raid, 91% of Megauploads 66.6 million registered users had never stored anything there, according to the indictment; they just downloaded or streamed what other people stored.). See id. (At one time Megaupload alone accounted for 4% of the globes entire Internet traffic and was the 13th-most-visited site on the web, according to the government, with more daily visitors than Netflix (NFLX), AOL (AOL), or the New York Times.); Sandvine, supra note 1, at 27 (stating that use of legitimate entertainment service has risen since Megaupload was shut down).

14

See also Kyle Wagner, How to Pirate Movies, Music, TV Shows, and Books Without Getting Caught, GIZMODO, July 21, 2012 (While the Megaupload direct download kingdom is in ruins, or at least tied up in court for a very long time, there are dozens of replacements waiting in the wings. Sites like Mediafire, Rapidshare, DepositFiles, 4Shared, Hotfile, Filehost, File4Sharing, and gazillions of others, offer an even more anonymous means of downloading than torrents.), http://gizmodo.com/5927849/how-to-pirate-movies-music-tv-shows-and-books-without-gettingcaught.
16

15

p2p users install a client program on their computers. The client program facilitates the download of an unauthorized movie or television file, or a sound recording file, album or artist collection of music. The download is effectuated simultaneously by numerous other users in small, quickly downloaded parts via a file sharing p2p network.

Use of p2p networks is projected to constitute, on average, 26% of global consumer internet traffic between 2011 and 2016, and 21% of North American consumer internet traffic during that period.17 Use of BitTorrent alone currently constitutes 14.2% of all traffic in North America on fixed networks.18 In other regions, such as Latin America, use of file-sharing networks is projected to average up to 44% of consumer internet traffic.19 These numbers are alarming because a huge percentage of this traffic involves copyrighted content downloaded from these networks without authorization. According to a recent study by Envisional, 86.4% of p2p traffic is infringing and non-pornographic, with infringing pornographic traffic making up a significant percentage of the remaining 13.6%.20 Among the most downloaded works are illegal copies of films that are still in theatrical release, and television shows during the period before they are legitimately available online or when they are made available legitimately only to subscribers of premium channels.21 Unauthorized downloading during these periods maximizes the economic damage inflicted on content producers, and the individuals engaged in creating these works, which in turn discourages future investments in content creation. 3. Infringement Directories

These include websites or webpages that host no content themselves, but proactively announce and provide multiple direct links to lockers or servers where movies, television and music content can be illegally streamed or downloaded. The operators of these services dedicate their efforts to locating and increasing access to infringing internet content, acting as pirate index sites and promoting their use to find virtually any popular content requested. The sites typically focus on a particular type of content, such as only movies, only movies and TV shows, or only music. These sites may create infringing links themselves, or pay others called link hunters to provide working links to infringing content. Often, the sites use embedded links that frame unauthorized content such that the user enjoys the content without leaving the infringing
17

Cisco, Visual Networking Index: Forecast and Methodology, 2011-2016 (May 30, 2010), http://www.cisco.com/en/US/solutions/collateral/ns341/ns525/ns537/ns705/ns827/white_paper_c 11-481360_ns827_Networking_Solutions_White_Paper.html. A study by Google and PRS for Music found that p2p page views have increased by 17% from February 2011 to February 2012. The study is available here: http://www.prsformusic.com/aboutus/press/latestpressreleases/Pages/Reportrevealsthesixbusines smodelsbeingonlinecopyrightinfringement.aspx.
18 19 20 21

Sandvine, supra note 1, at 21. Cisco, supra note 17. Envisional, supra note 11, at 3.

See Piracy Hot List: Fast Five Debuts As No. 4 Most-Downloaded Movie, THE HOLLYWOOD REPORTER, May 2, 2011, available at http://www.hollywoodreporter.com/thr-esq/piracy-hot-listfast-five-184066; Rebecca Ford, Game of Thrones Tops List of the Seasons Most Pirated Shows, THE HOLLYWOOD REPORTER, June 11, 2012, available at http://www.hollywoodreporter.com/news/game-thrones-pirated-shows-335914.

directory site. One example of an infringement directory site is TVShack and its operator Richard ODwyer, who is being prosecuted for copyright infringement.22 Another example is Cuevana.tv, an Argentina-based site that provides well-organized links to hundreds of U.S.produced movies and TV shows stored on notorious cyberlockers. The start-up costs for these sites are minimal and ad revenue can generate hundreds of thousands of dollars, so these sites present a particularly dangerous threat. 4. Usenet

Usenet is an old internet technology that continues to be used to facilitate the illegal distribution of music, movie and television content through a series of connected news servers. Users subscribe to paid news group services to access unauthorized music, movie and television content stored on Usenet servers around the world. Infringement via Usenet has been the target of multiple successful lawsuits.23 But the infringement continues. 5. Key Role of Search Engines

General purpose search engines continue through their search results, through suggested searches, and through sponsored advertising to provide the pathway through which many users learn about and reach sites that engage in or facilitate online theft. Often, search engines provide auto-fill functions that suggest search terms for users. For example, as of August 8, 2012, entering the search term mp3 into a Google search bar will result in Google suggesting a search for mp3 skull, which is a website dedicated to infringing sound recordings. Searching to download a particular movie title in theatrical release will provide tens of millions of results promising illegal copies of the movie. Other specialized search engines have emerged such as Filestube and Filetram which tailor results to unauthorized content. More should be done to limit the contributions made by search engines to the survival and viability of businesses built on infringement.24 6. Key Role of Server Farms

A small core group of server space providers host content on behalf of websites dedicated to infringement. Often, these hosting providers erect obstacles to copyright enforcement despite their obligations, under the DMCA, to respond to complaints from copyright owners. The lack See John Healy, TVShack and the Expanding Reach of Criminal Copyright Law, L.A. TIMES, July 14, 2012, available at http://www.latimes.com/news/opinion/opinion-la/la-ol-criminalcopyright-infringement-tvshack-case-20120713,0,3057482.story.
23 24 22

See, e.g., Arista Records LLC v. Usenet. com, Inc., 633 F. Supp. 2d 124 (S.D.N.Y. 2009).

Search results that respond to requests for things like free mp3s also often lead to the spread of malware and viruses. See Paula Greve, Digital Music and Movies Report The True Cost of Free Entertainment, McAfee, Sept. 15, 2010 (Searching for MP3s adds risk to music search results, while searching for free MP3s makes music search results even riskier. Even when a consumer indicates that they want to pay for the MP3 in their search, results still send them to pirated content.), available at http://www.mcafee.com/us/resources/reports/rp-digital-musicmovies-report.pdf.

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of cooperation from these technology companies makes the job of enforcing rights far more difficult than it needs to be. 7. Applications a) Mobile Applications

Myriad mobile applications are available that help consumers obtain easy access to pirate copies and streams of music, movies, and television shows. For example, an application called The Pirate Bay Browser is available for free through the Google Play Store/Android Marketplace.25 The same application is available for purchase if a consumer wants to avoid viewing advertisements.26 Multiple instructional videos available through YouTube demonstrate how the application is used to obtain unauthorized copies of works, such as Game of Thrones and The Big Bang Theory.27 The explosive growth of the apps marketplace has spawned a new generation of more specialized search engines solely dedicated to leading consumers to stolen works. These include websites or applications, including recently several illicit mobile applications available via the Google Play Store/Android Marketplace and similar platforms, that permit a user to search for a specific song, album, show, or movie, and then link the user to a site where such content can be illegally obtained. Often these applications are marketed and optimized to search either for a specific type of file (just mp3 music files, or television and movie content), or files from a particular artist, etc. In the mobile context, these applications may include a sharing feature to promote further illegal distribution of the file. b) Applications for Connected Devices

A host of applications for internet connected devices such as Roku, Apple TV, Google TV, and Samsung smart TVs, facilitate and enable consumers to stream on demand (with a few clicks on the remote control of the connected devices) pirate copies of movies and television shows. Such applications also facilitate the live streaming of premium U.S. and international cable channels, free-to-air channels and pay-per-view (PPV) events. For example, some of the applications are Plex (plexapp.com), Playon (Playon.tv), and XBMC (XBMC.org), which are available on the Roku Channel Store and Google Play Store/Android Marketplace. They allow sub-applications to be installed which offer actual unauthorized streams of movies and

25

The application is available here: https://play.google.com/store/apps/details?id=net.caffeinelab.pbb&hl=en.

26

The application is available here: https://play.google.com/store/apps/details?id=net.caffeinelab.pbbkey&feature=more_from_devel oper#?t=W251bGwsMSwxLDEwMiwibmV0LmNhZmZlaW5lbGFiLnBiYmtleSJd.

27

See, e.g., The Smoking Android, YOUTUBE, Best Apps: The Pirate Bay Browser For Android, http://www.youtube.com/watch?v=HN5Ezfp0D1I.

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television shows and TV channels. LetMeWatchThis, Icefilms, and Navi-x are some examples of these sub-applications, which can be found on Plex, Playon and XBMC.28 8. On-Demand Streaming and Downloading

Unauthorized services that provide consumers with on-demand access to copyrighted materials present an acute danger to the entertainment industry because they compete directly with legitimate services. Illegitimate streaming websites include those which provide users the ability to watch unauthorized copies of movie, television, or music video content, and/or sound recordings, on their computers for free and instantaneously, without installing a program or first downloading a complete file, and without any compensation to the artist or copyright holder. Examples of such services include1channel.ch and movie25.com. By contrast, licensed ondemand music streaming services may be free to the user, but the service pays compensation for the use of the content. Illegal downloading websites often come in the form of online storefronts that permit users to download illegally copied movie, television and music content, either on a per download charge, for a subscription fee, or on an advertising-supported basis. One example is graboid.com. Unauthorized streaming and downloading sites discourage investments in launching new online distribution services. 9. Online Offerings of Physical Counterfeit Products

These websites are used to offer, sell, distribute and collect payment for physical counterfeit copies of music, television shows and movies, whether solely illegal copies or mixed in with lawful copies. A significant volume of counterfeit physical product ends up sold on auction sites, such as eBay, and via third party sellers on sites such as Amazon. Purchases from these sites are often fulfilled through small package shipments from overseas suppliers, which present significant challenges for Customs in detecting and interdicting the illicit shipments. Individual infringing sellers also hide behind anonymous and false registrations on sites that fail to require verified ID. Although digital dissemination presents the most pressing threat to the creative industries, hard copy piracy and counterfeiting remains a significant problem. * * * While the services dedicated to copyright theft summarized above use different technologies and varied business models, many of them share a number of cross-cutting features that increase the damage they inflict and impede enforcement efforts against them. For instance, many websites offering unauthorized access to music and audiovisual content appear, to an
28

Multiple instructional videos available through YouTube demonstrate how the applications could be used to stream for free U.S. and international cable TV channels, free-to-air channels and PPV events. See, e.g., Hildebrandtreview, Free Cable on AppleTV!, YOUTUBE, http://www.youtube.com/watch?v=77CKVV_ha14&feature=related. Another video demonstrates how the application could be used to obtain unauthorized copies of movies and TV series. Polorascon, Peliculas y series gratis con Apple TV, YOUTUBE, http://www.youtube.com/watch?v=UrOaltyTXC8&feature=related.

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undiscerning eye, to be legitimate. When a website presents a professional design and copyrighted promotional artwork, runs advertisements from familiar companies and offers payment processing by major credit card companies, for example, many people assume the site is legitimate.29 Social networking sites that enable consumers to use their usernames and passwords to log into other services that are dedicated to infringement also give an air of legitimacy to thieves. This increases traffic to unlawful websites and exacerbates the harm they inflict. Another cross-cutting feature is that many of these businesses are based outside the United States, although U.S. consumers are often their primary target audience. The recently released report on Notorious Markets issued by the United States Trade Representative details a variety of foreign services engaged in unauthorized dissemination of copyrighted material.30 Of course, foreign services are often dependent upon U.S.-based companies to provide revenue through advertising and payment processing, for technological support services, and for visibility through search engines. Nevertheless, as discussed further below, fighting offshore pirates presents even more difficulties than fighting domestic infringers. B. Emerging and Future Threats 1. Theft Sites and Services Increasingly Avoid Any Contacts with the U.S. But Are Nevertheless Readily Accessible to the U.S. Market.

As just noted, the difficulty and complexity of pursuing services and sites dedicated to online theft increases when those services are hosted outside the United States, operated by individuals or entities located outside the United States, and/or when they rely upon domain names registered in country code Top Level Domain (ccTLD) registries overseas. These problems can be expected to intensify. Online copyright thieves have become increasingly peripatetic and can shift their bases with increasing velocity. They are adept at jumping across borders and assuming alternate identities to evade the long arm of the law. 31 While the seizures of domain names in U.S.-based registries pursuant to Operation In Our Sites and similar law enforcement initiatives have made a significant impact in the fight against online theft, in some cases the same or alter-ego services re-established themselves in foreign ccTLD registries not as A recent study, which focused on the U.K. market, conducted by Google and PRS for Music, found that more that two thirds of the sites that rely on subscriptions or payments for infringing content display logos for well-known credit card companies. See Google & PRS for Music, The Six Business Models for Copyright Infringement, at 12, 13, 35, 36 (2012), available at http://www.prsformusic.com/aboutus/press/latestpressreleases/Pages/Reportrevealsthesixbusines smodelsbeingonlinecopyrightinfringement.aspx. United States Trade Representative, Out-of-Cycle Review of Notorious Markets, Dec. 20, 2011, http://www.ustr.gov/webfm_send/3215. The Pirate Bay remains a classic example. Its operators initially set it up in Sweden. After criminal and civil decisions against the operators, the Pirate Bay began changing ISPs and temporarily moved its services to the Netherlands and Germany before returning to Sweden. The Pirate Bay also registered the domain names depiraatbaai.be and baiedespirates.be, allowing Belgian users to access the site again, without using alternative DNS providers.
31 30 29

13

vulnerable to seizure in U.S. courts. For example, the TV-Shack service, which specializes in locating infringing audiovisual content and directing users to it, changed its domain from tvshack.net to tv-shack.cc. The increasing ubiquity of high-bandwidth connectivity and technologically sophisticated hosting services in a growing number of offshore jurisdictions will make it increasingly easy for thieves to fully exploit the U.S. market while minimizing, for practical purposes, their exposure to U.S. copyright or criminal law. Another factor that may well accelerate this disturbing trend in future years involves the domain name system. Beyond the existing framework of ccTLDs, the impending rollout of new generic Top Level Domain (gTLD) registries may well include some based in jurisdictions more tolerant or even encouraging of theft of U.S. intellectual property.32 This could give pirates a wider range of havens to seek. Any updated IPEC strategy must consider how best to address this evolving problem. 2. Theft Through Mobile Applications is Skyrocketing.

Mobile broadband traffic in North America is experiencing explosive growth.33 In just the period between October 2011 and June 2012, monthly median usage of mobile networks increased eight fold.34 Over 50% of mobile phone subscribers now own smartphones, whereas only 36% of mobile subscribers owned smartphones as of February 2011.35 At the end of 2009, only 21% of American wireless subscribers had a smartphone and of those Americans, the average person had downloaded 22 apps.36 That number has now doubled.37 And, the average This roll-out is taking place under the auspices of the Internet Corporation for Assigned Names and Numbers (ICANN). Under current ICANN timetables, these new gTLDs could begin to go live as early as the second half of 2013. See ICANN, Opportunity for Community Input: Processing of New gTLD Applications, July 29, 2012, http://www.icann.org/en/news/announcements/announcement-29jul12-en.htm.
33 34 35 32

Sandvine, supra note 1, at 8. Id.

Nielsen, Smartphones Account for Half of all Mobile Phones, Dominate New Phone Purchases in the US, Mar. 29, 2012, http://blog.nielsen.com/nielsenwire/online_mobile/smartphonesaccount-for-half-of-all-mobile-phones-dominate-new-phone-purchases-in-the-us/; Nielsen, Two Thirds of New Mobile Buyers Now Opting For Smartphones, July 12, 2012, http://blog.nielsen.com/nielsenwire/online_mobile/two-thirds-of-new-mobile-buyers-nowopting-for-smartphones/.
36

Nielsen, The State of Mobile Apps, June 10, 2010, http://blog.nielsen.com/nielsenwire/online_mobile/the-state-of-mobile-apps/. Nielsen, State of the Appnation A Year of Change and Growth in U.S. Smartphones, May 16, 2012, http://blog.nielsen.com/nielsenwire/online_mobile/state-of-the-appnation-%e2%80%93-ayear-of-change-and-growth-in-u-s-smartphones/ (In just a year, the average number of apps per smartphone has jumped 28 percent, from 32 apps to 41. Not only is the 2012 smartphone owner downloading more apps, they are increasingly spending more time using them vs. using the mobile web about 10 percent more than last year.).
37

14

American smartphone user spends roughly 81% of their time using apps on their smartphone versus 19% of the time on the mobile web.38 Unfortunately, but predictably, the burgeoning mobile web is proving just as vulnerable to penetration by pirate services as its fixed network predecessor. This is another trend that seems certain to accelerate and to present a growing threat to the legitimate marketplace. Between August 7, 2011 and August 6, 2012, RIAA identified and noticed to Google over 1,000 applications offered via the Google Play Store/Android Marketplace that induce or are designed to facilitate infringement of sound recordings. 918 of the identified applications have since been removed from the app store. But at least 88 remain available on the app store. According to numbers reported by Google, in the aggregate, the remaining applications have likely been downloaded millions of times. Almost all of the applications are monetized through in-app advertising. The advertising and monetization to the app developer and ad network typically continues even if the app is removed from the store. Also, once the applications have gained exposure, removal from the Android Marketplace does not prevent the developer from making the application available on other sites that will not respond to takedown requests. In addition, copycat applications often appear in the Android Marketplace after an app is taken down. For example, 21 apps are named MP3 Music download, and of these, 3 are still up as of today. Googles website indicates that for the 3 apps that are still available, one has been downloaded between 50,000 and 100,000 times in the last 30 days, one between 100,000 and 500,000 times in the last 30 days, and the last one between 500,000 and 1,000,000 times in the last 30 days. 7 apps are named MP3 Music Download Free; of these 2 are still up as of today. Googles website indicates that one of the two apps still available has been downloaded between 10,000 and 50,000 times in the last 30 days, and the other app between 50,000 and 100,000 times in the last 30 days. MPAA has experienced similar problems. For example, an app called jetflicks offers illegal access to major motion pictures and television shows.39 The service provider also has a website, http://www.jetflicks.com/. Takedown notices have been repeatedly sent to Google, beginning in June 2011, but the app always reappears in the Android Marketplace, usually under such names such as Jetflicks! Unlimited TV, Jetflicks! TV, Jetflicks TV, Jetflicks TV, Jetflicks! TV!, Jetflicks_TV, and JetflicksTV!!!. In fact, while it used to take weeks for the app to reappear, it now takes only days.

38

Brad Reed, Average U.S. Smartphone User Has 41 Apps on Their Device, NETWORK WORLD, May 16, 2012, http://www.networkworld.com/community/blog/average-us-smartphone-user-has41-apps-their-device.
39

The app is available here: https://play.google.com/store/apps/details?id=com.jetflicks.mvz (last visited August 1, 2012).

15

C.

Existing Legal Tools Are Inadequate.

The overarching challenge for copyright owners is to find meaningful ways to enforce their rights. In the current marketplace, in which rampant digital infringement presents constant unfair competition to every new legitimate service, the options for copyright owners are quite limited. There is not enough money in the world to fund litigation against every significant pirate, even if copyright owners could find courts that could exercise jurisdiction over all of them. And the statute that the U.S. enacted in 1998 to facilitate inter-industry cooperation in enforcement against infringement in the digital environment has failed to achieve its purpose. The Digital Millennium Copyright Act (DMCA) was intended both to enhance the ability of copyright owners to obtain action to address instances of online infringement, and to provide legal incentives for service providers to engage cooperatively to detect and limit infringing material on their services and networks.40 In reality, the statute has been misinterpreted by some courts to immunize services that knowingly profit from, and even welcome, infringement, on their services.41 As a consequence of these judicial decisions, rather than providing incentives for cooperation, the DMCA has provided incentives for internet businesses to turn a blind eye to infringement, or even to build it into their business models.42 Even while removing individual infringing links identified in takedown notices, services based on infringement can thrive financially and enjoy near-complete immunity from liability. The notice-and-takedown process institutionalized by the DMCA which was just one aspect of the safe-harbor provisions of the statute was supposed to be an additional tool for copyright owners to deal with infringement in the internet era.43 However, the practical effect of
40

See 17 U.S.C. 512(c)(1)(C) (requiring service provider to respond expeditiously to remove, or disable access to infringing material); Report of House Commerce Committee on H.R. 2281, the Digital Millennium Copyright Act, H.R. Rep. No. 105-551, pt. 2, 49 (1998) (stating that the DMCA preserves 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); Conference Report on H.R. 2281, the Digital Millennium Copyright Act, H.R. Rep. No. 105-796, 73 (1998) ([T]his legislation is not intended to discourage the service provider from monitoring its service for infringing material.). See, e.g., UMG Recordings. Inc. v. Veoh Networks Inc., 665 F. Supp. 2d 1099 (CD. Cal. 2009), affd, UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022 (9th Cir. 2011); Capitol Records, Inc. v. MP3Tunes, LLC, 611 F. Supp. 2d 342 (S.D.N.Y. 2009). The district court decision in Viacom, Inc. v. YouTube, Inc., 718 F. Supp. 2d 514 (S.D.N.Y. 2010), affd in part, revd in part, and remanded, 676 F.3d 19 (2d Cir. 2012), is another example of misinterpretation of the statute, although that decision was recently reversed in part on appeal.

41

See William Hensley, Copyright Infringement Pushin: Google, YouTube, and Viacom Fight for Supremacy in the Neighborhood that may be Controlled by the DMCAs Safe Harbor Provision, 51 IDEA 607, 626 (2011) (YouTubes business model was designed to maximize the number of site viewers in order to increase advertising revenue to attract a buyer. To increase the number of viewers, they needed infringing material.).
43

42

See Report of the Senate Committee on the Judiciary on S. 2037, the Digital Millennium Copyright Act, S. Rep. No. 105-190, 45 (1998) (Section 512 does not require use of the notice 16

the court decisions that have misinterpreted the DMCA is that notice and takedown is becoming the only real option for copyright owners to address online infringement.44 That leaves rights holders in too many cases without any effective method of recourse because infringing material is reposted almost instantly after a takedown notice is acted upon.45 As applied, the DMCA provides little incentive or even a perverse disincentive for service providers to do anything to prevent this.46 Congress passed the DMCA to address a technological landscape that differs markedly from what prevails today. This was true both with respect to the scope and volume of infringement, and the strength and robustness of the technical tools available to combat it. To effectively address the problem, there must be stronger incentives to use and improve the available tools, and to engage in the cooperative anti-infringement efforts that the DMCA was intended to foster. D. Intermediaries Must Do More to Fight Online Theft.

The options available to copyright owners are extremely limited absent cooperation from third parties whose services are used to infringe. Thus, meaningful progress in the fight against digital theft will require increased vigilance on the part of internet-based businesses that, sometimes unintentionally, facilitate theft. Where commercially reasonable measure can be taken to address predictable and identifiable harms enabled by the services these businesses offer, those measures should be encouraged. Effective private-sector action is not only possible, it is in the best interest of all legitimate businesses and consumers. As discussed above in section II(A) supra, many of todays most popular and profitable internet services and consumer electronics devices are tied to the availability of professionally produced content. If the industries that produce this content and takedown procedure. A service provider wishing to benefit from the limitation on liability under subsection (c) must take down or disable access to infringing material residing on its system or network of which it has actual knowledge or that meets the red flag test, even if the copyright owner or its agent does not notify it of a claimed infringement. For their part, copyright owners are not obligated to give notification of claimed infringement in order to enforce their rights.).
44

See UMG Recordings, Inc. v. Shelter Capital Partners LLC, 667 F.3d 1022, 1038 (9th Cir.2011) (The plaintiffs in CCBill argued that there were a number of red flags that made it apparent infringing activity was afoot, noting that the defendant hosted sites with names such as illegal.net and stolencelebritypics.com, as well as password hacking websites, which obviously infringe. We disagreed that these were sufficient red flags because [w]e do not place the burden of determining whether [materials] are actually illegal on a service provider, and [w]e impose no such investigative duties on service providers.) (internal citations omitted).

See Glen Peoples, Business Matters: Millions and Millions of Take Down Notices Served, But To What Effect?, BILLBOARD.BIZ, July 18, 2012, http://www.billboard.biz/bbbiz/industry/recordlabels/business-matters-millions-and-millions-of-1007613352.story#A7EtRuzGeMPIirFD.99.
46

45

In section IV(B) infra, we provide specific examples of such problems.

17

continue to lose revenue, slow their growth, or decrease in size, the cultural products that keep consumers interested in going online may decrease in number and quality. Thus, legitimate service providers throughout the internet ecosystem should be self-interested in decreasing infringement. Many of the steps that could be taken to address online theft more effectively do not require unreasonable effort or investments. For example, cost-effective ways to address the problem include: user friendly interfaces for rights holders to monitor infringing activities and flag infringing material instantaneously for removal; dramatically decreasing response times to take down notices submitted manually; implementing fingerprinting technologies and other techniques to prevent the same content (and certainly the same removed files) from being reposted at the same location or at different locations on the same sites again; weeding out from search results sites dedicated to infringement; preventing sites dedicated to infringement from being suggested to consumers by search engine auto-fill search results; refusing to process payments for thieves; and preventing advertisements from being placed on infringing sites. Some of these measures are discussed in more detail in section IV(B)(2) infra.47 IV. Economic Costs A. Costs of Copyright Violations

It should be undeniable that copyright theft has had a significant negative impact on the music, motion picture, and television industries during the internet era. For example, the recording industry has shrunk from a $15 billion industry in 1999 (the year Napster took hold) to a $7 billion industry in 2011. Admittedly, digital theft may not account for the entire decline. 48 But it is indisputable that decreased revenues have led to layoffs and decreased investment. According to Bureau of Labor Statistics data from the U.S. government, the number of people who identify themselves as musicians has significantly decreased over the past decade.49 Rampant digital theft is making ever more likely a bleak future in which even the most talented and industrious Americans will find it simply impossible to support themselves and their families
47

Even Google has concluded that decreasing advertising on pirate websites should be an eminently achievable task. See Theo Bertram, Follow the Money to Fight Online Piracy, GOOGLE EUROPEAN PUBLIC POLICY BLOG, July 2, 2012, http://googlepolicyeurope.blogspot.de/2012/07/follow-money-to-fight-online-piracy.html. Although Google still dramatically underestimates the need for government action to fight digital theft, the creative industries are pleased to see that Google agrees that financial support provided to pirates by advertisers and payment processors should be reduced through cooperative action. However, a recent survey of the relevant literature identified a consensus that nearly all the losses suffered by the recording industry during the 2000s could be traced to infringement over p2p networks. See generally Stan J. Liebowitz, The Metric is the Message: How Much of the Decline in Sound Recording Sales is Due to File Sharing?, Nov. 2011, available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1932518.
49 48

The data is available here: http://data.bls.gov/pdq/SurveyOutputServlet (series ID CEU7071113001); http://www.economagic.com/em-cgi/data.exe/blsce/ceu7071113001.

18

in the creative sector. That would be a catastrophe, not only for those individuals, and not only for that sector, but for the American economy and global competitiveness as a whole. Any full accounting of the costs of copyright theft must also consider the opportunity costs of investments foregone and curtailed. Investing in legitimate methods of dissemination becomes less attractive to technology partners who have to compete with services with no licensing costs. So long as these illegitimate business models persist in stealing an intolerable share of the market, investments in innovative authorized services will flag, with adverse downstream effects on fair competition, jobs, and the economy as a whole.50 B. Costs of Copyright Enforcement 1. Costs to Copyright Owners are Very Burdensome. a) Cost of Notice and Takedown

As discussed above in section III(C) supra, as a practical matter the DMCA is not producing the cooperative, effective approaches to the problem of online infringement that Congress intended, due in large part to judicial misinterpretations of the statute. Copyright owners are forced to engage in a never-ending notice-and-takedown process that produces few results. Rights holders take on the burden of finding infringing content hosted by the provider in question, while site operators reap substantial profits from infringing activity while doing little (if anything) to discourage it, or in too many cases actively encouraging it. The process to collect, verify and refer infringements is lengthy and resource-intensive and too often does not result in the content staying down from the site at issue. Even if the site responds to the takedown notice by removing the infringing content (and plenty do not), most sites do nothing to stop the removed content from being endlessly reposted. Notice and takedown means, in practice, notice and takedown and repeat endlessly. Instead, notice and takedown should mean notice and keep down. For example, so-called locker sites that serve as hubs for infringing content are not searchable. Copyright owners must identify links to infringing copies of our content that are stored on and distributed by the hubs. Typically, these hubs create multiple links to the same file, presumably to make infringing files more difficult for copyright owners to remove. When copyright owners locate and send an infringing link to a hub, the site typically just breaks the single link to the infringing movie, rather than removing the underlying copy of the movie itself (only it knows the location of the movie on its servers). Further, these online theft sites purposefully do not take any reasonable measures to curtail further infringement of the same copyrighted work. Even the sites that take the content down do nothing to keep the content down. This endless game of whack a mole is one a copyright owner can never win. Indeed, a single movie studio may send tens of millions of takedown notices to these hubs every year, In their March 24, 2010 comments to the IPEC on the Joint Strategic Plan, the creative industries provided information (on pages 2 to 7) regarding a number of studies showing the harm caused by theft of intellectual property. The comments are available here: http://www.whitehouse.gov/sites/default/files/omb/IPEC/frn_comments/CreativeCommunityOrg anizations.pdf.
50

19

without being able to stop copyrighted movies from being constantly available on and distributed by these theft sites. The broad problems associated with notice and takedown can also be described through specific recent examples. RIAA efforts to reduce infringement on the website www.mp3skull.com have proven unsuccessful. Despite sending takedown notices to mp3skull and to Google (which continues to provide deep-link search results to the infringing material), on virtually every work day during the two week period spanning June 20 to July 3, 2012, of the over 2,700 tracks identified as being infringed on that site, 72% reappeared on the site after notice was sent within the two week period, and at least 30% of the tracks reappeared at least 13 more times during the same period.51 One studio reports that during a two-week period coinciding with the theatrical release of the motion picture Prometheus, extensive and constant efforts to remove illegally camcorded copies of the movie from distribution hub websites proved fruitless. On the first day the film opened in U.S. theatres, the studio identified 4,416 infringing cyberlocker urls where unauthorized copies of the film could be accessed. 804 of these urls were available through one website, rapidgator.net. The studio sent takedown notices for the removal of those urls, but by the next day 421 new infringing urls had appeared on the same website. Despite constant issuance of notices, Prometheus could still be accessed on rapidgator through between 250 and 681 new, distinct urls, every day, for the remainder of the two week period following theatrical release. There was not one single day on which the film could not be obtained from the website. Films that are no longer in theatres, and are thus available on DVD and Blu-Ray Disc, face similar levels of theft. For example, during the first two weeks of July, Avatar was available for download through rapidgator 13 out of 14 days, with up to 452 separate urls offering the film on a given day. The burdens associated with policing rights under the DMCA regime often impact small players in the entertainment industry the most. For example, one local-area independent record label and music publisher in Washington, D.C., ESL Music, has tried to focus heavily on internet promotion and distribution due to its limited resources. However, ESL reports that its efforts to recoup investments are hindered by the availability of its recordings through unauthorized sources. In every instance, when ESL has used the notice-and-takedown process to seek removal of infringing materials, the notices were either ignored or the materials were reposted almost immediately, leaving ESL powerless to effectively combat infringement. The shortcomings of the current notice-and-takedown regime impact not only the music and movie industries, but also a much broader range of copyright holders. For example, the leading scientific journal publisher Reed Elsevier reports that, in the Note that these numbers are based on scanning for a limited number of tracks on just one site using limited resources.
51

20

first half of 2012, it sent over 78,000 takedown notices regarding infringement of thousands of health sciences and science/technology journal articles. While these notices led to a takedown over 75% of the time, in more than half of those cases the infringing article remained available for three days or more after the notice was sent. And it was very common for the same article to reappear quickly, on the same or a related site, even after a successful notice-and-takedown process. Of course, about a quarter of the time, the copyright owners notice produced no positive result whatever. b) Cost of Civil Litigation

Pursuing lawsuits against large-scale infringers also presents problems. Litigation, even when it is successful, often takes years to conclude and demands significant financial investments. While lawsuits are pending, infringing services often remain operational. Two examples embody the problem. In September 2006, the six members of the MPAA sued Gary Fung, the owner of the notorious p2p site Isohunt.com. After sustaining a resounding loss on summary judgment at the district court level in December of 2009,52 Fung appealed. Today, nearly six years after the lawsuit was filed, there still is no final judgment in the case. Moreover, due to the pending appeal, the plaintiffs have been unable to get a ruling on a pending motion for contempt filed in response to Fungs violations of the permanent injunction issued by the district court. All the while, infringement continues.53 It also took five years for the members of RIAA to shut down LimeWire, one of the largest networks ever built on infringement. The illicit p2p service was, for all practical purposes, nearly indistinguishable from the service that was on the losing end of the unanimous Supreme Court decision in Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.S. 913 (2005). RIAA members sued LimeWire and its owner, Mark Gorton, in August of 2006. Yet, the LimeWire defendants were able to drag out the litigation, and run up the costs, by bringing bogus antitrust counterclaims against the plaintiffs.54 It took roughly 16 months for the labels to obtain summary judgment in their favor on those claims, and another two-and-a-half years before the labels obtained summary judgment on their copyright claims.55 By October of 2010 the district court issued a permanent injunction against LimeWire.56 However, a trial on damages

52

Columbia Pictures Industries, Inc. v. Fung, No. CV 06-5578, 2009 U.S. Dist. LEXIS 122661 (C.D. Cal. Dec. 21, 2009).

The U.S. Trade Representative has repeatedly identified IsoHunt as a notorious market dealing in infringing goods and helping to sustain global piracy. See USTR, Out-of-Cycle Review of Notorious Markets, Feb. 28, 2011, http://www.ustr.gov/webfm_send/2595.
54 55 56

53

Arista Records, LLC v. Lime Group, LLC, 532 F. Supp. 2d 556 (S.D.N.Y. 2007). Arista Records LLC v. Lime Group LLC, 715 F. Supp. 2d 481 (S.D.N.Y. 2010).

Jaikumar Vijayan, Court Orders LimeWire to Cease File-Sharing Business, COMPUTERWORLD, Oct. 26, 2010, 21

remained necessary. Finally, in May of 2011, as the trial began, the parties reached a settlement agreement.57 Nevertheless, FrostWire, a LimeWire follow-on service, continues to operate, and to inflict damage in the same way as its now-discontinued predecessor. Such massive civil cases do not provide a scalable solution to the full scope of the problem. 2. Online Intermediaries Can Cooperate at Reasonable Cost. a) Technology is Available.

Right holders must have the ability to search for infringement online, and to send notices, in a manner that is commensurate with the scope of the infringing activity that they must combat, and there must be confidence that a site will not repost the same content after receiving such notice. The technological means for automated identification of copyrighted materials are readily available in the marketplace, scalable, and effective. Furthermore, right holders increasingly apply robust, standards-based monitoring and verification techniques to their enforcement activities, so that service providers and consumers can have greater confidence that the findings are valid, and that legitimate personal privacy interests are respected. Nevertheless, many online intermediaries rely upon the mantra that they have no responsibility to monitor how their services are used, and even impede access for right holders seeking to monitor these services for themselves. Even though highly effective automated systems for matching online content to copyright reference databases are readily available, and are currently in use by some service providers,58 other providers feel no obligation to implement them, or even to discuss doing so. Even though another provision of federal law could give service providers broad immunity from liability for employing such technologies to limit their customers access to objectionable materials, uptake is hampered by the lack of any meaningful incentives to do so.59

http://www.computerworld.com/s/article/9193199/Court_orders_LimeWire_to_cease_file_sharin g_business.
57

Grant Gross, LimeWire Agrees to Pay $105 Million to Record Labels, PC WORLD, May 13, 2011, http://www.pcworld.com/article/227814/limewire_agrees_to_pay_105_million_to_record_labels .html. For example, signatories to the UGC Principles, such as MySpace, DailyMotion, and Soapbox, etc., employ content recognition/filtering systems. The Principles are available here: http://www.ugcprinciples.com/. Note also the Content ID system used by YouTube. YouTube Content ID, Block, Monetize, or Track Viewing Metrics Its Automated, and Its Free, http://www.youtube.com/t/contentid.
59 58

47 U.S.C. 230(b) provides: No provider of an interactive computer service shall be held liable on account of any action voluntarily taken in good faith to restrict access to or availability of material that the provider considers to be . otherwise objectionable, whether or not such material is constitutionally protected. Of course, many providers already protect themselves contractually against any claim from a customer arising from removal of access to infringing 22

b)

Online Intermediaries Possess the Information Necessary to Play a Constructive Role in Limiting Infringement.

It is important that online intermediaries, not just right holders, fully engage in the fight against digital theft because oftentimes the service providers possess information that right holders cannot obtain or have difficulty locating. For example, YouTubes Content ID system now enables rights holders to limit infringing files, which are technologically matched via fingerprint-based content recognition technology, from being made available via YouTube. Other sites, such as MySpace and Daily Motion, have been using similar filtering technologies even longer than YouTube. These systems rely on information collected from right holders to allow the services to identify and block infringing files before the public gains access to them. Only the sites themselves can enable such preventative measures, because only they have instantaneous access to information regarding what is being uploaded to their services. If other services that allow user-posted content (such as distribution hub sites) would adopt similarly robust tools, and engage in more cooperation with right holders, a lot of illegal conduct could be prevented. Similarly, only service providers possess the information necessary to identify and notify their subscribers who engage repeatedly in infringing activity over p2p networks. In cooperative initiatives such as the Center for Copyright Information, service providers can use this information, which is under their proprietary control and need not be shared with right holders, to issue appropriate notices, warnings and educational materials that will help reduce the incidence of such abuse of their services. Further areas of cooperation with service providers should be explored to reduce levels of infringing activity occurring over their networks. As further discussed, payment processors, advertising-industry players, domain registrants, and search engines are also well positioned with the data necessary to be part of the solution. c) A Legal Marketplace Benefits Everyone.

The creative industries firmly believe that reducing the availability of infringing content online should be the shared goal of all legitimate businesses that operate online as well as consumers and the U.S. government. If the U.S.-based entertainment industry is thriving and producing compelling, professionally produced content, internet usage will increase, consumers will eagerly embrace new services, more advertisements will be viewed, more searches will be conducted, more consumers will have the opportunity to enjoy their favorite content at affordable prices, and more good-paying jobs will be created and preserved.

material, but the provision just quoted is broader and has been applied in the case of filtering of material available to users of digital networks. See, e.g., Zango v. Kaspersky Lab, Inc., 568 F.3d 1169 (9th Cir. 2009).

23

V.

Strategy Recommendations A. Executive Branch Actions 1. Encouragement for Industry Cooperation and Best Practices

The IPEC has played a positive role in fostering an environment that encourages industry players involved in e-commerce to work together, both within their sector and across sectoral lines, to craft and implement best practices that will assist in the fight against the online copyright theft that pollutes the e-commerce marketplace and threatens the long-term interests of all players. We commend the agreement of the leading credit card companies and payment processors to develop best practices to deny sites that engage in copyright theft or counterfeiting the economically essential services they provide. Similarly, the leadership pledge issued by the Association of National Advertisers and the American Association of Advertising Agencies is a positive step toward reducing the flow of advertising revenue to such sites. Finally, many companies in our entertainment industry sector were parties to the Center for Copyright Information initiative, in which we reached agreement with leading internet service providers on a comprehensive protocol for notifying their subscribers whose accounts are being misused to carry out infringement via p2p networks. This is another significant step toward effective cooperation against online theft, not least because it reflects a common understanding that tolerance of infringement undercuts the prospects for all legitimate players in the internet space. While the role of the IPEC in forging these agreements and pledges varied, in all cases the Office played an important role in encouraging these positive steps and in publicizing the results. Going forward, there are challenges in two areas: first, to meaningfully and constructively implement the commitments and undertakings embodied in these important initiatives; and second, to expand this trend into other areas where clear statements of industry best practices, and inter-industry cooperation to fight online copyright theft, are sorely needed. The first dimension will require follow-up and monitoring of the agreements already reached among payment processors and advertisers, to ensure that they produce concrete results that do, in fact, help to cut off the revenue streams now flowing to online pirates. The IPEC is well situated to conduct this follow-up; to coordinate the activities of other federal agencies that have a role to play; to report on the results, as appropriate; and to encourage the parties involved to move forward on the constructive paths on which they have embarked. In the second dimension, the aim should be to achieve similar or even greater results in at least three other aspects of the e-commerce environment: Advertising networks, advertising service providers, and similar entities that operationalize the placement of advertising on internet sites must be brought into the process, if the first steps taken by advertisers and ad agencies are to bear fruit. The goal is to deny, to sites dedicated to copyright theft, not only advertising revenue, but also the misleading air of legitimacy provided by the appearance of messages from blue-chip advertisers. This goal cannot be achieved by advertisers and their agents acting alone. Online advertising is an extremely complex and dynamic ecosystem, but some of the key players can be readily identified, and they must be encouraged to come to the table to

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develop best practices and to coordinate their efforts with those of their customers in the ANA and 4As. Domain name registrars and registries have played a constructive role in critical IPEC initiatives such as dealing with illicit online pharmacies; but their track record with respect to copyright theft remains unsettlingly mixed. A domain name is often a key resource that enables sites dedicated to digital theft to be accessed by their customer base; and even though registrar and registry terms of service almost uniformly prohibit the use of domain name registrations for such activities, these provisions are rarely enforced, and cooperation of registrars and registries with right holders often leaves much to be desired. For example, registries and registrars responsiveness to reports of false Whois data linked to websites engaged in copyright theft must be dramatically improved. Increased U.S. government engagement in ICANN has a critical role to play here; but in this and many other areas, industry cooperation on best practices can be both more effective and far more expeditious than the cumbersome machinery available to address these problems through ICANN. As noted above, the proliferation of new generic Top Level Domain registries risks offering new opportunities for pirates to evade detection and to escape the reach of U.S. courts and law enforcement; a strong set of anti-infringement best practices among the major registries and registrars could help to reduce this risk. Search engines continue to provide a critical link between online copyright theft sites and the audiences they seek to serve, including U.S. consumers. Without greater cooperation by the major search engines with right holders, online theft sites will continue to benefit from the substantial traffic sent to them by the search engines. Takedown notices are meaningless and ineffectual at reducing piracy when the search engines return to the same infringing sites multiple times a day for more infringing links to the same content. These critical players in the e-commerce environment must be encouraged to work toward an agreed-upon framework for delisting from search results those sites that are clearly dedicated to, and predominantly used for, infringement. They also should refine their suggested searches functionality, so as not to drive innocent users to infringing versions of content. A strong and comprehensive set of best practices in the search engine area, similar to the principles adopted by a number of user-generated content services,60 could deliver enormous benefits to all internet players whose interests are undermined by the prevalence of online theft, and could reduce pressure for legislative or regulatory initiatives that seek the same goal. The role of the IPEC (and of other federal agencies) in advancing progress in these critical areas will vary. Ultimately it is private sector players in each of these fields that must come to agreement on best practices and inter-industry cooperation protocols; and whether government should be at the table, in the room, or even in the building at various stages of this process must be considered on a case-by-case basis. But what the IPEC definitely can and certainly should do is to help to create the environment for cooperation. A sound strategy can advance that goal by consistently stressing the benefits of cooperation for all parties concerned,
60

Principles for User Generated Content Services, http://www.ugcprinciples.com/.

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by shining a light on areas where improved cooperation is needed, and by helping to facilitate agreement where appropriate. 2. International/Foreign Policy Initiatives

USTRs decision to raise the profile of its annual notorious markets list, including by decoupling its timing from the annual review cycle of the Special 301 process, has already borne fruit in improved responsiveness and cooperation from several named online marketplaces where copyright theft was at best tolerated and at worst promoted. Under USTR leadership, the list could be updated more frequently, and more could be done to integrate the notorious markets findings into the agenda for bilateral engagement by agencies across the U.S. government with countries where such online marketplaces dedicated to theft are hosted, where their domain names are registered, and where their operators take shelter.61 Countries that tolerate such activities (or such actors) within their jurisdiction should be encouraged, through the use of appropriate trade and foreign policy tools, to take decisive action against them. The laws of many of our trading partners erect unjustified impediments to the types of inter-industry cooperation that are so urgently needed to enable effective action against online copyright theft. The IPEC should work with USTR and other relevant agencies to identify such obstructions and encourage those governments to reduce or eliminate them. The goal should be to help fashion solutions that allow private sector players to work together to detect and deal with instances on online infringement, while still preserving legitimate privacy, competition and other interests. Within the rapidly evolving Domain Name System, the U.S. government should intensify its engagement, within ICANN, in technical fora like the Internet Engineering Task Force, and in other venues, to ensure that access to domain name registrant contact data for legitimate copyright enforcement purposes is preserved and enhanced; that the accuracy and usability of such data is dramatically improved; and that the hundreds of new gTLD registries that will be delegated starting in 2013 are not permitted to become havens for online copyright theft. 3. Law Enforcement Activities

We urge federal law enforcement agencies to redouble their efforts toward cooperation with their overseas law enforcement counterparts in other cases. The increasingly trans-national character of the organized enterprises that dominate the world of online copyright theft requires this. The creative industries commend federal law enforcement agencies for their vigorous and persistent efforts to use available legal tools to crack down on online copyright theft. The prosecutions and seizure actions undertaken pursuant to the In Our Sites campaign have already made a tangible difference in the marketplace. We also commend the deconfliction activities of the National IPR Coordination Center, including the international cooperation with other law enforcement agencies that the Center has facilitated.
61

One particularly problematic marketplace is the Vkontakte website, http://vk.com/club200.

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A leading example of effective international law enforcement coordination involves the pending case against Kim Dotcom and the rest of the Megaupload conspirators. In this case, the Justice Department and other federal agencies are now grappling with a set of wealthy and arrogant defendants who are leaving no stone unturned in their efforts to sway public opinion against efforts to hold them accountable. This law enforcement effort deserves strong support from legitimate industry players, and our sector will provide it. 4. Agency Task Force Approach

The IP Task Force established within the Department of Justice has proven to be a viable model that other agencies should be encouraged to emulate, using existing resources. Such task forces should be established within other agencies identified in the PRO-IP Act, in order to develop (in cooperation with the IPEC) an agency-specific strategic plan that maximizes the capabilities of that agency in its efforts to protect U.S. intellectual property. B. Legislation 1. Renew Efforts to Pass Recommendations from IPEC 2011 Whitepaper.

In March of 2011, the IPEC issued the Administrations White Paper on Intellectual Property Enforcement Legislative Recommendations.62 The creative industries continue to believe that some of these well-reasoned recommendations should be acted upon quickly. For example, increasing sentencing guidelines for intellectual property offenses committed by organized criminals and repeat intellectual property offenders would help deter gangs and other criminals from incorporating infringement into their portfolios. In addition, it remains important for Congress to clarify that, in appropriate circumstances, infringement by internet streaming, or by means of other similar new technology, is a felony. 2. The Undisputed Problem of Offshore Sites Dedicated to Theft Has Not Gone Away.

As the Obama Administration has forthrightly stated, online piracy is a real problem that harms the American economy, threatens jobs for significant numbers of middle class workers and hurts some of our nations most creative and innovative companies and entrepreneurs, and online piracy by foreign websites is a serious problem that requires a serious legislative response.63 These statements remain true today. The creative industries support the IPECs conclusion that new legislative and non-legislative tools are needed to address offshore infringement and counterfeiting, and applaud her call on all stakeholders to work cooperatively

62

The White Paper is available here: http://www.whitehouse.gov/sites/default/files/ip_white_paper.pdf.

63

Victoria Espinel, Aneesh Chopra, and Howard Schmidt, Combatting Online Piracy While Protecting and Open and Innovative Internet, Jan. 14, 2012, available at http://www.whitehouse.gov/blog/2012/01/14/obama-administration-responds-we-peoplepetitions-sopa-and-online-piracy.

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together.64 We look forward to continuing to work with the Administration to address these issues, and will continue to support this vital effort by seeking to work together with online intermediaries to adopt voluntary measures and best practices to reduce online piracy.65 Respectfully submitted by: MOTION PICTURE ASSOCIATION OF AMERICA NATIONAL MUSIC PUBLISHERS ASSOCIATION RECORDING INDUSTRY ASSOCIATION OF AMERICA

2011 U.S. Intellectual Property Enforcement Coordinator Annual Report on Intellectual Property Enforcement 34 (Mar. 2012), available at http://www.whitehouse.gov/sites/default/files/omb/IPEC/ipec_annual_2011_report.pdf.
65

64

Espinel et al., supra note 63.

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