A series of recent studies have shown the centrality of social media bots to the spread of “low credibility” information online. Automated amplification, the process by which bots help share each other’s content, allows these algorithmic manipulators to spread false information across social media in seconds by increasing visibility. These findings, combined with the already rising public perception of social media as harmful to democracy, are likely to motivate some Congressional action regarding social media practices. In a divided Congress, one thing that seems to be drawing more bipartisan support is an antagonism to Big Tech.

Regulating social media to stop misinformation would mistake the symptoms of an illness for its cause. Bots spreading low quality content online is not a cause for declining social trust, but a result of it. Actions that explicitly restrict access to this type of information would likely result in the opposite of their intended effect; allowing people to believe more radical conspiracies and claim that the truth is censored.

A parallel for the prevalence of bots spreading information today is the high rates of media piracy that lasted from the late-1990s through the mid-2000s, but experienced a significant decline throughout this past decade (many of the claims by anti-piracy advocates of consistently rising US piracy fail to acknowledge the rise in file sizes of high quality downloads and the expansion of internet access, as a relative total of content consumption it was historically declining). Content piracy and automated amplification by bots share a relationship through their fulfillment of consumer demand. Just as nobody would pirate videos if there were not some added value over legal video access, bots would not be able to generate legitimate engagement solely by gaming algorithms. There exists a gap in the market to serve consumers the type of content that they desire in a convenient, easy-to-access form.

This fulfilment of market demand is what changed consumer interest in piracy, and it is what is needed to change interest in “low credibility” content. In the early days of the MP3 file format the music industry strongly resisted changing their business models, which led to the proliferation of file sharing sites like Napster. While lawsuits may have shut down individual file sharing sites, they did not alter the demand for pirated content, and piracy persisted. The music industry’s begrudging adoption of iTunes began to change these incentives, but pirated music streaming persisted. It was with legal streaming services like Spotify that piracy began to decline as consumers began to receive what they asked for from legitimate sources: convenience and cheap access to content. It is important to note that pirating in the early days was not convenient, malware and slow download speeds made it a cumbersome affair, but given the laggard nature of media industry incumbents, consumers sought it out nonetheless.

The type of content considered “low credibility” today, similarly, is not convenient, as clickbait and horrible formatting intentionally make such sites painful to use in order to maximize advertising dollars extracted. The fact that consumers still seek these sites out regardless is a testament to the failure of the news industry to cater to consumer demands.

To reduce the efficacy of bots in sharing content, innovation is needed in content production or distribution to ensure convenience, low cost, and subjective user trust. This innovation may come from the social media side through experimentation with subscription services less dependent on advertising revenue. It may come from news media, either through changes in how they cater content to consumers, or through changes in reporting styles to increase engagement. It may even come through a social transformation in how news is consumed. Some thinkers believe that we are entering a reputation age , which would shift the burden of trust from a publication to individual reporters who curate our content. These changes, however, would be hampered by some of the proposed means to curtail bots on social media.

The most prominent proposals to regulate social media regards applying traditional publisher standards to online platforms through the repeal of Section 230 of the Communications Decency Act, which in turn would make platforms liable for the content users post. While this would certainly incentivize more aggressive action against online bots – as well as a wide amount of borderline content – the compliance costs would be tremendous given the scale at which social media sites need to moderate content. This in turn would price out the innovators who would not be able to stomach the risks of having fewer bots than Twitter or Facebook, but still have some prevalent. Other proposals, such as the Californian ban on bots pretending to be human, reviving the Fairness Doctrine for online content, or antitrust action, range from unenforceable to counterproductive.

As iTunes, Spotify, Netflix, and other digital media platforms were innovating in the ways to deliver content to consumers, piracy enforcement gained strength to limit copyright violations, to little effect . While piracy as a problem may not have disappeared, it is clear that regulatory efforts to crack it down contributed little, since the demand for pirated content did not stem purely from the medium of its transmission. Bots do not proliferate because of social media, but because of declining social trust. Rebuilding that trust requires building the new, not constraining the old.

I suppose it was inevitable that the DRM wars would come to the world of drones. Reporting for the Wall Street Journal today, Jack Nicas notes that:

In response to the drone crash at the White House this week, the Chinese maker of the device that crashed said it is updating its drones to disable them from flying over much of Washington, D.C.SZ DJI Technology Co. of Shenzhen, China, plans to send a firmware update in the next week that, if downloaded, would prevent DJI drones from taking off within the restricted flight zone that covers much of the U.S. capital, company spokesman Michael Perry said.

Washington Post reporter Brian Fung explains what this means technologically:

The [DJI firmware] update will add a list of GPS coordinates to the drone’s computer telling it where it can and can’t go. Here’s how that system works generally: When a drone comes within five miles of an airport, Perry explained, an altitude restriction gets applied to the drone so that it doesn’t interfere with manned aircraft. Within 1.5 miles, the drone will be automatically grounded and won’t be able to fly at all, requiring the user to either pull away from the no-fly zone or personally retrieve the device from where it landed. The concept of triggering certain actions when reaching a specific geographic area is called “geofencing,” and it’s a common technology in smartphones. Since 2011, iPhone owners have been able to create reminders that alert them when they arrive at specific locations, such as the office.

This is complete overkill and it almost certainly will not work in practice. First, this is just DRM for drones, and just as DRM has failed in most other cases, it will fail here as well. If you sell somebody a drone that doesn’t work within a 15-mile radius of a major metropolitan area, they’ll be online minutes later looking for a hack to get it working properly. And you better believe they will find one.

Second, other companies or even non-commercial innovators will just use such an opportunity to promote their DRM-free drones, making the restrictions on other drones futile.

Perhaps, then, the government will push for all drone manufacturers to include DRM on their drones, but that’s even worse. The idea that the Washington, DC metro area should be a completely drone-free zone is hugely troubling. We might as well put up a big sign at the edge of town that says, “Innovators Not Welcome!”

And this isn’t just about commercial operators either. What would such a city-wide restriction mean for students interested in engineering or robotics in local schools? Or how about journalists who might want to use drones to help them report the news?

For these reasons, a flat ban on drones throughout this or any other city just shouldn’t fly.

Moreover, the logic behind this particular technopanic is particularly silly. It’s like saying that we should install some sort of kill switch in all automobile ignitions so that they will not start anywhere in the DC area on the off chance that one idiot might use their car to drive into the White House fence. We need clear and simple rules for drone use; not technically-unworkable and unenforceable bans on all private drone use in major metro areas.

[ Update 1/30: Washington Post reporter Matt McFarland was kind enough to call me and ask for comment on this matter. Here’s his excellent story on “The case for not banning drone flights in the Washington area,” which included my thoughts.]

Although SOPA was ignominiously defeated in 2012, the content industry never really gave up on the basic idea of breaking the Internet in order to combat content piracy. The industry now claims that a major cause of piracy is search engines returning results that direct users to pirated content. To combat this, they would like to regulate search engine results to prevent them from linking to sites that contain pirated music and movies.

This idea is problematic on many levels. First, there is very little evidence that content piracy is a serious concern in objective economic terms. Most content pirates would not, but for the availability of pirated content, empty their wallets to incentivize the creation of more movies and music. As Ian Robinson and I explain in our recent paper, industry estimates of the jobs created by intellectual property are absurd. Second, there are serious free speech implications associated with regulating search engine results. Search engines perform an information distribution role similar to that of newspapers, and they have an editorial voice. They deserve protection from censorship as long as they are not hosting the pirated material themselves. Third, as anyone who knows anything about the Internet knows, nobody uses the major search engines to look for pirated content. The serious pirates go straight to sites that specialize in piracy. Fourth, this is all part of a desperate attempt by the content industry to avoid modernizing and offering more of their content online through convenient packages such as Netflix.

As if these were not sufficient reason to reject the idea of “SOPA for Search Engines,” Google has now announced that they will be directing users to legitimate digital content if it is available on Netflix, Amazon, Google Play, Spotify, or other online services. The content industry now has no excuse—if they make their music and movies available in convenient form, users will see links to legitimate content even if they search for pirated versions.

Google also says they will be using DMCA takedown notices as an input into search rankings and autocomplete suggestions, demoting sites and terms that are associated with piracy. This is above and beyond what Google needs to do, and in fact raises some concerns about fraudulent DMCA takedown notices that could chill free expression—such as when CBS issued a takedown of John McCain’s campaign ad on YouTube even though it was likely legal under fair use. Google will have to carefully monitor the DMCA takedown process for abuse. But in any case, these moves by Google should once and for all put the nail in the coffin of the idea that we should compromise the integrity of search results through government regulation for the sake of fighting a piracy problem that is not that serious in the first place.

Earlier this week NTIA petitioned the FCC to adopt a rule requiring wireless carriers to unlock the cell phones of customers and former customers who request it, and today the New York Times editorialized in support. While such a rule would solve the immediate problem of cell phone unlocking, it would be a band-aid solution that avoids dealing with the real problem: the DMCA’s anti-circumvention provisions.

As I’ve explained before, the cell phone unlocking issue is just one symptom of a greater problem, namely that it is illegal for you or any third party you contract to unlock content that you own. This affects not just phones, but also e-readers, music and video players, and even garage door openers and printer cartridges in the view of some. So I have to disagree with CDT when it says, “Perhaps the best feature of the NTIA’s approach is that it skips the absurd debate over copyright and DMCA exemptions and treats phone unlocking as what it is – a telecom issue.”

Cell phone unlocking, despite what the name might lead you to think, is not a telecom issue; it’s a DMCA issue. You can see this if you think about all the restrictions that remain in place even if the FCC were to adopt the NTIA’s proposed rule. For example, the rule forces carriers to unlock your phone at your request, but it would still be illegal for you to unlock your own phone, or to have a third party (such as a competing carrier that wants your business) unlock your phone.

Bottom line: It’s really strange to solve a problem created by Section 1201 of the DMCA by turning to the FCC to force carriers to give up their rights under the DMCA. Indeed, it removes a contractual possibility from the market because under the rule a carrier could no longer contract with a consumer to keep the phone unlocked for the duration of the contract. That’s an option that should be available to carriers and consumers. Any fix to this DMCA-created problem must leave the freedom to contract alone. The better way to address cell phone unlocking is to have the FCC stay out of what is an issue that Congress needs to address. Rep. Lofgren’s Unlocking Technology Act, for example, does just that.

It’s been over five years since Congress passed major legislation addressing copyright protection, but this hasn’t stopped copyright owners from achieving real progress in securing their expressive works. In cooperation with private-sector stakeholders, rights holders have made several deals aimed at combating copyright infringement and channeling consumer demand for original content toward legitimate outlets. These voluntary agreements will be the subject of a hearing this afternoon (9/18) before the House Judiciary Committee’s Subcommittee on Courts, Intellectual Property and the Internet. This panel marks the latest in a series of hearings the committee launched earlier this year to review the Copyright Act, much of which dates back to 1976 or earlier.

Copyright consensus may sound like an oxymoron, especially in the wake of last year’s bruising legislative battle over SOPA and PIPA. But in reality, there’s no shortage of common ground when it comes to copyright protection. Despite all the controversy that surrounds the issue, copyright isn’t so much a “conflict of visions”, to borrow from Thomas Sowell, but a conflict of tactics, as I argued earlier this year on Cato Unbound.

Indeed, with some notable exceptions, most scholars, business leaders, and policymakers accept that government has a legitimate and important role in securing to inventors and creators the fruits of their labors“. Unsurprisingly, the devil is in the details, where genuinely tough questions arise regarding the government’s proper role in policing the Internet for copyright violations. Should the law hold online intermediaries accountable for their users’ infringing acts? What remedies should the law afford rights holders whose works are unlawfully distributed all over the Internet, often by profit-generating foreign actors?

Although Congress has struggled mightily with these questions, business leaders from a variety of sectors have worked together to devise several approaches to the problem of copyright infringement that go above and beyond the Copyright Act. Perhaps most notably, in February 2013, a coalition of five major ISPs and several trade associations representing filmmakers and artists announced the launch of the Copyright Alert System (“CAS”). Administered by the Center for Copyright Information, the CAS aims to educate users about copyright law—and deter them from violating it—by delivering Copyright Alert notices to ISP subscribers found to be sharing infringing files on peer-to-peer networks.

It’s too early to render a verdict on the CAS’s effectiveness, but as data accumulates in coming months and years, researchers will surely examine how the system has impacted user behavior. Similar approaches to infringement by ISP subscribers have been tried in other countries such as France—albeit on a mandatory, not voluntary, basis—and several studies have found that these so-called “graduated response” systems have indeed reduced infringement in nations where they’ve been implemented. But other studies have reached the opposite conclusion, so more research is needed in this area. Whether or not CAS succeeds, however, experimentation involving novel approaches to copyright protection is crucial for the future of creative expression, as is experimentation among business models to monetize content.

Speaking of voluntary approaches to copyright protection, Google last week unveiled a report describing its anti-piracy efforts. As Google’s Fred von Lohmann explained:

[W]e are releasing a report, “How Google Fights Piracy,” bringing together in one place an overview of the programs, policies, and technologies we have put in place to combat piracy online.

The report discusses how Google penalizes websites that receive a high percentage of DMCA takedown notices in Google’s search results, hopefully thereby directing users toward legitimate sources of content. It explains the “Content ID” system pioneered by YouTube, which enables rights holders to identify potentially infringing videos posted to the site, and gives copyright owners the choice to monetize such videos in lieu of removing them altogether. And the report points out that in 2012, Google voluntarily disabled ad service to 46,000 websites dedicated to infringement. Check out the full report for much more information on these efforts and many others that Google has taken to better secure copyrights—and for another perspective, check out a MPAA-commissioned study released today critiquing the role that Internet search engines play in helping users find infringing websites.

After today’s hearing, I’ll have more thoughts on the state of voluntary cooperation to protect copyrights, and on the debate about whether file lockers and search engines ought to do more to combat infringement.

Sean Flaim, an attorney focusing on antitrust, intellectual property, cyberlaw, and privacy, discusses his new paper “Copyright Conspiracy: How the New Copyright Alert System May Violate the Sherman Act,” recently published in the New York University Journal of Intellectual Property and Entertainment Law.

Flaim describes content owners early attempts to enforce copyright through lawsuit as a “public relations nightmare” that humanized piracy and created outrage over large fines imposed on casual downloaders. According to Flaim, the Copyright Alert System is a more nuanced approach by the content industry to crack down on copyright infringement online, which arose in response to a government failure to update copyright law to reflect the nature of modern information exchange.

Flaim explains the six stages of the Copyright Alert System in action, noting his own suspicions about the program’s states intent as a education tool for repeat violators of copyright law online. In addition to antitrust concerns, Flaim worries that appropriate cost-benefit analysis has not been applied to this private regulation system, and, ultimately, that private companies are being granted a government-like power to punish individuals for breaking the law.

Download

Related Links

• Copyright Conspiracy: How the New Copyright Alert System May Violate the Sherman Act, Flaim
• Op-ed: Imminent “six strikes” Copyright Alert System needs antitrust scrutiny, Flaim
• Let’s give the Copyright Alert System a chance, Brito
• Here’s what an actual “six strikes” copyright alert looks like, Ars Technica

In the past couple weeks, three bills addressing the legality of cell phone unlocking have been introduced in the Senate:

• Sens. Leahy, Grassley, Franken, and Hatch’s “Unlocking Consumer Choice and Wireless Competition Act” (S.517)
• Sen. Ron Wyden’s “Wireless Device Independence Act” (S.467)
• Sen. Amy Klobuchar’s “Wireless Consumer Choice Act” (S.481)

This essay will explain how these bills would affect users’ ability to lawfully unlock their cell phones.

Background

If you buy a new cell phone from a U.S. wireless carrier and sign a multi-year service contract, chances are your phone is “locked” to your carrier. This means if you want to switch carriers, you’ll first need to unlock your phone. Your original carrier may well be happy to lend you a helping hand—but, if not, unlocking your phone may violate federal law.

The last few months have seen an explosion of public outcry over this issue, with a recent White House “We the People” petition calling for the legalization of cell phone unlocking garnering over 114,000 signatures—and a favorable response from the Obama administration. The controversy was sparked in October 2012, when a governmental ruling (PDF) announced that unlocking cell phones purchased after January 26, 2013 would violate a 1998 federal law known as the Digital Millennium Copyright Act (the “DMCA”).

Under this law’s “anti-circumvention” provisions (17 U.S.C. §§ 1201-05), it is generally illegal to “circumvent a technological measure” that protects a copyrighted work. Violators are subject to civil penalties and, in serious cases, criminal prosecution.

However, the law includes an escape valve: it empowers the Librarian of Congress, in consultation with the Register of Copyrights, to periodically determine if any users’ “ability to make noninfringing uses . . . of a particular class of copyrighted works” is adversely affected by the DMCA’s prohibition of tools that circumvent access controls. Based on these determinations, the Librarian may promulgate rules exempting categories of circumvention tools from the DMCA’s ban.

One such exemption, originally granted in 2006 and renewed in 2010, permits users to unlock their cell phones without their carrier’s permission. (You may be wondering why phone unlocking is considered an access control circumvention—it’s because unlocking requires the circumvention of limits on user access to a mobile phone’s bootloader or operating system, both of which are usually copyrighted.)

But late last year (2012), when the phone unlocking exemption came up for its triennial review, the landscape had evolved regarding a crucial legal question: do cell phone owners  own a copy of the operating system software installed on their phone, or are they merely licensees of the software?

Until a few years ago, the leading authority on what it means to own a copy of a computer program was the 2nd Circuit’s 2005 opinion in Krause v. Titleserv, Inc., 402 F.3d 119. There, the court held that a person owns a copy of software if he “exercises sufficient incidents of ownership over a copy of the program to be sensibly considered the owner of the copy . . . .” As the Copyright Office noted in its 2012 recommendation to the Librarian of Congress, the 2006 and 2010 rules exempting cell phone unlocking from the DMCA reflected an understanding, based in part on the holding in Krause, that a typical cell phone owner exercises a level of dominion over her device (and its digital contents) more akin to traditional property ownership than the licensed use of property owned by another.

But in 2010, the 9th Circuit took a very different approach in  Vernor v. Autodesk, Inc., 621 F.3d 1102, in which the court held that a “software user is a licensee rather than an owner of a copy where the copyright owner (1) specifies that the user is granted a license; (2) significantly restricts the user’s ability to transfer the software; and (3) imposes notable use restrictions.” Because a typical cell phone owner is bound by a “click-wrap” agreement that significantly restricts her ownership rights in her phone’s operating system, she’s arguably a licensee of the software—not an owner of a copy—according to Vernor.

In light of the  Vernor-Krause circuit split, combined with pronounced trend toward more permissive carrier unlocking policies in recent years, the Librarian of Congress substantially curtailed the exemption for cell phone unlocking for all new phones purchased after January 26, 2013. Today, an owner of a new phone may unlock it only if “the operator of the wireless communications network to which the handset is locked has failed to unlock it within a reasonable period of time following a request by the owner of the wireless telephone handset, and when circumvention is initiated by the owner, an individual consumer, who is also the owner of the copy of the computer program in such wireless telephone handset . . . .”

So it is that cell phone unlocking is now in many cases a violation of federal law. (For more background, check out the writings of Timothy Lee at Ars Technica, Derek Khanna at The Atlantic, and Mike Masnick at Techdirt.)

How would the bills recently introduced in Congress address the cell phone unlocking issue? Let’s take a look at each bill.

The Unlocking Consumer Choice and Wireless Competition Act

To begin with the simplest of the cell phone unlocking bills, Sens. Leahy, Grassley, Franken, and Hatch’s Unlocking Consumer Choice and Wireless Competition Act (S.517) would simply amend the Code of Federal Regulations, replacing the pertinent paragraph from the Librarian of Congress’s 2012 rulemaking (codified at 37 C.F.R. § 201.40(b)(3)) with its more permissive 2010 analogue. The bill also tasks the Librarian of Congress with determining whether to extend the unlocking exemption to other wireless devices (e.g., mobile broadband-enabled tablets), based on the DMCA’s usual rulemaking criteria.

By restoring the broad DMCA exemption for phone unlocking in force from 2006 to 2012, S.517 addresses the problem at hand without going too far. It neither forces carriers to help users unlock their phones, nor limits carriers’ ability to recover damages from subscribers who breach their contracts. Rather, the bill would simply shield users who unlock their cell phones from the DMCA’s harsh penalties. In striking this balance, S.517 deserves credit for aiming to solve a discrete problem with a narrowly-tailored solution.

But would S.517’s fix last? Given that “[n]othing in [the] Act alters . . . the authority of the Librarian of Congress under [the DMCA],” S.517 would presumably leave unchanged the substantial deference enjoyed by the Librarian regarding his decisions about which circumvention tools to exempt—including cell phone unlocking tools. If, three years from now, the Librarian boldly decides that his 2012 decision to curtail the phone unlocking exemption was correct, and thus restores the language currently in force, Congress will be back at square one.

For a more lasting solution, Congress could act under the Congressional Review Act (“CRA”) to pass a resolution expressing its disapproval of the Librarian’s 2012 rule. If both houses of Congress were to pass such a resolution, and the President were to sign it, the narrow cell phone unlocking rule would be nullified—permanently. And the Librarian couldn’t simply reissue the rule, as a rule nullified under the CRA “may not be reissued in substantially the same form.” 5 U.S.C. § 801(b)(2).

Admittedly, this would be a novel use of the CRA. Congress has historically used the law’s disapproval procedure to review rules promulgated by “ordinary” federal agencies (i.e., agencies that are entirely within the Executive Branch). Nevertheless, the Library of Congress is arguably an “agency” for purposes of the CRA insofar as it promulgates rules of general applicability. As the D.C. Circuit recently held in Intercollegiate Broad. Sys., Inc. v. Copyright Royalty Bd., when the Library of Congress exercises its “powers . . . to promulgate copyright regulations . . . the Library is undoubtedly a ‘component of the Executive Branch.'” 684 F.3d 1332, 1341-42 (D.C. Cir. 2012) (citing Free Enterprise Fund v. Public Company Accounting Oversight Bd., 130 S.Ct. 3138, 3163 (2010)).

The Wireless Device Independence Act

Sen. Ron Wyden’s Wireless Device Independence Act (S.467) is the only cell phone unlocking bill that actually amends the DMCA. It would add to section 1201 a clause specifying that modifying software on a mobile device so that it operates on a different network is exempt from the law. While his colleagues dance around the underlying problem—the DMCA itself—Sen. Wyden tackles it head-on. To his credit, this approach embodies Congress exercising its proper constitutional role. If the legislative branch is dissatisfied with how an agency has exercised its statutorily delegated authority, the legislature ought to respond by amending the agency’s enabling statute.

However, S.467 contains a potentially massive loophole: it only exempts from DMCA liability “user[s] [who] legally own[] a copy of the computer program” installed on their mobile phone. In other words, the bill would do nothing for users who are mere licensees of the software installed on their phone. This may not matter for residents of the three states under the jurisdiction of the Second Circuit, where Krause controls—but for cell phone owners in the Ninth Circuit, where Vernor controls, S.467 is unlikely to offer much relief. Because most mobile operating systems are accompanied by click-wrap contracts that impose significant use and transfer restrictions on users, under Vernor these users are considered licensees, rather than owners of a copy of the operating system.

If the Wireless Device Independence Act were enacted, therefore, most Americans wishing to unlock their cell phones would still face significant legal uncertainty regarding their potential liability under the DMCA. To remedy this, the bill could extend its safe harbor to encompass cell phone unlocking by licensees, as well as owners, of software.

The Wireless Consumer Choice Act

Sen. Amy Klobuchar, along with Sens. Mike Lee and Richard Blumenthal, take a very different approach from their colleagues in their Wireless Consumer Choice Act (S.481). The bill’s full text is worth posting (PDF):

Pursuant to its authorities under title III of the Communications Act of 1934 . . . the [FCC], not later than 180 days after the date of enactment of this Act, shall direct providers of commercial mobile services and commercial mobile data services to permit the subscribers of such services, or the agent of such subscribers, to unlock any type of wireless device used to access such services. Nothing in this Act alters, or shall be construed to alter, the terms of any valid contract between a provider and a subscriber.

Note the absence of any explicit amendments to the DMCA or related regulations, or any mention of circumvention tools. Instead, the bill empowers the FCC to regulate carriers’ unlocking policies, yet leaves the DMCA intact. This drafting decision has led some commentators to pan the legislation, questioning its effectiveness and scope.

While I too have serious concerns about S.481, I think Sina Khanifar (who started the White House petition about cell phone unlocking) may be incorrect to suggest the bill “doesn’t do anything at all.” It seems to me that S.481 would alter the DMCA’s unwritten contours, albeit in narrow ways.

How can a law that doesn’t even mention the DMCA effectively “rewrite” its anti-circumvention provisions? Consider that S.481 and the DMCA’s section 1201 both purport to deal with the subject of cell phone unlocking. To borrow a term from legal Latin, the two laws are in pari materia (“upon the same subject”). While section 1201 focuses on the general issue of circumvention of copyright access controls without mentioning cell phone unlocking, S.481 specifically and exclusively addresses cell phone unlocking.

So how would a court reconcile S.481 with section 1201 if a mobile subscriber were sued for unlocking his cell phone despite his full compliance with the carrier’s service contract? Here’s an excerpt from the leading treatise on statutory interpretation, Sutherland Statutory Construction, summarizing how courts have historically sought to reconcile incompatible statutes:

Where one statute deals with a subject in general terms and another deals with a part of the same subject in a more detailed way, the two should be harmonized if possible. But if two statutes conflict, the general statute must yield to the specific statute involving the same subject . . . .

2B Sutherland Statutory Construction § 51:5 (7th ed.) (internal citations omitted).

The DMCA, it seems, must yield to S.481—at least as far as contractually-authorized cell phone unlocking is concerned. As Sean Flaim points out, if you unlock your phone with help from your carrier, it cannot be said that you’ve “circumvented” a technological measure. Thus, under S.481, carriers would lose their existing ability under the DMCA (17 U.S.C. § 1203) to sue a subscriber who has unlocked his phone without breaching his service contract. Similarly, the law might deny the DMCA’s civil remedies to other rights holders—say, mobile operating system creators—against consumers who unlock their phones without breaching any contractual provisions. S.481 also purports to eliminate criminal liability in such situations; as Sen. Mike Lee explained in a joint statement announcing the bill, “[c]onsumers shouldn’t have to fear criminal charges if they want to unlock their cell phones and switch carriers.”

But courts could just as well construe S.481 to effect none of these changes. There is no such thing as  stare decisis  when it comes to statutory construction. If Congress wanted to alter the DMCA, courts might reason, Congress would have done just that. S.481 simply requires that carriers help off-contract subscribers unlock their phones, so why read into the statute a meaning that conflicts with other laws?

Perhaps there are persuasive reasons for trying to tweak the DMCA without actually amending the law, but I’m not aware of any. Given how widely courts vary in interpreting vague statutes, it’s awfully risky to gamble on judges who review S.481 correctly divining Congress’s intent if it enacts the law.

Another worrisome aspect of S.481 is its expansion of the FCC’s regulatory authority to encompass cell phone unlocking. While this grant of authority may seem innocuous, Congress should think twice before involving the FCC in mobile carriers’ decisions about when to permit subscribers to unlock their phones. If the FCC is tasked with policing carriers’ policies regarding cell phone unlocking, the agency might interpret this narrow grant of jurisdiction as a grant of  “ancillary authority” to dictate the contours of mobile service contracts (not that the FCC isn’t already eager to regulate this space). The FCC is notorious for taking an extremely broad view of its own powers; as the Electronic Frontier Foundation has warned, the FCC’s willingness to overreach “raises the specter of discretionary FCC regulation of the Internet not just in the area of net neutrality, but also in a host of other areas.”

Given the FCC’s historically limited understanding of how markets work, unleashing it on the wireless industry is especially unwise. This isn’t a market in need of regulation; in fact, consumers enjoy plenty of choices among devices, carriers, and payment plans. If you want to buy the latest smartphone sans carrier lock, chances are you can order it today and have it on your doorstep tomorrow. If anything, Congress should be exploring ways to shrink  the FCC’s role in the mobile communications space, among others.

Conclusion

Like co-liberator Jerry Brito, I think the ideal public policy approach to cell phone unlocking is fairly straightforward. If I own a cell phone, I should be free to modify its software (or hardware) so that it works on any carrier’s network—unless I’ve agreed in contract not to unlock my phone. If I go ahead and unlock my phone anyway, I owe my carrier compensation for its damages resulting from my breach—which are typically specified in advance in the form of an early termination fee. If the contract doesn’t specify an early termination fee, I owe my carrier damages equal to the amount necessary to put the carrier in the same position it would have ended up had I held up my end of the bargain. This is the common law in action, simple yet elegant.

Notice that the approach I’ve outlined makes no mention of the Copyright Act. That a particular type of wrongful conduct happens to involve a copyrighted work doesn’t necessarily make it proper to invoke the copyright laws. While I support robust copyright protection, tweaking the operating software installed on my own phone so that it will operate on my preferred mobile carrier is a far cry from actionable copyright infringement. The potential market for Apple’s iOS, Google’s Android, or Windows Phone 8 suffers no adverse effect if a user unlocks her smartphone so she can switch carriers. As the Copyright Office explained in 2006:

[T]he access controls do not appear to actually be deployed in order to protect the interests of the copyright owner or the value or integrity of the copyrighted work; rather, they are used by wireless carriers to limit the ability of subscribers to switch to other carriers, a business decision that has nothing whatsoever to do with the interests protected by copyright.

This is not to say that carriers are wrong to limit some subscribers’ ability to switch networks. To the contrary, American consumers enjoy substantial benefits thanks to the availability of carrier-subsidized, locked cell phones, as George Ford, Thomas Koutsky, and Larry Spiwak argue in A Policy and Economic Exploration of Wireless Carterfone Regulation, 25 Santa Clara Computer & High Tech. L.J. 647 (2009). The question is thus not whether consumers should be permitted to unlock their cell phones, but what legal regime(s) should deter wrongful unlocking. As Jerry rightly argues, contract law affords mobile carriers a far more appropriate set of remedies for wrongful unlocking than the Copyright Act does.

Cell phone unlocking may be a fairly clear-cut issue, but the broader debate over whether, and to what extent, federal laws should ban tools that circumvent technological measures protecting copyrighted works is anything but straightforward. Critics of the DMCA’s anti-circumvention provisions offer powerful arguments why Congress shouldn’t be in the business of banning technologies, but there remains a fine line between selling lock picking tools and helping people unlawfully pick locks. In a forthcoming essay, I’ll explore the anti-circumvention debate in greater detail.

For a scholarly treatment of the interplay between the DMCA and cell phone unlocking, check out Daniel J. Corbett’s article,  Would You Like That iPhone Locked or Unlocked?: Reconciling Apple’s Anticircumvention Measures with the DMCA, 8 U. Pitt. J. Tech. L. Pol’y 8 (2008).

New York University law professor James Grimmelmann eulogizes Aaron Swartz, the open information and internet activist who recently committed suicide in the face of a computer trespass prosecution.

Grimmelmann describes Swartz’s journey from “wunderkind prodigy who came out of nowhere when he was 14” to “classic activist-organizer,” paying special attention to the ideas that motivated his work. According to Grimmelmann, Swartz was primarily interested in power being held by the wrong people and how to overcome it through community organizing. Swartz was dedicated to his personal theory of change and believed that people who know how to use computers have a duty to undermine the closed-access system from within.

It was this ardent belief that led Swartz to surreptitiously download academic articles from JSTOR. Grimmelmann closely analyzes the case, providing a balanced view of both the prosecution’s and Swartz’s view of the issue. Grimmelmann additionally suggests possible policy reforms brought to light by Schwartz’s case.

Download

Related Links

• Aaron Swartz, Was 26, Grimmelmann
• My Career as a Bulk Downloader, Grimmelmann
• Aaron Swartz, Coder and Activist, Dead at 26, WIRED
• Law Professor James Grimmelmann Explains How He Probably Violated The Same Laws As Aaron Swartz, Techdirt

Imagine a service that livestreams major broadcast television channels over the Internet for $4.99 a month — no cable or satellite subscription required. For an extra 99 cents a month, the service offers DVR functionality, making it possible to record, rewind, and pause live broadcast television on any broadband-equipped PC.

If this service sounds too good to be true, that’s because it is. But for a time, it was the business model of ivi. Cheaper than a cable/satellite/fiber subscription and more reliable than an over-the-air antenna, ivi earned positive reviews when it launched in September 2010.

Soon thereafter, however, a group of broadcast networks, affiliates, and content owners sued ivi in federal court for copyright infringement. The court agreed with the broadcasters and ordered ivi to cease operations pending the resolution of the lawsuit.

ivi appealed this ruling to the 2nd Circuit, which affirmed the trial court’s preliminary injunction earlier this month in an opinion (PDF) by Judge Denny Chin. The appeals court held as follows:

• The rights holders would likely prevail on their claim that ivi infringed on their performance rights, as ivi publicly performed their copyrighted programs without permission;
• ivi is not a “cable system” eligible for the Copyright Act’s compulsory license for broadcast retransmissions, as ivi distributes video over the Internet, rather than its own facilities;
• Allowing ivi to continue operating would likely cause irreparable harm to the rights holders, as ivi’s unauthorized distribution of copyrighted programs diminishes the works’ market value, and ivi would likely be unable to pay damages if it loses the lawsuit;
• ivi cannot be “legally harmed by the fact that it cannot continue streaming plaintiffs’ programming,” thus tipping the balance of hardships in plaintiffs’ favor;
• While the broad distribution of creative works advances the public interest, the works streamed by ivi are already widely accessible to the public.

As much as I enjoy a good statutory construction dispute, to me, the most interesting question here is whether ivi caused “irreparable harm” to rights holders.

Writing on Techdirt, Mike Masnick is skeptical of the 2nd Circuit’s holding, criticizing its “purely faith-based claims … that a service like ivi creates irreparable harm to the TV networks.” He argues that even though ivi “disrupt[s] the ‘traditional’ way that [the broadcast television] industry’s business model works … that doesn’t necessarily mean that it’s automatically diminishing the value of the original.” Citing the VCR and DVR, two technologies that disrupted traditional methods of monetizing content, Mike concludes that “[t]here’s no reason to think” ivi wouldn’t “help [content owners’] business by increasing the value of shows by making them more easily watchable by people.”

Mike has a point. Perhaps many ivi subscribers previously didn’t watch much, if any, broadcast television. But thanks to ivi, some of these viewers may get hooked on hit network shows like American Idol, NCIS, or Person of Interest. Some ivi subscribers might even go on to buy seasons of their favorite shows on Blu-ray or DVD. If these assumptions hold true, ivi might actually increase the market value of the television programs it streams. So why aren’t rights holders applauding ivi — or emulating it — instead of trying to shut it down?

Perhaps it’s because the rights holders worry that ivi could attract a large audience of “cord cutters” who previously bought season passes to their favorite shows from Internet media stores such as iTunes or Amazon Instant Video. Rights holders might also worry that ivi could induce  cord cutting by inducing people to cancel their basic cable or satellite television service. Why pay a cable company $16.50 a month for local broadcast channels when you can get them from ivi for less than a third of the price of cable?

Broadcasters might worry about ivi undercutting their advertising revenues. Because television ad rates are largely based on viewership statistics — as determined by audience measurement companies like Nielsen — each person who unplugs his antenna or cancels his cable subscription for ivi is one fewer Nielsen viewer. (Although ivi is reportedly interested in cutting a deal with Nielsen to ensure its ratings reflect ivi’s audience, it appears no deal was in place when ivi launched.) From the broadcasters’ perspective, it doesn’t matter if lots of ivi subscribers actually watch television ads, as advertisers typically aren’t willing to pay for eyeballs they can’t measure.

Adding insult to injury, ivi streamed the local channels of two markets, Seattle and New York City, to subscribers worldwide. Because broadcast affiliates typically sell ad slots to local businesses, every person who uses ivi but doesn’t reside in Seattle or NYC amounts to one fewer set of eyeballs for a local affiliate.

So ivi could be helping rights holders, hurting them, or doing some of both. To determine ivi’s net impact on content owners’ bottom line, we need to know whether the first type of viewers discussed above (those who spend more on content because of ivi) makes more money for content owners than they lose on other viewers (those who substitute ivi viewing for media store purchases, over-the-air viewing, or pay-TV subscriptions). Unfortunately, we lack the data to answer these questions with confidence.

Nevertheless, there are good reasons to assume that ivi subscribers who generate less revenue for content owners after signing up for ivi vastly outnumber those who generate more revenue.

Consider ivi’s natural subscriber base: people who already pay for network television content — via pay-TV, Internet media stores, or streaming services like Hulu Plus — or watch for free via authorized, ad-supported sources. For many of these viewers, ivi presents a compelling alternative to other sources of network television content.

But what about ivi’s potential to deliver networks a new, untapped audience? Well, at $60 per year, ivi won’t likely play well with casual viewers who aren’t even sure if network television is worth watching. These viewers far more likely to test the network TV waters by streaming recently-aired shows for free on Hulu or network websites.

ivi is also unlikely to attract many network television lovers who’d otherwise miss out on it because they lack the cash. That’s because most low-income television junkies already tune in — perhaps via free, over-the-air network television (which nearly all TV owners can already access with nothing more than a $20 antenna and $30 converter box). From the content owners’ perspective, each user who switches from an over-the-air antenna to an ivi subscription is basically a wash.

At best, ivi may attract some viewers who can’t afford or aren’t willing to pay for basic cable, and live too far away from an urban area to receive an over-the-air signal. But do these viewers outnumber the many TV junkies who want cheaper, more convenient access to network television content? I highly doubt it. And, had ivi tried to persuade the 2nd Circuit that its service actually benefits rights holders, I suspect the Court wouldn’t have bought the argument unless ivi could marshall data that probably doesn’t exist.

Business Models, Innovation, and Incentives

If ivi is such an attractive alternative to “legacy” business models, why don’t the broadcast networks simply follow ivi’s lead by offering a comparable service? It seems like a no-brainer; after all, networks and affiliates already have established relationships with advertisers, and enjoy immediate access to perfect digital copies of their content. A joint venture of the major networks, perhaps in collaboration with their affiliates, would surely dominate ivi (assuming both services were comparably priced).

What explains the broadcasters and rights holders’ reticence toward this business model? Perhaps they’re too stupid or lazy to see the green in front of them. Maybe they’re too attached to obsolete business models to monetize their content in a rational, profit-maximizing manner.

But the rights holders could also be acting perfectly rationally. Maybe the $6 monthly fee ivi charges isn’t the profit-maximizing price at which to charge consumers for high definition, live, recordable, rewindable network television content. Perhaps the business strategy currently employed by broadcasters and creators — complex and confusing as it may be to most people — captures more income for the creation and distribution of television shows than alternative business models.

I don’t know whether content owners ought to shun or embrace ivi’s business model. Neither does Mike Masnick — or, for that matter, anyone. At best, armed with extensive economic data and market research, we’d still only be able to make an educated guess as to how content owners should structure their businesses. Modern consumers’ preferences are simply too opaque, divergent, and dynamic for any producer to systematically squeeze out every last drop of profits or surplus.

Even under uncertainty, however, decisions must still be made. In the market for creative works, their creators (and their assignees) are empowered by the Copyright Act with an exclusive, but limited, right to decide how to monetize their works. So it is that broadcasters and affiliates may dictate how television shows are distributed, and decide how much to charge for them, for a limited time and with certain exceptions.

This is why broadcasters may give their content away for free to anybody near a metropolitan area who has an antenna and converter box, while simultaneously preventing third parties like ivi from distributing the same exact content (whether free of charge or for a fee). At first, this may seem absurd, but consider how many websites freely distribute their content on the terms they see fit. That’s why I can read all the Techdirt articles I desire, but only on Techdirt’s website. If copyright protection excluded content distributed freely to the general public, creators of popular ad-supported content would soon find others reproducing their content with fewer ads. Between Hulu — with its several minutes of ads per episode — and a competing service offering the same content, but with nothing more than a few text ads, many viewers would prefer the latter option.

Of course, the Copyright Act is no guarantee that a particular business model will succeed, or that a content creator will make a profit. It simply vests in each rights holder the  power to decide among business models for monetizing their content.

Why let creators and their assignees make these decisions? Even if we believe that that public policy ought to “promote the Progress of … useful Arts” — an admittedly controversial belief that is beyond the scope of this essay — why give content creators exclusive rights to copy, distribute, perform, transmit, and sell their expressive works? There are, after all, plenty of other ways government could encourage people to create movies, books, music, video games, and other socially valuable expressions.

For instance, we could award monetary prizes to creators of popular works, perhaps by measuring how often they’re viewed or experienced. We could create a federal Department of Creative Expression and hire 50,000 of the nation’s most talented writers, artists, and musicians to create books, movies, television shows, and songs all day. We could also give individuals and companies generous, refundable tax credits for income derived from expressive works.

But, for the most part, we don’t do these things. Of the many ways our government could foster the creation of expressive works, we chose copyrights — as have many other governments over the years.

So why copyright? Two reasons: knowledge and incentives.

In an ever-changing world, the best way to discover how to  monetize creative works is through trial-and-error. By empowering lots of individual creators and companies to experiment with different ways of distributing content, knowledge emerges through spontaneous order, as rights holders mimic their successful competitors while constantly trying to figure out an even smarter way to make money. Instead of relying on a centralized bureaucracy or a small group of lawmakers to decide how much to charge for creative works, the institution of copyright disperses such decisions, harnessing the wisdom of the crowd for a better outcome.

If decentralized decision-making works so well, why limit it to creators? Surely if  everybody could monetize creative works, we’d enjoy even more innovative distribution strategies. But this would push the value of creative works down to their marginal price, zero. While it’s still possible to make money by distributing free content, as Mike has explained as comprehensively as anyone, it’s not necessarily the best way for creators to make money. If it were, everybody would already be doing it!

Therefore, we give content creators and their assignees a limited, exclusive right — a temporary monopoly, as it’s often described — over their works. They get to decide not only what to create, but how to distribute it. Whether they reap vast rewards or lose their shirts depends solely on the decisions they make.

To be sure, our Copyright Act abounds with excesses and deficiencies, many of which we’ve discussed on these pages over the years. (For instance, it lacks a registration or renewal requirements, imposes draconian criminal penalties on noncommercial infringement, and confers copyrights on too broad a range of subject matter.) Despite these problems, however, the exclusive right to monetize expressive works — a right that ivi flagrantly violates — is at the core of copyright. If there’s one exclusive right that copyright laws  should  secure for content creators, it’s the right to sell complete copies of newly-produced creative works made for the purpose of private commercial gain.

If ivi doesn’t violate this right, I don’t know what does.

Christopher Sprigman, professor of law at the University of Virginia discusses his upcoming book the Knockoff Economy: How Imitation sparks Innovation co authored with Kal Raustiala. The book is an accessible look at how industries that do not have heavily enforced copyright law, such as the fashion and culinary industries, are still thriving and innovative. Sprigman explains how copyright was not able to be litigated heavily in these cases and what the results could teach us about what other industries that do have extensive copyright enforcement, such as the music and movie industries, could look like without it.

Download

• “The Knockoff Economy: How Imitation Sparks Innovation”, Sprigman and Raustiala
• “The Piracy Paradox: Innovation and Intellectual Property in Fashion Design”, by Sprigman and Raustiala
• “Standup comedy and the rise of an informal intellectual property regime”, Bloomberg BNA
• “Why There Are Too Many Patents in America”, Posner Article

Unshackling a market from obsolete, protectionist regulations can be a very challenging undertaking, especially when the lifeblood of a regulated industry is at stake. The latest push for regulatory reform to encounter the murky waters of modernization is the “Next Generation Television Marketplace Act.” The ambitious and comprehensive bill, introduced by Rep. Steve Scalise and Sen. Jim DeMint in their respective chambers of Congress, aims to free up the broadcast television market. The federal government’s hands have been all over this market since its inception, overseen primarily by the FCC, pursuant to the Communications Act.

The Next Generation Television Marketplace Act (“DeMint/Scalise”) is a bold and laudable bill that would, on the whole, substantially free up America’s television marketplace. But one aspect of the bill—its abolition of the retransmission consent regime—has sparked a vigorous debate among free marketers. This essay will explain what this debate is all about and why policymakers should think twice before getting rid of retransmission consent.

Toward a Free Market in Television

The DeMint/Scalise bill takes an axe to many of the myriad rules that stand in the way of a free market in television programming. As Co-Liberator Adam Thierer recently explained on these pages, the bill’s many provisions would among other things get rid of the compulsory licensing provisions in the Copyright Act that empower government to set the rates cable and satellite (“pay-TV”) providers must pay to retransmit distant broadcast signals. It would eliminate the “network non-duplication” rule, which generally bars pay-TV providers from carrying out-of-market signals that offer the same programs as local broadcasters. The bill would also end the “must-carry” rule that forces pay-TV providers to retransmit certain local broadcast signals without receiving any compensation.

These are just a few of the many provisions of the DeMint/Scalise bill that would substantially reform the Communications and Copyright Acts to foster a free video marketplace and bring television regulation into the 21st century. (For a more in-depth assessment of the positive aspects of the DeMint/Scalise proposal, see Adam’s informative Forbes.com essay, Toward a True Free Market in Television Programming; Randy May’s superb Free State Foundation Perspectives essay, Broadcast Retransmission Negotiations and Free Markets;” and Bruce Owen’s FSF essay, The FCC and the Unfree Market for TV Program Rights.)

What DeMint/Scalise Means For Retransmission Consent

While most of the DeMint/Scalise bill’s provisions are unequivocally pro-market and pro-consumer, some free marketers have criticized the bill because it would repeal the current statute that provides for “retransmission consent.” Retransmission consent, which Congress enacted by overriding President George H.W. Bush’s veto of the 1992 Cable Act, affords broadcasters an attenuated property right that entitles them to bar local pay-TV providers from retransmitting their signals without broadcasters’ permission—thus forcing negotiation over whether broadcasters should be paid for their content. Some broadcasters don’t elect to exercise this right, and instead demand that local pay-TV operators carry their signals pursuant to the “must-carry” rule. (Many unaffiliated broadcasters that transmit low-value programming elect to exercise must-carry because they recognize pay-TV operators are unlikely to pay retransmission fees.)

The current retransmission consent regime, which Congress created in 1992, is plagued with complex regulations that undermine free market negotiations. As Adam and Randy have explained, many of these regulations—including network non-duplication, syndication exclusivity, and must-carry—tilt the playing field in broadcasters’ favor, enabling them to earn hefty retransmission fees from cable and satellite providers that almost certainly exceed the fees they’d earn in a free market. This wealth transfer translates into higher monthly bills for pay-TV subscribers, and may enable some broadcasters to reap profits (economic rents) they would not otherwise enjoy.

The DeMint/Scalise bill would eliminate many of the existing rules that distort retransmission negotiations between broadcasters and pay-TV operators. In doing so, however, the bill would also eliminate the retransmission consent regime in its entirety. This has invoked the ire of some conservatives, such as the American Conservative Union (ACU), which recently sent a letter to Congress opposing the bill’s retransmission consent provisions.

But two venerable free market tech policy icons disagree with the ACU: Adam Thierer, writing on these pages, and Randy May, writing on The Free State Foundation blog. Adam argues that “ACU has mistakenly equated the retransmission consent regulatory process with an actual free market contracting process.” Randy argues that if the DeMint/Scalise bill were adopted, “[b]roadcasters would . . . continue to be paid for carriage of their signals – unless they choose to withhold the carriage rights because they don’t like the amount of compensation offered.”

I wholeheartedly agree with Adam and Randy that ACU’s characterization of the current regime as a “functioning market” is inaccurate. Nonetheless, ACU is right to worry that the retransmission consent provisions of the Next Generation Television Marketplace Act may undermine private bargaining. In particular, the bill appears to strip broadcasters of the authority to withhold carriage rights from pay-TV providers. Page 2 of the bill (PDF of bill text) states that:

Section 325 of the Communications Act of 1934 (47 U.S.C. 325) is amended . . . by striking subsections (b) and (e)

In striking these two subsections, the bill would restore 47 U.S.C. § 325 to its state prior to the enactment of the 1992 Cable Act—the law which established retransmission consent as it exists today.

On one hand, this would eliminate many onerous provisions, including the must-carry rule and the “good faith” negotiation requirement. But striking these subsections would also eliminate the legal authority that underlies broadcasters’ ability to withhold carriage rights from pay-TV operators. Under pre-1992 law, as the Senate Commerce Committee’s report on the Cable Act explained, “cable systems need not obtain consent from broadcast stations for retransmission of their signals, based on the reference in section 325 of retransmission by broadcasting stations.” S. Rep. No. 102–92, at 35 (1991). In other words, if 325(b) goes away, so does retransmission consent as we know it.

Retransmission consent is not without its critics. Some argue that broadcasters don’t deserve the right to exclude local pay-TV operators from retransmitting their signals, as subscribers can already freely watch over-the-air broadcast signals by simply putting up an antenna. Pay-TV providers simply retransmit broadcast signals without alteration and with advertisements intact, the argument goes, so why should broadcasters be able to demand compensation from pay-TV providers?

While this argument has rhetorical appeal, it ignores the economic realities of the modern television market. Today, unlike in the 1970s, a tiny percentage of viewers watch broadcast television over-the-air. The tiny minority of households with antennas pay no subscription fees, unlike the majority of viewers who pay a fee for a cable or satellite subscription. Broadcasters that demand retransmission fees from pay-TV operators are simply charging viewers who are willing to pay more than viewers who aren’t. This practice, known as price discrimination, ultimately benefits low-income families who rely on over-the-air signals by allowing them to view programming subsidized by pay-TV subscribers.

Copyright Versus Retransmission Consent

So what about content owners? Their legal rights, unlike those of broadcasters and pay-TV providers, arise primarily out of the Copyright Act, not the Communications Act.

While the DeMint/Scalise bill would eliminate the Communications Act’s retransmission consent provisions, it makes only minor changes to the Copyright Act—which, of course, prohibits most unauthorized public performances of copyrighted works, including television broadcasts. So copyright owners would retain the right to bar pay-TV providers from retransmitting their television shows without permission. (Indeed, in one sense, content owners would enjoy greater copyright protection under the bill, as it eliminates several limitations on copyright liability currently provided to secondary transmissions by cable and satellite providers.)

If the bill is enacted, therefore, pay-TV operators wishing to retransmit broadcast signals may no longer need to get permission from the broadcaster—but they’d still need permission from program owners to retransmit signals that contain copyrighted content. While broadcasters themselves own the rights to some of the programs they typically air—including local news shows and, in some cases, exclusive syndication rights for their area—the vast majority of broadcast television content is owned by third parties such as broadcast networks, production companies, syndicators, sports leagues, and the like. (Although the Copyright Act confers protection on compilations of copyrighted works in certain cases, whether broadcasters’ programming choices enjoy copyright protection is unclear. See 2 Patry on Copyright § 3:64.)

Before 1976, cable providers were free under federal law to retransmit local and distant broadcast signals without permission from the broadcaster or the rights holder. In 1976, Congress overhauled the Copyright Act to define public retransmissions of broadcast signals as “public performances” (which if containing copyrighted material generally require permission from the rights holder).

At the same time, however, Congress also created a compulsory license permitting cable providers to retransmit certain distant broadcast signals so long as they paid royalties to the Copyright Office (which in turn doles out payments to rights holders as it sees fit). The law also permitted cable providers to retransmit broadcast signals locally without paying any royalties to rights holders.

The DeMint/Scalise bill would leave intact the 1976 Copyright Act’s definition of “public performance,” while repealing not only the compulsory licensing system that currently governs retransmissions of distant signals but also the provision exempting pay-TV providers’ retransmissions of local signals from copyright liability. If the bill were enacted, owners of broadcast programs would gain the ability to freely negotiate rates with pay-TV providers, instead of relying on the rates set by the Copyright Office.

Consensual Retransmission—Or Unjust Enrichment?

How would the dynamics of the video marketplace shift if DeMint/Scalise were the law? For one thing, broadcasters would hold far fewer cards, losing the regulations that benefit them, such as syndication exclusivity, network non-duplication, and most importantly, retransmission consent. Pay-TV operators, many of which currently pay substantial retransmission fees to broadcasters, might seek out less costly sources of popular network television shows—perhaps by dealing directly with major networks. But would the networks play ball? Or would they rather leave today’s market structure intact and continue dealing exclusively with broadcasters? It’s hard to say.

Imagine that some large pay-TV providers succeed in inking deals with networks and other rights holders to publicly perform the same programs that broadcasters carry. On one hand, this disintermediation of broadcasters might benefit consumers, especially if it translates into lower fees (and, hence, more content choices and/or lower television bills). Indeed, a major selling point of the DeMint/Scalise bill is that it would enable an array of creative economic arrangements between pay-TV providers and content owners that are verboten under current law.

But disintermediating broadcasters in this manner may have a dark side.

Imagine cable provider CableCo reaches a licensing deal with commercial network NetworkCo to display the network’s primetime content to CableCo’s subscribers nationwide. CableCo, recognizing that its subscribers are accustomed to watching primetime network content originally transmitted by their local broadcaster, decides to continue retransmitting the local signals that independent NetworkCo affiliate stations broadcast in each market.

Although CableCo’s paid subscribers derive some value from these local signals, CableCo doesn’t compensate the local broadcasters whose signal it retransmits, since the Communications Act no longer enables broadcasters to demand retransmission fees. (To avoid copyright infringement liability, CableCo might replace all timeslots that contain local news shows—which are created and owned by each affiliate station—with syndicated programming.)

Is this scenario—which could conceivably occur if DeMint/Scalise were the law—an acceptable free market outcome? Absolutely, argues Professor Bruce Owen, a veteran telecommunications policy guru, who wrote the following in a recent Free State Foundation Perspectives essay:

Unlike program producers and networks, TV stations do nothing to “earn” this right, and the benefits to them are not rewards for innovation or production of valuable services. The economic value of a retransmission right comes solely from the ability of its owner to extract cash (or carriage) from cable systems and other multi-channel video program distributors (MVPDs). In fact, now that nearly everyone gets all TV signals by cable or satellite or Internet, broadcast stations are largely useless relics of a bygone technology, and the spectrum that is still reserved for their use has far better and more valuable uses.

But if Professor Owen is correct in arguing that broadcasters “do nothing to ‘earn’” the right to exclude others from retransmitting their signal, why is abolishing retransmission consent necessary? If broadcasters do nothing to enhance the value of the content they carry, the proper public policy response is to repeal the regulations (e.g., network non-duplication, syndication exclusivity, must-carry) that empower broadcasters to take a cut of exchanges that would otherwise occur directly between pay-TV providers and content owners. Without such rules in place, retransmission consent would be a dead letter (albeit technically intact) because pay-TV providers would simply obtain programming directly from the source.

What if Professor Owen is mistaken? Consider that many broadcasters work to differentiate their broadcasts from those carried by distant stations affiliated with the same network. For instance, some broadcasters overlay localized messages warning of impending perilous weather during primetime programming. Broadcasters sometimes display tickers (or “crawlers”) underneath network and syndicated shows, displaying such information as local sports scores, school closings, and election results. Some broadcasters select and display local ads during commercial breaks (in addition to national ads selected by networks). Although these alterations may in some cases enjoy copyright protection, facts cannot be copyrighted, nor can works that lack “originality” or “creativity.”

Unfortunately, we don’t know how much economic value (if any) these “signal enhancements” add to the underlying programming. Fortunately, the market can answer that question—assuming, of course, well-defined property rights exist and regulations do not mandate exclusive dealing or otherwise obstruct voluntary marketplace negotiations.

If retransmission consent is abolished, however, broadcasters’ ability to exclude others from free riding on their efforts will be severely diminished. Is this a problem? To the extent that broadcast signals possess some incremental value beyond that embodied in the programming they carry, the DeMint/Scalise bill tilts the scales in favor of pay-TV providers, and may enable them to reap economic rewards that would otherwise accrue to broadcasters.

This form of free riding offends the longstanding common law equitable principle of unjust enrichment, which holds that “[a] person who is unjustly enriched at the expense of another is subject to liability in restitution.” If pay-TV providers are free to monetize the efforts of broadcasters without permission or compensation, broadcasters may under-invest in signal enhancements. (For more on this issue, see Shyamkrishna Balganesh, The Social Costs of Property Rights in Broadcast (and Cable) Signals, 22 Berkeley Tech. L.J. 1303 (2007)).

If, as Randy May argues, consumers are best served by “[p]rivate bargaining, in which the parties know their own interests, and can contract freely,” then Sen. DeMint and Rep. Scalise should consider reforming the retransmission consent law, instead of gutting it in its entirety.

To do so, instead of repealing 47 U.S.C. § 325(b), DeMint and Scalise could rewrite the subsection to get rid of the must-carry and the good faith negotiation requirements while leaving retransmission consent intact. They could also strip the FCC of its existing authority to meddle with retransmission negotiations and instead create a private right of action for broadcasters to obtain recourse in federal court for unauthorized retransmissions. That way, if a pay-TV provider were to retransmit a broadcaster’s signal without permission, the aggrieved broadcaster could recover any profits the pay-TV provider earned as a result of the unauthorized retransmission.

The Long Run: Spectrum Liberalization

As policymakers work to liberalize the airwaves to ensure market participants put spectrum to its most highly valued uses, there may come a day when television broadcasting as we know it ceases to exist. Meanwhile, however, policymakers would be loath to lose sight of the basic principles that underlie free markets—voluntary exchange, property rights, and regulatory neutrality—in governing the television marketplace. Whatever one thinks about broadcasters’ public policy advocacy in general, two wrongs don’t make a right; the merits of protecting attenuated property rights in broadcast signals should stand on their own.

Broadcasters have long argued their efforts serve consumers and generate value for society. If they’re right, they deserve to reap the rewards of the value they create. Retransmission consent provides the means by which they may do so.

It’s high time for Congress to liberalize the television marketplace to bring it into the 21st century. Sen. DeMint and Rep. Scalise’s bill would, if enacted, mark a major step toward a freer video market. However, their bill could be improved by leaving retransmission consent intact.

In the ongoing debate over SOPA, PIPA, and rogue websites legislation, most commentators have focused on what Congress should and shouldn’t do to combat these sites. Less attention, however, has been paid to the underlying assumption that these rogue websites represent a public policy problem. While no one has defended websites that defraud consumers by deceptively selling them fake pharmaceuticals and other counterfeit goods, many consumers who frequent “rogue websites” do so for the express purpose of downloading copyright infringing content.

As Julian Sanchez explains over on Cato-at-Liberty, how the latter category of rogue websites (including The Pirate Bay and, until last week, MegaUpload) affects the U.S. economy and social welfare is hotly contested in the economic literature:

[I]t’s become an indisputable premise in Washington that there’s an enormous piracy problem, that it’s having a devastating impact on U.S. content industries, and that some kind of aggressive new legislation is needed tout suite to stanch the bleeding. Despite the fact that the [GAO] recently concluded that it is “difficult, if not impossible, to quantify the net effect of counterfeiting and piracy on the economy as a whole,” our legislative class has somehow determined that . . . this is an urgent priority. Obviously, there’s quite a lot of copyrighted material circulating on the Internet without authorization, and other things equal, one would like to see less of it. But does the best available evidence show that this is inflicting such catastrophic economic harm—that it is depressing so much output, and destroying so many jobs—that Congress has no option but to Do Something immediately? Bearing the GAO’s warning in mind, the data we do have doesn’t remotely seem to justify the DEFCON One rhetoric that now appears to be obligatory on the Hill. The International Intellectual Property Alliance . . . actually paints a picture of industries that, far from being “killed” by piracy, are already weathering a harsh economic climate better than most, and have far outperformed the overall U.S. economy through the current recession.

Julian makes several great points, and his essay is well worth reading in its entirety.

Nevertheless, in my view, rogue websites dedicated to the infringement of U.S. copyrights pose a public policy problem that merits not only serious congressional attention, but also prompt (albeit prudent) legislative action. While I’m relieved that the flawed SOPA and PIPA bills seem unlikely to pass in their current forms, I also think it would be unwise for Congress to dither on rogue sites legislation for years in search of “credible data” about how such sites impact our economy.

Why am I urging policymakers act without “all the facts?” Two reasons. First, I’m quite skeptical that we’ll obtain anything resembling dispositive data on the question of how rogue websites impact consumer welfare in the foreseeable future. Countless academics have spent years seeking to understand how often consumers download content on rogue websites, how frequently consumers substitute unlawful content for the lawful kind, and the extent to which copyright infringement indirectly benefits creators by inducing greater overall content consumption. Yet reliable data on these topics remains the stuff of dreams.

Second, the ease with which U.S. consumers can and do access near-perfect infringing copies of movies, songs, television shows, and video games gives rise to a reasonable presumption that we’d probably be better off if Congress were to throw up at least some carefully-constructed roadblocks to obstruct rogue sites. That’s because if such roadblocks are erected, the consumers most likely to shift from unlawful to lawful consumption of content are also the same consumers who are most likely to benefit social welfare (and the U.S. economy) if they pay more for the content they value and enjoy.

Imagine two hypothetical “pirates” (or users who frequently infringe on copyrighted works, if you prefer less loaded terminology). Pirate #1 is a broke college sophomore with a subsidized ultra-fast broadband connection and eons of spare time on his hands. While this pirate lacks the disposable income to pay for content at virtually any price, he’s perfectly willing to spend hours on end sitting hunched over a laptop in his dorm room scouring various Web forums for links to his favorite TV shows and movies, most of which are available unlawfully on cyberlockers, Bittorrent, Usenet, etc.

Pirate #2 is a 30-something, tech-savvy mid-career IT professional with plenty of disposable income. Even though he owns a Blu-ray player and could afford to buy or rent several discs per month, he instead opts to download Blu-ray image files on his 50Mbps Verizon FiOS connection and watches them on a laptop hooked up to his high-def television. Using his Mastercard, he spends $10 a month to subscribe to a popular Seychelles-based content search website that enables him to find picture-perfect movie rips in seconds. Although he has the means to pay for content, he sees no reason to bother with physical discs, DRM, and platform restrictions given that pirated content is so much cheaper, and virtually as accessible. While he ultimately purchases some of the content he acquires unlawfully, attending the occasional live concert and theatrical performance, he only does so occasionally. He has few moral qualms about his behavior; with millions of other consumers paying for the content he enjoys, what difference can one more legitimate purchaser make? (Julian correctly observes that some individuals who “sample” music through illicit outlets ultimately spend more money on artists because they’re more likely to attend live performances. However, given the growing prevalence of free and lawful sources of music “samples,” and considering that piracy’s effects on creators of other types of content (e.g. movies, TV shows, video games) is far less ambiguous, the “file sharing actually benefits artists” hypothesis is hardly persuasive).

Turning back to the issue of rogue sites legislation, a law that serves only to make it impossible for Pirate #1 (and the millions in America like him) to access infringing content won’t do anybody much good. Content creators won’t get paid more, as Pirate #1 has no money, while the aggregate utility society derives from artists’ expressive works will decrease. Instead of enjoying movies and music acquired unlawfully, Pirate #1 will simply find another, presumably inferior, way to spend his free time. It’s a no-win situation.

But a law that makes it impossible for Pirate #2 (and the millions like him) to access infringing content would almost certainly benefit content creators — and society at large. No longer able to download movies, TV shows, and video games illegally, Pirate #2 might consume less overall content, but he’ll also pay for a lot more lawfully-acquired content. He’ll spend less of his disposable income on goods and services other than content, meaning some legitimate businesses will experience a decline in revenue. But since Pirate #2’s overall spending habits will more closely match his true consumption preferences, society’s aggregate resources will likely end up being allocated more efficiently than before .

The virtue of a “follow the money” approach to rogue websites is that it’s likely to curb piracy by users like Pirate #2, who are already willing and able to pay for legitimate content. Users who have a credit card and use it to pay for infringing content — or for services that facilitate access to infringing content — presumably have at least some disposable income to spend on expressive works. While rogue websites legislation is likely to leave many, if not most, websites that facilitate piracy unaffected, disabling U.S. payment services from doing business with a handful of especially popular offshore piracy sites will frustrate users. Many of these users will simply seek out alternatives, but some users will give up and “go legitimate.” By driving piracy further underground, such a law might cause users like Pirate #1 to spend more of their relatively worthless time seeking out infringing content. But this is the Internet we’re talking about; the determined user will find what he seeks, no matter the roadblocks lawmakers throw up.

Whether a targeted law aimed at combating offshore rogue sites’ revenue sources would, on net, measurably benefit the U.S. economy is far from certain. But even a law that has greater-than-even odds of improving aggregate social welfare by the equivalent of a few hundred million dollars amounts to a step in the right direction. In a world of uncertainty, we all make decisions with harshly limited knowledge every day. All else equal, making highly-informed decisions is vastly superior to educated guesses, but educated guesses are often the best feasible option.

In an ideal world, of course, Congress would be focused on far more crucial legislative priorities than combating rogue websites, such as solving the entitlement mess, fixing America’s overly litigious legal system, reining in the ever-growing regulatory state, and even reforming the Copyright Act to reduce the insanely long term of copyright protection. But given that both the House and Senate Judiciary Committees, which handle copyright legislation, seem more focused on undermining our liberty and prosperity than on enhancing it — from data retention to employment verification mandates to the PATRIOT Act renewal — passing a consensus rogue websites bill may be the best of all feasible outcomes this session of Congress.

If lawmakers act swiftly but carefully — holding a handful of additional hearings, focusing on crafting legislation that Silicon Valley can tolerate (if not embrace), and emphasizing a transparent process — there may still be hope for prudent rogue websites legislation this session. And that could be a good thing.

(Cross posted at Reason.org)

Americans got a preview of what life would be like under the U.S. Senate’s Protect Intellectual Property Act (PIPA) when the Department of Justice and the FBI yesterday shut down Megaupload.com and arrested its founder and six other executives on charges of illegally sharing copyrighted material.

The move comes in the middle of a vociferous debate on PIPA and its House counterpart, the Stop Online Piracy Act (SOPA) and provides more fuel for opponents who argue that the bills threaten to undermine legal, legitimate mechanisms that are integral to the Internet technological and social utility (See my commentary posted on Reason yesterday afternoon).

PIPA supporters have argued that worries about Internet censorship and user disruption are exaggerated and the bill’s real goal is to target shadowy “rogue” sites that deal in counterfeit merchandise and pirated video downloads. Yesterday we found out just who the Feds thinks these rogue sites are.

Megaupload.com is a major commercial file-sharing site used by millions of consumers and businesses in the course of daily business. Users park large files that can then be shared among friends, family or professional workgroups. It competes directly with other such services such as Dropbox and RapidUpload. Megaupload claims to have about 50 million daily visits and even DoJ notes that at one point it was estimated to be the 13th most frequently visited site on the Internet.

Can infringing material be found on Megaupload? No doubt it can. But infringing material can also be found on YouTube and just about every other file-sharing site. The courts have held that these sites are not liable for infringement as long as they honor cease and desist notices to take down offending content.

The DoJ’s indictment rests on the claim that Megaupload.com first and foremost was in the business of piracy. The seven executives arrested yesterday (a group that did not include the company’s CEO, Swizz Beatz, the husband of singer Alicia Keyes) are being charged with racketeering. The indictment claims that Megaupload.com robbed artists, musicians and authors of $500 million, and that the site is actually a front for a worldwide conspiracy.

These charges might yet be true, but the supposition shouldn’t trump due process (See Jerry Brito’s post below). That it did brings the precise concerns of PIPA and SOPA critics into high relief. In addition to the arrest, the Feds have forced Megaupload.com to shut down, essentially seizing not only private property of Megaupload, but the documents, photos, videos and artwork of millions of legitimate users–some of it crucial to their livelihoods–on what amounts to a thin pretext that could be applied to any file-sharing site. Anonymous, the loosely knit “hacktivist” group, made its feelings known with its retaliatory DDoS attacks on DoJ, FBI, MPAA and RIAA sites yesterday, but I think there’s more blowback to come. A significant number of average Americans lost time, money and digital property yesterday in what they perceive as a massive overreach by a DoJ that is already under fire for its blundering tactics (Fast and Furious, the Black Friday poker site shutdowns). I’ll bet the phones were ringing off the hook in many Congressional offices this morning.

Moreover, the charges may not stick. By all accounts, Megaupload is gearing up for a fight. As its lead attorney notes, case law, including the YouTube decision, favors the company. Plus there’s the fact there are no copyright  judgments currently against it. It reportedly has also been working to iron out copyright issues with rightsholders, and has garnered support from a cross-section of artists and performers–the very community that the government alleges Megaupload has been ripping off. But even it wins, it might be a Phyrric victory, because by the time the legal dust settles, Megaupload may well be out of business. Elsewhere, Dropbox and RapidUpload execs must be sweating.

The takeaway from all this is that SOPA and PIPA will codify these DoJ tactics. And with the Megaupload siezure sitting out there as Exhibit A, no one can take the Feds at their word that they will exercise any restraint or discretion in their definition of a “rogue” site.

The best hope is that Megaupload turns out to be the egg that make the omelet. The good news out of this week of contentious debate is that is that Senate Majority Leader Harry Reid has pulled the Tuesday PIPA vote from the floor calendar. In the lower chamber, House Judiciary Committee Chairman Lamar Smith said his panel won’t take up “there is wider agreement on a solution.”

Looks like the good guys might just win one.

Here’s Mike Riggs take on Reason.com’s Hit and Run.

(Cross posted at reason.org)

It’s rare when the entire Internet industry rises up with one voice. Perhaps that’s why the protest against the House of Representatives’ Stop Online Piracy Act and its Senate counterpart, the Protect Intellectual Property Act (PIPA), is getting so much attention. In policy circles, usually one segment of the online industry is jockeying for favorable position against another. Today, with Wikipedia dark, Google taped over, and a host of other sites large and small raising awareness through home page notices, New Media is drawing its line in the sand against the most astounding government overreach into Internet regulation to date.

The bills amount to good intentions gone awry. True, sites that sell brand-name counterfeits and offer illegal downloads are easy to find and no honest user advocates intellectual property theft. But SOPA and PIPA are extremely coercive and heavy-handed, and as both bills have percolated up through the legislative process, opposition has steadily mounted. There have even been outright turnarounds. The Business Software Alliance, a strong supporter of antipiracy measures and an initial backer of SOPA, reversed its position upon examining the bill.

SOPA and PIPA essentially place responsibility-and cost-of policing the Web for IP violations on the shoulders of Web site owners through an electronic version of prior restraint. The law would require Internet service providers (ISPs) to take steps to prevent their customers’ web browsers from connecting to alleged pirating site. Search engines like Google would have to scrub alleged pirating sites from their search results, or else disable links to them. Web advertising delivery systems would be required to block distribution of banners and links. Finally, sites which revolve around user-generated content, such as Facebook and Wikipedia, would be liable for any pirated content or link posted by any one of their millions of visitors.

How do the bills define a site that’s counterfeiting products or pirating copyrighted content, or one that allows users to link to them? Not very specifically. The bills’ vague language gives the Justice Department enormous leeway with a very light burden of proof in designating offenders. In sum, the bill would give the FBI and federal prosecutors to power to declare illegal any site they don’t like.

It is not the least bit alarmist to call this censorship. If either SOPA or PIPA were to pass, for the first time, the U.S. government would be able to block what Americans can access via the Web. Even the provisions against Internet gambling did not go as far (you could still get to a gambling site, you just couldn’t transfer money to it). Bottom line: the bills propose ISPs and search engines deploy the same type of Internet blocking mechanisms used today by authoritarian regimes in China, Iran and Syria, just to name three. Worse, when a democratic system such as ours engages in it, it provides these governments with political cover.

This is not to give short shrift to the problem of IP theft. But we have other methods for dealing with the issue that don’t trample free speech or due process. The Digital Millennium Copyright Act ensures that copyright can be policed and protected on music download sites and video sharing sites such as YouTube. But it requires the property owner to take responsibility. As for the complaint that much of the Web’s IP theft originates off-shore, then perhaps the best course is for the U.S. government, as a representative of its citizens, to work through diplomatic channels and with international law enforcement and to bring offenders to justice. It’s harder, and it doesn’t generate headlines for politicians, but it respects the rights of Americans, and that should trump convenience.

More on SOPA:

The Internet on Strike

At the Top of Congress’ New Year Agenda? Regulate the Net

Don’t Rush Anti-Piracy Bill, Free Market Groups Urge

The New SOPA: Now With Slightly Less Awfulness!

Over at TIME.com, I recap the latest on SOPA and PIPA and look at what’s ahead once Congress reconvenes. I also address the argument that the piracy bills don’t amount to censorship since they’re aimed at unprotected speech.

Both bills would likely affect non-infringing speech because they allow for entire sites to be blocked — even if they also include otherwise legal speech. Yet the Supreme Court has ruled, “Broad prophylactic rules in the area of free expression are suspect. Precision of regulation must be the touchstone in an area so closely touching our most precious freedoms.” And you can add to that a troubling lack of due process that’s a recipe for abuse.

Read the whole thing here.

On Thursday, the House Judiciary Committee is slated to take up the misleadingly named Stop Online Piracy Act, an Internet censorship bill that will do little to actually stop piracy. In response to an outpouring of opposition from cybersecurity professionals, First Amendment scholars, technology entrepreneurs, and ordinary Internet users, the bill’s sponsors have cooked up an amended version that trims or softens a few of the most egregious provisions of the original proposal, bringing it closer to its Senate counterpart, PROTECT-IP. But the fundamental problem with SOPA has never been these details; it’s the core idea. The core idea is still to create an Internet blacklist, which means everything I say in this video still holds true. Let’s review the main changes. Three new clarifying clauses have been added up front: the first two make clear that SOPA is not meant to create an affirmative obligation for site owners to monitor user content (good!) or mandate the implementation of technologies as a condition of compliance with the law (also good!). But the underlying incentives created by the statute push strongly in that direction whether or not it’s a formal requirement: What else do we imagine sites threatened under this law because of user-uploaded content or links will do to escape liability? A third clause says the bill shouldn’t be construed in a way that would impair the security or integrity of the network—which is a bit like slapping a label on a cake stipulating that it shouldn’t be construed to make you fat. These are all nice sentiments, but they remind me of the old philosophers’ joke: “You’ve obviously misinterpreted my theory; I didn’t intend for it to have any counterexamples!”

The big changes in the section establishing court-ordered blocking of supposed “rogue” sites appear to be intended to respond to the objections of cybersecurity professionals and network engineers, who pointed out that requiring falsification of Domain Name System records to redirect users from banned domains would interfere with a major government-supported initiative to secure the Internet against such hijacking. The updated language explicitly disavows the idea of redirection, removes a hard five-day deadline for compliance, and (crucially) says that any DNS operator (like your ISP) has fully satisfied its obligations under the statute if it simply fails to respond to DNS queries for blacklisted sites.

This is bad for transparency, in both the engineering and democratic senses of that term, insofar as it makes a government block indistinguishable from a technical failure, but it does, in a sense, address the direct conflict with DNSSEC. But as network engineers point out, a well-designed application implementing DNSSEC isn’t just going to give up when it doesn’t get a valid, cryptographically signed reply: it’s going to try other DNS servers (including servers outside US jurisdiction) until it finds one that answers.

There are two possibilities here. The first is that application designers don’t design their software properly to implement DNSSEC for fear of liability under the statute’s anti-circumvention provisions, which would be a Very Bad Thing. The second is that they’re assured they won’t be held liable for good design, in which case this whole elaborate censorship process—which was never going to be particularly effective against people who actually want to find pirated content—becomes a truly farcical pantomime, in which nobody running reasonably up-to-date clients even notices the nominal “blocking,” beyond a few seconds delay in resolving the “blocked” site. Now, if we’ve got to have an Internet censorship law, a completely impotent one is surely the best kind, but it becomes a bit mysterious what the point of all this is, beyond providing civil libertarians with a chuckle at the vast amount of money Hollywood has wasted ramming this thing through.

The other big change is to the private right of action, which previously would have allowed any copyright holder to unilaterally compel payment processors and ad networks to cut off sites that it merely accuses of infringement, or enabling infringement, or (in a baffling specimen of tortured language) taking “deliberate actions to avoid confirming a high probability” that the site would be used for infringement. That last little hate crime against English is mercifully absent from the revised SOPA, and it makes clear that only foreign sites are covered, and a judge is now required to actually issue an order before intermediaries are obligated to sever ties.

Which ultimately goes to show that the original proposal was so profoundly wretched that you can improve it a great deal, and still have a very bad idea. This is still, as many legal scholars have correctly observed, censorship by slightly circuitous economic means. The involvement of a judge should (knock on wood) weed out the most obviously frivolous complaints, but it still makes it far too easy for U.S. corporations to effectively destroy foreign Internet sites based on a one-sided proceeding in U.S. courts.

These changes are somewhat heartening insofar as they evince some legislative interest in addressing the legitimate concerns that have been raised thus far. But the problem with SOPA and PROTECT-IP isn’t that they need to be tweaked in order to get the details of an Internet censorship system right. There is no “right” way to do Internet censorship, and the best version of a bad idea remains a bad idea.

Over at TIME.com, I write that while Congress mulls an Internet blacklist in SOPA, there are efforts underway to reengineer parts of the Net to make communications more decentralized and censorship-proof. These include distributed and decentralized DNS systems, currencies, and social networks, as well as attempts to circumvent ISPs using mesh networking.

It’s not a certainty that these projects will all succeed. Most probably won’t. Yet these far-out efforts serve as proof-of-concept for a censorship-resistant Internet. Just as between Napster and BitTorrent there was Gnutella and Freenet, it will take time for these concepts to mature. What is certain is the trend. The more governments squeeze the Internet in an attempt to control information, the more it will turn to sand around their fingers.

Read the whole thing here.

The Stop Online Piracy Act (SOPA), a controversial bill before the House of Representatives aimed at combating “rogue websites,” isn’t just about criminal, foreign-based sites that break U.S. intellectual property laws with impunity. Few dispute that these criminal websites that profit from large-scale counterfeiting and copyright infringement are a public policy problem. SOPA’s provisions, however, extend beyond these criminal sites, and would potentially subject otherwise law-abiding Internet intermediaries to serious legal risks.

Before moving forward with rogue websites legislation, it’s crucial that lawmakers take a deep breath and appreciate the challenges at stake in legislating online intermediary liability, lest we endanger the Nozickian “utopia of utopias” that is today’s Internet. The unintended consequences of overbroad, carelessly drafted legislation in this space could be severe, particularly given the Internet’s incredible importance to the global economy, as my colleagues have explained on these pages (1, 2, 3, 4, 5, 6)

To understand why SOPA could be a game-changer for online service providers, it’s important to understand the simmering disagreement surrounding the Digital Millennium Copyright Act (DMCA) of 1998, which grants certain online service providers a safe harbor from liability for their users’ copyright infringing actions. In exchange for these protections, service providers must comply with the DMCA’s notice-and-takedown system, adopt a policy to terminate users who repeatedly infringe, and meet several other conditions. Service providers are only eligible for this safe harbor if they act to expeditiously remove infringing materials upon learning of them. Also ineligible for the safe harbor are online service providers who turn a blind eye to “red flags” of obvious infringement.

The DMCA does not, however, require providers to monitor their platforms for infringing content or design their services to facilitate monitoring. Courts have held that a DMCA-compliant service provider does not lose its safe harbor protection if it fails to act upon generalized knowledge that its service is used for many infringing activities, in addition to lawful ones, so long as the service provider does not induce or encourage users’ infringing activities.

Defenders of the DMCA safe harbor argue that it’s helped enable America’s Internet-based economy to flourish, allowing an array of web businesses built around lawful user-generated content — including YouTube, Facebook, and Twitter — to thrive without fear of copyright liability or burdensome monitoring mandates.

Conversely, some commentators, including UCLA’s Doug Lichtman, argue that the DMCA inefficiently tips the scales in favor of service providers, to the detriment of content creators — and, ultimately, consumer welfare. Pointing to a series of court rulings interpreting the safe harbor’s provisions, critics argue that the DMCA gives online intermediaries little incentive to do anything beyond the bare minimum to stop copyright infringement. Critics further allege that the safe harbor has been construed so broadly that it shields service providers that are deliberately indifferent to their users’ infringing activities, however rampant they may be.

What does SOPA have to do with all of this? Buried in the bill’s 78 pages are several provisions that run a very real risk of effectively sidestepping many of the protections conferred on online service providers by the DMCA safe harbor.

Section 102

Section 102 of SOPA empowers the Attorney General to seek a court order against an allegedly infringing foreign website. Such a court order would, if granted, effectively deny the site access to payment processors, ad networks, and even parts of the domain name system. Under § 102, a foreign, U.S.-directed website is deemed a “foreign infringing site” if:

[T]he owner or operator of such Internet site is committing or facilitating the commission of criminal violations [involving illegal copyright infringement, counterfeiting, or theft of trade secrets] and the Internet site would . . . [therefore] be subject to seizure in the United States . . . if such site were a domestic Internet site.

The part about websites “subject to seizure in the United States” refers to 18 U.S.C. § 2323, which states among other things that “[p]roperty subject to forfeiture” includes:

Any property used, or intended to be used, in any manner or part to commit or facilitate the commission of [criminal copyright or trademark infringement].

This definition of a “foreign infringing site” is enormously troubling. Note the absence of any requirement of actual or constructive knowledge on the part of the site operator, let alone criminal intent. Under § 102, a foreign website built around user-generated content may be deemed an “infringing site” simply because its server has facilitated the criminally infringing acts of a single user — even if the site operator neither induced nor knew of the user’s unlawful activities. While an innocent foreign site operator might eventually be able to persuade a court to vacate an order deeming it a “foreign infringing site,” SOPA imposes an astonishingly low burden on the Attorney General of showing that a site is a “foreign infringing site.” If the bill is enacted as is, foreign websites that contain any user-generated content had better watch out.

SOPA proponents defend § 102 by pointing out that its definition of infringing sites comes straight out of the 2008 PRO-IP Act, which established the aforementioned civil forfeiture provision in 18 U.S.C. § 2323. But this statute’s constitutionality is currently being challenged in federal court by a team of attorneys that includes Stanford law professor and copyright guru Mark Lemley. The law’s breadth raises serious First Amendment concerns since it permits ex parte seizures of entire outlets of speech (e.g., websites) simply because the outlet has been used in some unlawful manner. SOPA may be based on existing law, but why should Congress extend this overbroad provision of the PRO-IP Act to encompass an even broader range of websites? If anything, lawmakers should revisit PRO-IP and narrow its applicability to sites intentionally operated for the purpose of committing or facilitating criminal infringement. Via Techdirt, even Floyd Abrams, a constitutional scholar who represents content companies that strongly back SOPA, conceded in a recent letter to Congress that unanswered questions remain regarding the constitutionality of 18 U.S.C. § 2323.

Section 103

The next section of SOPA, Section 103, isn’t any better. This section provides for private rights holders to seek court orders against U.S.-directed websites — including domestic sites — to deny them access to U.S. payment processors and ad networks. Section 103 deems a website “dedicated to theft of U.S. property” if any of the following conditions are met:

1. [The site] is primarily designed or operated for the purpose of, has only limited purpose or use other than, or is marketed by its operator or another acting in concert with that operator for use in, offering goods or services in a manner that engages in, enables, or facilitates [copyright infringement, circumvention of copyright protection systems, or trademark infringement]; or
2. [The site operator] is taking, or has taken, deliberate actions to avoid confirming a high probability of the use of the . . . site to carry out acts that constitute [copyright infringement or the circumvention of copyright protection systems]; or
3. [The site operator] operates the . . . site with the object of promoting, or has promoted, its use to carry out acts that constitute [copyright infringement or the circumvention of copyright protection systems], as shown by clear expression or other affirmative steps taken to foster infringement.

The first prong of this definition encompasses any website that “has only limited purpose or use other than . . . engag[ing] in, enabl[ing], or facilitat[ing]” copyright infringement, circumvention of copyright protection systems, or trademark infringement. This language comes from 17 U.S.C. § 1201, also known as the DMCA anti-circumvention provisions. Just how “limited” of non-infringing uses must a site have to meet this definition? It’s hard to say. As Rob Pegoraro cheekily observed in a recent Roll Call op-ed, “‘[l]imited’ is one of those wonderfully elastic words — notice the ever-longer yet still ‘limited’ copyright terms granted to artists and creators?” This section of SOPA would be more clear if it relied on the “capable of substantial non-infringing uses” test originally articulated by the U.S. Supreme Court in its famous 1984 Betamax opinion, Sony Corp. v. Universal City Studios, Inc., which has since been interpreted by numerous federal courts in copyright infringement cases.

The second prong of the § 103 definition, which covers websites that take “deliberate actions to avoid confirming a [high probability of infringement],” is perhaps the most worrisome of the three prongs. This language appears to have been lifted directly from a 2011 U.S. Supreme Court decision,  Global-Tech Appliances, Inc. v. SEB S.A. In that case, a patent infringement lawsuit, the Court found the defendant liable for inducement on the grounds that it took willful steps to blind itself of the existence of the patent at suit. The Court held that “willful blindness” exists when (1) a defendant subjectively believes that there is a high probability that a fact exists; and (2) the defendant takes deliberate actions to avoid learning of that fact.

Note, however, that Section 103 omits the first prong of the Global Tech willful blindness test, the subjective belief element. This omission might simply be an oversight — or it could reveal the intent of the bill’s authors to cast aside the subjective knowledge standard (which currently applies to service providers in the context of knowledge for purposes of the DMCA) and replace it with an objective, “reasonable person” standard. If plaintiff bringing a SOPA action is only required to show that a website operator should have known of its users’ infringement from the perspective of a “reasonable” operator, and that the site’s operator acted in some manner that had the effect of contributing to its ignorance of infringing activities by users, a vast array of websites that currently enjoy the protections of the DMCA safe harbor may face significant new legal risks. After all, website operators make design decisions all the time that might foreseeably impact on their awareness (or lack thereof) of user’ potentially infringing activities. Who knows what sort of well-intentioned, albeit deliberate, decisions might amount to”avoiding confirming a high probability” of infringement?

As David Sohn of the Center for Democracy & Technology has pointed out, “[t]his seems like a backdoor way of imposing a monitoring obligation on any website that allows users to post content.”  Temple Law Professor David Post, writing at the Volokh Conspiracy, observed that the bill might make it a “violation of law to keep the prosecutors from ‘confirming’ that you’re violating the law — all the prosecutor has to show, to make you vanish from the Net, is that you’ve somehow tried to keep the prosecutor off of your website!”

Why SOPA Could Endanger the DMCA Safe Harbor

SOPA proponents have dismissed concerns that the bill would risk undermining the DMCA safe harbor. U.S. Register of Copyrights Maria Pallante, testifying in a House Judiciary Committee hearing on SOPA on November 16, told members of Congress that it was extremely unlikely that any actions brought under SOPA would impact websites otherwise shielded by the DMCA safe harbor. Techdirt reports that Viacom executive Stanley Pierre-Louis recently argued that SOPA would not “[expand] the scope of secondary liability claims and [diminish] DMCA protections,” noting that “[t]here is no rule that permits ‘willful blindness’ of obvious wrongdoing under U.S. law, and nothing in the DMCA or any other statute has been deemed to hold otherwise.”

Technically, Pallante and Pierre-Louis are correct; SOPA’s provision at 102(c)(2)(A)(iii) appears to leave existing doctrines of copyright liability vis-à-vis the DMCA safe harbor untouched.

In practice, however, SOPA has the potential to effectively usurp the DMCA safe harbor in important respects. If the bill is enacted, online service providers would face a new worst nightmare: being cut off from payment processors, ad networks, and possibly even Internet service providers. As Eric Goldman recently explained, if a “website goes offline because of cash flow problems caused by the cutoff attributable to a single UGC content item, all of the UGC on that website goes dark because of a single content item.”

To avoid such an outcome, website operators will likely do everything they can to avoid falling under SOPA’s definitions — even if that means going above and beyond the requirements of the DMCA safe harbor. While I’m all for websites voluntarily taking prudent and measured actions to combat unlawful user activities (e.g., YouTube’s Content ID system), there are good reasons to be very skeptical of any legislation that effectively imposes on site operators any duty or obligation to monitor, or facilitate the monitoring of, user activities.

Fair concerns have been raised by thoughtful commentators about the DMCA’s limitations and shortcomings. Those concerns deserve a serious examination in the halls of Congress, and perhaps may even merit some careful, targeted tweaks to the DMCA. But the extraordinary remedies provided contained in SOPA should be reserved for genuine rogue sites that willfully flout U.S. laws with impunity and are beyond the reach of U.S. law enforcement authorities. While there are U.S.-based websites out there that violate copyright and trademark laws, extraordinary remedies (such as “going after the money”) should not be the primary method of penalizing such sites. If a rights holder believes that a domestic website is infringing on its copyright or trademark, the proper means of obtaining recourse is to file a civil lawsuit and, when appropriate, seek injunctive relief. The U.S. Marshals Service is tasked with enforcing civil judgments and other court orders entered against domestic actors by federal courts, and parties may obtain writs of execution to order law enforcement intervention against American individuals or businesses that violate court orders.

We Have To Pass The Bill To Find Out What’s In It

Reasonable people read SOPA’s provisions in very different ways. For instance, Terry Hart, writing at Copyhype, has eloquently defended SOPA’s definitions, arguing that “[t]he actions that would subject a provider to SOPA’s provisions are the same ones that would subject it to a copyright infringement suit under existing law and are actions that would not be protected under DMCA safe harbors.” But while SOPA’s definitions are based largely on well-established, time-tested statutes and precedents, some of the language isn’t as clear-cut as it might seem at first glance, as I explain above.

As a result, it’s tough to predict how SOPA would actually impact online service providers. Federal judges vary widely in the methods they employ in attempting to interpret vague statutes. There is no such thing as stare decisis when it comes to statutory construction; some judges focus on the plain meaning of a statute’s language, while others pour through committee reports and hearing transcripts in hopes of divining the legislature’s true underlying intent.

With apologies to Nancy Pelosi, what this means is that we probably won’t know what’s in SOPA until it’s passed. Even then, only after years of costly litigation will the contours of the bill’s provisions likely begin to approach a state of clarity. Consider that the DMCA, now thirteen years old, continues to engender serious disagreement among federal courts to this day. (For instance, courts disagree on what it means for a service provider to take “volitional acts” that encourage users to engage in infringement.)

SOPA’s potential breadth is especially problematic given that its potential victims are small, entrepreneurial Internet start-ups that lack the resources to pay a team of lawyers to examine their operational decisions for potential SOPA violations. As leading high-tech venture capitalist Fred Wilson has argued, “venture capitalists will think more than twice about putting $3mm of early stage capital into startups if they know that the vast majority of the funds will go to pay lawyers to defend the companies instead of to hire engineers to create and build product.”

Lawmakers Should Tread Carefully

While combating rogue foreign websites that violate U.S. laws flagrantly and with impunity should be a priority for lawmakers, SOPA’s definitions and remedies are simply too broad and too vague in their current form. They would cast a cloud of legal uncertainty over America’s innovative, startup-driven Internet economy. It would be a grave mistake to grant such powerful new tools to Justice Department and rights holders and assume that federal trial judges will interpret SOPA’s provisions as narrowly as is necessary to ensure legitimate Internet companies do not suffer adverse effects.

The recent House Judiciary Committee hearing on SOPA made clear just how much work remains to be done to craft an effective but targeted approach to rogue sites. Serious questions remain unresolved — not only about SOPA’s impact of the DMCA safe harbor, but also about cybersecurity, due process and free speech. Additional hearings are needed to explore these important issues with Internet engineers, law professors, and venture capitalists. Marking up the legislation before the end of 2011 — as Chairman Lamar Smith desires, according to the National Journal — would be a serious mistake.

For more on SOPA and rogue websites legislation; see: 

• Ryan Radia, Preliminary Thoughts  on Stop Online Piracy Act (SOPA)
• Ryan Radia, Congress Should Amend SOPA to Address Cybersecurity, Due Process Concerns
• Ryan Radia, Congress takes another stab at combating Rogue Websites with the PROTECT IP Act
• Ryan Radia, Five Ways Congress Can Fix COICA Copyright Bill
• Joint Letter from Public Interest Groups to the House Judiciary Committee on the Stop Online Piracy Act
• Timothy B. Lee, ArsTechnica, The Stop Online Piracy Act: Big Content’s full-on assault against the Safe Harbor
• Letter from Sens. Ron Wyden, Rand Paul, Jerry Moran, and Maria Cantwell to Congressional Leadership objecting to the PROTECT IP Act
• U.S. Rep. Zoe Lofgren’s Opening Letter on SOPA
• Prof. Eric Goldman, Why I Oppose the Stop Online Piracy Act (SOPA)/E-PARASITES Act
• Prof. David Post, How About Occupy Hollywood?
• Fred Wilson, Protecting The Safe Harbors Of The DMCA And Protecting Jobs
• Terry Hart, SOPA: New remedies for existing liability
• Rob Pegoraro, Online Piracy Act is Copyright Overreach
• Center for Democracy & Technology, The Stop Online Piracy Act: Summary, Problems and Implications
• Sherwin Siy, Public Knowledge, House Version of Rogue Websites Bill Adds DMCA Bypass, Penalties for DNS Workarounds
• Techdirt’s SOPA coverage
• Parker Higgins, Electronic Frontier Foundation, What’s On the Blacklist? Three Sites That SOPA Could Put at Risk
• Corynne McSherry, Electronic Frontier Foundation, SOPA: Hollywood Finally Gets A Chance to Break the Internet
• Larry Downes, TechFreedom, SOPA: Hollywood’s latest effort to turn back time

Over at TIME.com Techland, I write about the newly introduced Stop Online Piracy Act and the renewed push for a “rogue website” law.

At a moment when Secretary of State Hillary Clinton is urging world governments to keep their hands off the Internet, creating a blacklist would send the wrong message. And not just to China or Iran, which already engage in DNS filtering, but to liberal democracies that might want to block information they find naughty. Imagine if the U.K. created a blacklist of American newspapers that its courts found violated celebrities’ privacy? Or what if France blocked American sites it believed contained hate speech? We forget, but those countries don’t have a First Amendment.

The result could be a virtually broken Internet where some sites exist for half the world and not for the other. The alternative is to leave the DNS alone and focus (as the bills also do) on going after the cash flow of rogue websites. As frustrating as it must be for the content owners who are getting ripped off, there are some cures worse than the disease.

Read the whole thing here.

For CNET today, I have a long analysis and commentary on the “Stop Online Piracy Act,” introduced last week in the House. The bill is advertised as the House’s version of the Senate’s Protect-IP Act, which was voted out of Committee in May.

It’s very hard to find much positive to say about the House version. While there’s considerable evidence its drafters heard the criticisms of engineers, legal academics, entrepreneurs and venture capitalists, their response was unfortunate.

Engineers pointed out, for example, that court orders requiring individual ISPs to remove or redirect domain name requests was a futile and dangerous way to block access to “rogue” websites. Truly rogue sites can easily relocate to another domain, or simply have users access them with their IP address and bypass DNS altogether.

There are millions of DNS servers, according to Verisign, so getting all of them to make the change would be impossible, splintering the system. And redirecting DNS requests is some sense introducing a bug in the system, one that is inconsistent with upcoming security measures aimed at protecting users from being hijacked.

But all the drafters of SOPA seemed to have heard was the part about “futile.” Their response has been to make the DNS provisions vaguer and more open-ended, in hopes that whatever mechanisms the rogue sites come up with to evade the law will also be illegal.  Blocking is now extended not just to “parasite” sites but to a “portion thereof,” for example.

And the Attorney General can now apply for injunctive relief against any “entity” that provides “a product or service designed or marketed for the circumvention or bypassing of measures” taken in response to an earlier court order.

Similar efforts are found throughout SOPA, particularly in the felony streaming provision, and the private right of action (or what the bill calls the “market-based system”) for private enforcement of copyright and trademark abuses.  Where clarity isn’t possible, the drafters have opted for vagueness, open-ended definitions, and hedges.  Even the term “including” is defined, to be clear that it means “including but not limited to.”

The point to criticism of Protect-IP was instead that it was impossible to regulate technology that is changing so quickly, and that any effort to do so would only prove obsolete on arrival.  As previous efforts from CAN-SPAM to ECPA and back make clear, you cannot future-proof legislation aimed at specfiic features of emerging technologies.

That, unfortunately, is exactly what SOPA tries to do.  And beyond making the legislation clumsy and imprecise, the intentional vagueness greatly increases the potential for unintended consequences.  I describe several unintentionally dangerous examples from SOPA in the CNET piece; other analysts have done the same in pieces listed at the end of this post.

Two good things I found in the 79-page draft:

1.  The failure of Protect-IP to define “nonauthoritative domain name server” has been addressed.  That term is now defined, and the definition looks correct to me.

2.  SOPA recognizes, at least, the better approach to solving the problem of foreign websites that blatantly violate copyright and trademark.  Near the back, Section 205 calls on the State and Commerce Departments to make enforcement of existing international law and treaties regarding information products and services a priority.  This includes the assignment of new attaches dedicated to information products.

Would that SOPA started and ended with this provision, there would be little basis to fault its drafters.  If the problem SOPA is attempting to solve, after all, is the scourge or foreign websites that distribute movies, music, and counterfeit goods without a license (often pretending to be legitimate), then surely the solution is one of foreign and trade policy and not micromanaging Internet protocols.

Instead, we have a bill that treats all U.S. consumers as guilty until proven innocent, and hands Hollywood the keys to the inner workings of the Internet.  Just what they’ve always wanted.

Worth reading:

• Ryan Radia, “Preliminary thoughts on SOPA “  (TLF)
• David Sohn, “House Copyright Bill Casts Dangerously Wide Net”  (CDT)
• Corynne McSherry, “Disastrous IP Legislation Back–and it’s Worse than Ever “  (EFF)
• Sherwin Siy, “House Version of Rogue Websites Bill Adds DMCA Bypass, Penalties for DNS Workarounds” (Public Knowledge)
• Mike Masnick, “E-Parasites Bill Ends Internet as we Know it”  (TechDirt)

This afternoon the Stop Online Piracy Act (H.R. 3261) was introduced by Rep. Lamar Smith of the House Judiciary Committee. This bill is a companion to the PROTECT IP Act and S.978, both of which were reported by the Senate Judiciary Committee in May.

There’s a lot some to like about the bill, but I’m uneasy about some quite a few of its provisions. While I’ll have plenty to say about this bill in the future, for now, here are a few preliminary thoughts:

• The bill’s definition of “foreign infringing sites” at p. 10 borrows heavily from 18 U.S.C. § 2323, covering any site that commits or facilitates the commission of criminal copyright infringement and would be subject to civil forfeiture if it were U.S.-based. Unfortunately, the outer bounds of 18 U.S.C. § 2323 are quite unclear. The statute, which was enacted only a few years ago, encompasses “any property used, or intended to be used, in any manner or part to commit or facilitate” criminal copyright infringement. While I’m all for shutting down websites operated by criminal enterprises, not all websites used to facilitate crimes are guilty of wrongdoing. Imagine a user commits criminal copyright infringement using a foreign video sharing site similar to YouTube, but the site is unaware of the infringement. Since the site is “facilitating” criminal copyright infringement, albeit unknowingly, is it subject to the Stop Online Piracy Act?
• Section 103 of the bill, which creates a DMCA-like notification/counter-notification regime, appears to lack any provision encouraging ad networks and payment processors to restore service to a site allegedly “dedicated to theft of U.S. property” upon receipt of a valid counter-notification and when no civil action has been brought. The DMCA contains a safe harbor protecting service providers who take reasonable steps to take down content from liability, but the safe harbor only applies if service providers promptly restore allegedly infringing content upon receipt of a counter notification and when the rights holder does not initiate a civil action. Why doesn’t H.R. 3261 include a similar provision?
• The bill’s private right of action closely resembles that found in the PROTECT IP Act. Affording rights holders a legal avenue to take action against rogue websites makes sense, but I’m uneasy about creating a private right of action that allows courts to issue such broad preliminary injunctions against allegedly infringing sites. I’m also concerned about the lack of a “loser pays” provision.
• Section 104 of the bill, which provides immunity for entities that take voluntary actions against infringing sites, now excludes from its safe harbor actions that are not “consistent with the entity’s terms of service or other contractual rights.” This is a welcome change and alleviates concerns I expressed about the PROTECT IP Act essentially rendering certain private contracts unenforceable.
• Section 201 of the bill makes certain public performances via electronic means a felony. The section contains a rule of construction at p. 60 that clarifies that intentional copying is not “willful” if it’s based on a good faith belief with a reasonable basis in law that the copying is lawful. Could this provision cause courts to revisit the willfulness standard discussed in United States v. Moran, in which a federal court found that a defendant charged with criminal copyright infringement was not guilty because he (incorrectly) thought his conduct was permitted by the Copyright act?

I’ve written two articles on the Protect IP Act of 2011, introduced last week by Sen. Leahy (D-Vt.).

For CNET, I look at some of the key differences, better and worse, between Protect IP and its predecessor last year, known as COICA.

On Forbes this morning, I have a long meditation on what Protect IP says about the current state of the Internet content wars.  Copyright, patent, and trademark are under siege from digital technology, and for now at least are clearly losing the arms race.

The new bill isn’t exactly the nuclear option in the fight between the media industries and everyone else, but it does signal increased desperation.

I’m not exactly a non-combatant here.  Increasingly, everyone is being dragged into this fight, including search engines, ISPs, advertisers, financial transaction processors, and, in Protect IP is passed, anyone who uses a hyperlink.

But as someone who earns his living from information exchanges–what the law anachronistically calls “intellectual property”–I’m not exactly an anarchist either (or as one recent commenter on CNET called me, a complete anarchist!).

The development of an information economy will stabilize and mature at some point, and, I believe, the new supply chain will be richer, more profitable, and give a greater share of the value than the current one does to those who actually create new content.  (Most of the cost of information products and services today is eaten up by middlemen, media, and distribution.)

But it’s not an especially smooth or predictable trajectory.  Joseph Schumpeter didn’t call it creative destruction for nothing.

Last November, I penned an essay on these pages about the COICA legislation that had recently been approved unanimously by the U.S. Senate Judiciary Committee. While I praised Congress’s efforts to tackle the problem of “rogue websites” — sites dedicated to trafficking in counterfeit goods and/or distributing copyright infringing content — I warned that the bill lacked crucial safeguards to protect free speech and due process, as several dozen law professors had also cautioned. Thus, I suggested several changes to the legislation that would have limited its scope to truly bad actors while reducing the probability of burdening protected expression through “false positives.” Thanks in part to the efforts of Sen. Ron Wyden (D-Ore.), COICA never made it a floor vote last session.

Today, three U.S. Senators introduced a similar bill, entitled the PROTECT IP Act (bill text), which, like COICA, establishes new mechanisms for combating Internet sites that are “dedicated to infringing activities.” I’m glad to see that lawmakers adopted several of my suggestions, making the PROTECT IP Act a major improvement over its predecessor. While the new bill still contains some potentially serious problems, on net, it represents a more balanced approach to fighting online copyright and trademark infringement while recognizing fundamental civil liberties.

Some of the major differences between COICA and PROTECT IP include:

• Under COICA, a website would have been deemed “dedicated to infringing activities” if it had no “demonstrable, commercially significant purpose other than” (emphasis added) to facilitate infringing activities. PROTECT IP, however, only covers websites with “no significant use other than” to facilitate infringing activities. This slight change in wording may seem trivial, but it’s actually quite significant, as lots of blogs, forums, and other sites engaged in noncommercial, but still protected, speech that may well have been subject to domain name disabling under COICA would likely be in the clear under PROTECT IP. However, as Public Knowledge’s Sherwin Siy points out, PROTECT IP’s definition of sites “dedicated to infringing activities” remains overly broad, as it doesn’t explicitly exempt online intermediaries that are otherwise protected by the 17 U.S.C. § 512(c) safe harbor. A site operator that is not engaged in direct or willful secondary infringement should be exempt from actions taken under the PROTECT IP Act if the site abides by the DMCA notice and takedown process, has no actual knowledge of infringing activities, does not derive a financial benefit directly attributable to infringement, and does not induce infringement.

• PROTECT IP, unlike COICA, does not categorically deem websites “otherwise subject to civil forfeiture” under 18 U.S.C. § 2323 to be “dedicated to infringing activities.” Given the extraordinary breadth of section 2323, which permits the government to seize any  “property used, or intended to be used, in any manner or part to commit or facilitate the commission of” criminal copyright infringement, it’s a relief that language was removed.

• PROTECT IP requires that the Justice Department or a rights holder, in bringing an action against a site under the statute, attempt to commence an in personam action against the operator of an allegedly infringing website before an in rem action can be brought. From a due process perspective, this change is an improvement over COICA (which only provided for in rem actions), as it’s much more likely that an in personam action will provide a site operator with an opportunity to participate in an adversarial hearing prior to the issuance of a temporary restraining order or preliminary injunction requiring an intermediary to disable service to the site.

• PROTECT IP adds information location tools to the list of intermediaries that are required to disable service or cease linking to a website upon being served with a court order deeming the site “dedicated to infringing activities.” This provision would apply not only to search engines, but also to blogs, chat rooms, and message boards. Like COICA, PROTECT IP also applies to DNS operators, financial transaction providers, and Internet advertising services.

• PROTECT IP allows the Justice Department to take action only against nondomestic domain names. (DHS asserts that it is already empowered to seize domestic domain names in accordance with 18 U.S.C. § 2323, as it has done successfully on numerous occasions in recent months.)

• PROTECT IP contains a new private right of action under which a rights holder may seek a court order against any domain name. Actions initiated by rights holders, if successful, only require ad networks and/or payment processors – but not DNS servers or information location tools – to disable service to infringing sites.

Considering all the changes made to the bill, I’m inclined to disagree with commentators, such as Techdirt’s Mike Masnick, who’ve argued that the PROTECT IP, a.k.a. the “Son of COICA,” is worse than its father. On net, PROTECT IP appears to be less likely to impose incidental burdens on protected expression and more likely to afford website operators a chance to successfully challenge actions brought against their sites.

However, I’m still concerned about several aspects of PROTECT IP. Its private right of action, while limited in scope, may result in small websites whose users frequently post infringing content being targeted by costly, burdensome litigation initiated by rights holders. CDT’s David Sohn elaborates on the risks of creating a private right of action in his superb analysis of the bill.

The voluntary actions clause is also quite troubling, as I’ve argued before and as Wendy Seltzer argues on her blog. While I’m all for voluntary actions in principle, such actions should not override private contracts or terms of service agreements that would otherwise be enforceable.

It’s also unfortunate that the PROTECT IP Act does not include a cost reimbursement section, as I suggested last year, or at least an exemption for small entities. While the bill establishes an affirmative defense for an information location tools that doesn’t comply with an order “by showing that the defendant does not have the technical means to comply . . . without incurring an unreasonable economic burden,” it’s far from clear what exactly court would deem “unreasonable.” News of the Justice Department seeking injunctive relief against a small search site operator for failing to comply with a court order issued under PROTECT IP will have a chilling effect on all kinds of small-time Internet platforms.

As lawmakers consider the PROTECT IP Act in coming weeks and months, they should also revisit 18 U.S.C. § 2323, a civil forfeiture provision enacted in 2008 as part of the PRO-IP Act. This extraordinarily broad statute has recently been criticized by many legal scholars. Rep. Zoe Lofgren, among other legislators, has been very critical of the way in which seizures have been conducted. While seizures are certainly justified in some instances, the statute should be narrowed to include only websites “dedicated to infringing activities,” and it should require the government to attempt to commence in personam actions in all instances. Domain names aren’t movable property — unlike illegal drugs or weapons, there is no risk of a criminal “hiding” a domain name or destroying it before evidence of its illegality can be secured.

Update: The final version of the bill text changed the term “interactive computer service” to “information location tool,” which is a positive change. I’ve changed this essay slightly to reflect the distinction.

POLITICO reports that a bill aimed at combating so-called “rogue websites” will soon be introduced in the U.S. Senate by Sen. Patrick Leahy. The legislation, entitled the PROTECT IP Act, will substantially resemble COICA (PDF), a bill that was reported unanimously out of the Senate Judiciary Committee late last year but did not reach a floor vote. As more details about the new bill emerge, we’ll likely have much more to say about it here on TLF.

I discussed my concerns about and suggested changes to the COICA legislation here last November; the PROTECT IP Act reportedly contains several new provisions aimed at mitigating concerns about the statute’s breadth and procedural protections. However, as Mike Masnick points out on Techdirt, the new bill — unlike COICA — contains a private right of action, although that right may not permit rights holders to disable infringing domain names. Also unlike COICA, the PROTECT IP Act would apparently require search engines to cease linking to domain names that a court has deemed to be “dedicated to infringing activities.”

For a more in-depth look at this contentious and complex issue, check out the panel discussion that the Competitive Enterprise Institute and TechFreedom hosted last month. Our April 7 event explored the need for, and concerns about, legislative proposals to combat websites that facilitate and engage in unlawful counterfeiting and copyright infringement. The event was moderated by Juliana Gruenwald of National Journal. The panelists included me, Danny McPherson of VeriSign, Tom Sydnor of the Association for Competitive Technology, Dan Castro of the Information Technology & Innovation Foundation, David Sohn of the Center for Democracy & Technology, and Larry Downes of TechFreedom.

CEI-TechFreedom Event: What Should Lawmakers Do About Rogue Websites? from CEI Video on Vimeo.

A federal judge in Illinois has refused to allow a plaintiff to match IP addresses to individual names in a piracy case, indicating that use of IP addresses without any other evidence is too unreliable in identifying actual perpetrators, and as such, violates the rights of those caught in what he termed a “fishing expedition.”

In his decision, Judge Harold Baker pointed to one of several recent cases where paramilitary-type police raids on the residences of persons suspected of downloading child pornography that turned up nothing. What had happened was that real culprit had used that household’s unsecured wireless Internet connection.

The circumstances of the case here were somewhat different, but the same principle applied. The attorney of VPR Internationale, an owner of a adult web site, sought the court’s permission to match names to ISP addresses suspected of illegal file sharing of the site’s content. Judge Baker concluded that an IP address, by itself, did not constitute reasonable grounds to subpeona records for use in targeting suspects, noting in particular how easy it is for unsecure wireless networks to by hijacked.

According to Ars Technica’s Nate Anderson, Baker already had rejected the request on two occasions. When the plaintiff sought leave to take the matter to an appeals court; Baker last week rebuffed him once more, saying it was totally improper to do expedited discovery against anonymous individuals with no representation of their own before the court.

“Could expedited discovery be used to wrest quick settlement, even from people who have done nothing wrong?” asked Baker. “The embarrassment of public exposure might be too great, the legal system too daunting and expensive, for some to ask whether [plaintiff porn company] VPR has competent evidence to prove its case.” Baker then went on to cite a recent mistaken child porn raid, where an IP address was turned into a name—but the named person hadn’t committed the crime. “The list of IP addresses attached to VPR’s complaint suggests, in at least some instances, a similar disconnect between IP subscriber and copyright infringer… The infringer might be the subscriber, someone in the subscriber’s household, a visitor with her laptop, a neighbor, or someone parked on the street at any given moment.”

This sets a good precedent and I hope that it will soon be used to deny a warrant for another predawn SWAT raid on an unsuspecting homeowner whose only mistake was failing to lock down a router. Given the potential these “wrong door” raids have for violence and death, we need the sort of discretion Judge Baker showed here when it comes to policing Internet crime.

User-driven websites — also known as online intermediaries — frequently come under fire for disabling user content due to bogus or illegitimate takedown notices. Facebook is at the center of the latest controversy involving a bogus takedown notice. On Thursday morning, the social networking site disabled Ars Technica’s page after receiving a DMCA takedown notice alleging the page contained copyright infringing material. While details about the claim remain unclear, given that Facebook restored Ars’s page yesterday evening, it’s a safe bet that the takedown notice was without merit.

Understandably, Ars Technica wasn’t exactly pleased that its Facebook page — one of its top sources of incoming traffic — was shut down for seemingly no good reason. Ars was particularly disappointed by how Facebook handled the situation. In an article posted yesterday (and updated throughout the day), Ars co-founder Ken Fisher and senior editor Jacqui Cheng chronicled their struggle in getting Facebook to simply discuss the situation with them and allow Ars to respond to the takedown notice.

Facebook took hours to respond to Ars’s initial inquiry, and didn’t provide a copy of takedown notice until the following day. Several other major tech websites, including ReadWriteWeb and TheNextWeb, also covered the issue, noting that Ars Technica is the latest in a series of websites to have suffered from their Facebook page being wrongly disabled. In a follow-up article posted today, Ars elaborated on what happened and offered some tips to Facebook on how it could have better handled the situation.

It’s totally fair to criticize how Facebook deals with content takedown requests. Ars is right that the company could certainly do a much better job of handling the process, and Facebook will hopefully re-evaluate its procedures in light of this widely publicized snafu. In calling out Facebook’s flawed approach to dealing with takedown requests, however, Ars Technica doesn’t do justice to the larger, more fundamental problem of bogus takedown notices.

As Mike Masnick explains on Techdirt, U.S. federal laws strongly discourage online intermediaries from trying to figure out if takedown notices are legitimate or not. If Facebook were to refuse to comply with a copyright takedown notice that subsequently turned out to be meritorious, it would lose its safe harbor provided for in 17 U.S.C. § 512(c). Should Facebook err in its judgment, therefore, it would potentially be on the hook for harsh copyright infringement penalties. In effect, the DMCA incentivizes what Masnick describes as “massive overreactions” by online intermediaries.

That’s not to say that there aren’t some simple steps Facebook could take to combat bogus takedown notices without exposing itself to additional liability, especially in “easy” cases, as Ars and others have argued. Verifying that takedown notices are associated with valid email addresses is one such step that Facebook apparently does not currently employ. Facebook could also be more responsive to users whose content has been disabled, at least when the content in question is highly visible.

Perhaps more importantly, Facebook should adopt a system for enabling users who believe their content has been wrongly disabled to file a counter notification. YouTube, for instance, has a slick online system that lets users challenge wrongful takedown requests. Under 17 U.S.C. § 512(g), an online service provider may restore previously-disabled content between 10 and 14 days after receipt of a valid counter notification if the content owner hasn’t initiated legal proceedings. It’s odd that Facebook hasn’t adopted an online counter notification system, especially given that service providers are shielded from liability if they respond to counter notices in accordance with section 512(g).

While it would be great if Facebook were to manually and thoroughly screen all user complaints and requests, expecting online intermediaries to pay for a live human being — say, an intellectual property lawyer or a paralegal — to vet the legal merits of each takedown notice is simply unreasonable. Facebook has more than 600 million active users, but a mere 2,000 or so employees (although that number may soon grow substantially). That’s over 300,000 users per employee!

And let’s not forget that Facebook is a free service. The company generated a scant $4 of revenue per user in 2010. Facebook’s going to have to do a much better job of monetizing its platform before we can reasonably expect it to vet legal requests on its users’ behalf. Even Google — with a head count and revenue more than ten times Facebook’s — is frequently chastised for not doing enough to identify bogus or otherwise invalid takedown notices. Based on some of the “horror stories” that have been reported recently, Ars Technica is lucky that Facebook restored its page within a day of its removal.

Even if Facebook improves its system, however, the underlying problem of bogus takedown notices is probably here to stay — that is, until Congress acts. Reopening the legislative debate over the DMCA is a risky gambit, but at least in theory, Congress could improve the statute by adopting some relatively minor tweaks.

First, the DMCA should do more to deter parties from filing invalid or bad faith DMCA takedown notices. Courts rarely punish parties for filing illegitimate takedown notices, as it is very difficult in practice to show  that a notice was filed in bad faith. All in all, the overwhelming majority of incidents of bogus takedown notices go unpunished, as I’ve discussed before on these pages.

Wendy Seltzer of Princeton’s Center for Information Technology Policy chronicled the chilling effects of DMCA takedown abuses in a recent Harvard Journal of Law & Technology article. She suggests a few legislative fixes to 17 U.S.C. § 512(f) to better balance the interests of users and rightsholders:

The law should require greater diligence: declarations on penalty of perjury to match those required by the respondent, and perhaps even a bond against erroneous claims. . . . Strengthening the counter-suit provisions could encourage a plaintiffs’ bar to take up these cases as private attorneys general. Stiffening the penalties against claimants who obtained takedowns through misrepresentation of infringement would encourage claimants to verify and support their claims of infringement or penalize them for failure to do so rather than allowing them to shift that burden to service providers and posters.

Congress should also create a safe harbor, notice-and-takedown system for online trademark infringement, as Elizabeth Levin has argued. While copyright takedown notices receive most of the attention in the IP debates, there’s no DMCA-esque process established in statute to provide for online intermediaries to disable and repost allegedly trademark-infringing content.

Yesterday the FBI effectively shut down three of the largest gambling sites online and indicted their executives. From a tech policy perspective, these events highlight how central intermediary control is to the regulation of the internet.

Department of Justice lawyers were able to take down the sites using the same tools we’ve seen DHS use against alleged pirate and child porn sites: they seize the domain names. Because the sites are hosted overseas (where online gambling is legal), the feds can’t physically shut down the servers, so they do the next best thing. They get a seizure warrant for the domain names that point to the servers and force the domain name registrars to point them instead to a government IP address, such as 50.17.223.71. The most popular TLDs, including .com, .net, .org, and .info, have registrars that are American companies within U.S. jurisdiction.

Another intermediary point of control for the federal government are payment processors. The indictments revealed yesterday relate to violations of the Unlawful Internet Gambling Enforcement Act, which makes it illegal for banks and processors like Visa, MasterCard and PayPal to let consenting adults use their money to gamble online. According to the DOJ, in order to let them bet, the poker sites “arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.” (PDF)

Now, imagine if there were no intermediaries.

In my TIME.com Techland column today, I write about Bitcoin, a completely decentralized and anonymous virtual currency that I think will be revolutionary.

Because Bitcoin is an open-source project, and because the database exists only in the distributed peer-to-peer network created by its users, there is no Bitcoin company to raid, subpoena or shut down. Even if the Bitcoin.org site were taken offline and the Sourceforge project removed, the currency would be unaffected. Like BitTorrent, taking down any of the individual computers that make up the peer-to-peer system would have little effect on the rest of the network. And because the currency is truly anonymous, there are no identities to trace.

And if a P2P currency can make it so that there is no fiscal intermediary to regulate, how about a distributed DNS system so that there are no registrars to coerce? This is something Peter Sunde of Pirate Bay fame has been working on. These ideas may sound radical and far-fetched, but if we truly want to see an online regime of “denationalized liberalism,” as Milton Mueller puts it, then getting rid of the intermediaries in the net’s infrastructure might be the best path forward.

Again, check out my piece in TIME for a thorough explanation of Bitcoin and its implications. I plan to be writing about it a lot more and devote some of my research time to it.

In the ongoing copyright debates, areas of common ground are seemingly few and far between. It’s easy to forget that not all approaches to combating copyright infringement are mired in controversy. One belief that unites many stakeholders across the spectrum is that more efforts are needed to educate Internet users about copyright. The Internet has spawned legions of amateur content creators, but not all of the content that’s being created is original. Indeed, a great deal of online copyright infringement owes to widespread ignorance of copyright law and its penalties.

For its part, Google yesterday unveiled “Copyright School” for YouTube users. As Justin Green explains on the official YouTube blog, users whose accounts have been suspended for allegedly uploading infringing content will be required to watch this video and then correctly answer questions about it before their account will be reinstated:

Of course, boiling down the basics of copyright into a four and a half minute video is not an easy task, to put it mildly. (The authoritative treatment of copyright law, Nimmer on Copyright, fills an 11-volume treatise.) Copyright geeks and fans of “remix culture” will appreciate that Google’s video touches on fair use and includes links to in-depth resources for users to learn more about copyright. It will be interesting to see how Google’s effort influences the behavior of YouTube users and the incidence of repeat infringement.

Update: EFF’s Corynne McSherry has an essay up on the Deeplinks blog arguing that YouTube’s Copyright School video omits several important facts about copyright. She raises several very good points, but the unfortunate reality of copyright law is that uploading content that’s not substantially original — even in cases that might constitute fair use — is legally risky, particularly for those who aren’t familiar with copyright law. While I’d love to see YouTube create a follow-up video that explains fair use doctrine in an accessible manner, Google’s decision to urge YouTube uploaders to err on the side of caution is quite reasonable in light of the severity of the statutory penalties for copyright infringement.

Early in President Obama’s term it became clear that efforts to close the revolving door between industry and government weren’t serious or the very least weren’t working.  For a quick refresher on this, check out this ABC news story from August of 2009, which shows how Mr. Obama exempted several officials from rules he claimed would “close the revolving door that lets lobbyists come into government freely” and use their power and position “to promote their own interests over the interests of the American people whom they serve.”

The latest example of this rapidly turning revolving door is covered expertly by Nate Anderson at Ars Technica:

Last week, Washington, DC federal judge Beryl Howell ruled on three mass file-sharing lawsuits. Judges inTexas, West Virginia, and Illinois had all ruled recently that such lawsuits were defective in various ways, but Howell gave her cases the green light; attorneys could use the federal courts to sue thousands of people at once and then issue mass subpoenas to Internet providers. Yes, issues of “joinder” and “jurisdiction” would no doubt arise later, but the initial mass unmasking of alleged file-swappers was legitimate.

Howell isn’t the only judge to believe this, but her important ruling is especially interesting because of Howell’s previous work: lobbying for the recording industry during the time period when the RIAA was engaged in its own campaign of mass lawsuits against individuals.

The bolding above is my own and is meant to underscore an overarching problem in government today of which Judge Howell is just one example. In a government that is expected to regulate nearly every commercial activity imaginable, it should be no surprise that a prime recruiting ground for experts on those subjects are the very industries being regulated.