Summary of SOPA and PIPA

Update January 20, 2012

I. Summary of SOPA

II. Summary of PIPA

III. Criticisms of SOPA/PIPA

IV. Proponents of SOPA

A. BUSINESSES AND ORGANIZATIONS

B. HOUSE SPONSORS

V. PROPONENTS OF PIPA

A. BUSINESS AND ORGANIZATIONS

B. SENATE SPONSORS

VI. CRITICS OF SOPA and PIPA

 

I. SUMMARY OF SOPA

SOPA is a bill that is in the House of Representatives.  The bill is an attempt by lawmakers to combat online piracy and intellectual property theft. The bill is divided into two sections: “Combating Online Piracy” and “Additional Enhancements to Combat Intellectual Property Theft.”

(1) Combating Online Piracy

“Combating Online Piracy” attempts to provide tools to the attorney general and rights holders to protect from intellectual property infringement.

(A) The Attorney General

The Attorney General is charged with guarding against “foreign infringing sites.”   Generally, a foreign infringing site is defined as a website outside of US jurisdiction but directed at the US, “committing or facilitating” intellectual property infringement.

In the AG’s discretion, the AG may commence an action against any website the AG believes to be a foreign infringing site.   After the commencement of the action, the court may issue a court order against the site to cease and desist from the allegedly infringing activities in the form of a temporary restraining order, a preliminary injunction or an injunction.

In addition to restraining the site, the court order may also be used to cut off the site from service providers, Internet search engines, payment network providers, and Internet advertising services. The AG may bring court actions against any of these entities that do not comply with the court order and entities that provide a means to circumvent the restriction on the site.

SOPA does provide immunity to these third party entities from suits related to any action taken to comply with court orders.  Except for technical unfeasibility, there is no immunity for not complying with the court orders.

(B) Rights Holders

SOPA also provides tools to rights holders against any Internet sites “dedicated to theft of US property”, which includes foreign and domestic sites.

The definition of these sites is broad.  It includes sites that “engage in, enable, or facilitate” intellectual property violations and sites that have taken “deliberate actions to avoid confirming a high probability of use” to violate intellectual property rights.

Under the SOPA regime, if a rights holder believes a site is dedicated to theft of US property, the rights holders may send notice to payment network providers and Internet advertising services, requiring these entities to stop serving the site. If these third parties do not honor the rights holder’s request, then it could be subject to liability from the rights holder.

Payment network providers are companies that facilitate payment transactions, such as Paypal or CCBill.  Internet Advertising Services are companies that facilitate the placement of advertisements for compensation.

The allegedly infringing site may send a counter notification to these third parties to resume services.  There is no requirement that the third parties have to comply with the order.  Further, the third parties are provided immunity from suit from all involved parties, except the right holder.

This scheme allows rights holder to require payment network providers and Internet advertising services to stop service to an allegedly infringing site without judicial oversight. The payment network providers and Internet advertising services are most likely going to adhere to the rights holder’s request as not doing so may subject them to liability.  Further, these third parties may continue to block service to the site, as there is no penalty for not complying with a counter notification.

(C) Immunity

SOPA provides complete immunity from suit for service providers, payment network providers, Internet advertising services, advertisers, Internet search engines, domain name registries, or domain name registrars for taking voluntary actions against foreign sites believed to be engaged in theft of US Property or endanger public health.  This provides an incentive to voluntarily monitor/censor.

(2) Additional Enforcements to Combat Intellectual Property Theft.

The “Additional Enforcements To Combat Intellectual Property Theft” section clarifies criminal law as applied to intellectual property rights, enhances punishments related to the leaking of government information, increases penalties for economic espionage and creates resources to enforce US IP rights abroad.

(A) IP Criminal Law

In terms of IP criminal law, SOPA merely clarifies existing statutes. For instance, SOPA adds language that makes it explicit that IP crimes include those perpetrated through “electronic means.”  There is also a provision of SOPA that calls for the US Sentencing Commission to review and possibly adjust punishment levels for IP crimes.

(B) Government Information

SOPA provides the government with more tools to prosecute leaks.  SOPA makes the punishment for IP infringement crimes more severe where the IP infringement is related to the leak of classified information, impairment of combat operations or creates harm to the armed forces or government.

(C) Economic Espionage

SOPA increases penalties for economic espionage (essentially trade secrets).  The maximum jail sentence would go from 15 to 20 years and the applicable fine would go from under $500,000 to between $1million and $5million.

(D) Intellectual Property Attaché

SOPA would create a new government position, the intellectual property attaché, who is assigned to embassies and diplomatic missions to protect US IP rights worldwide. The attaché would report to the US Intellectual Property Enforcement Coordinator and work with the Department of Commerce and State and the Copyright Office. The duties of the attaché would “focus primarily on intellectual property matters, including development, protection, and enforcement of applicable law. “

(3) How SOPA changes the law?

●   Places a burden to protect IP rights from foreign infringement on service providers, Internet search engines, payment network providers, and Internet advertising services.

●   Could expand secondary liability under copyright law.  (see below in criticisms)

●   Immunizes blocking of websites by service providers, payment network providers, Internet advertising services, advertisers, Internet search engines, domain name registries, and domain name registrars

●   Places liability on payment network providers and Internet advertising services

II. SUMMARY OF PIPA

PIPA is the Senate’s version of the current anti-piracy legislation, while SOPA is the House equivalent. Although the momentum behind SOPA has slowed recently due to vocal opposition by the American public, plans for PIPA are still moving forward at full speed from the efforts of Senate Majority Leader Harry Reid.

(1) Process – What is the current status of PIPA and how did it get here?

Reid just stated on Sunday that he will push forward with PIPA because it is “job-saving,” while at the same time acknowledging that there are still issues to be resolved with the bill.

On Jan. 23, 2012, when the Senate reconvenes, Reid will continue the cloture process that he began on Dec. 17, 2011. Cloture is basically the only means by which the Senate can vote to place a time limit on consideration of a bill, and thereby overcome a filibuster. Voting yes on cloture ends debate of the bill, with a vote of three-fifths of the Senate (60 Senators) required. If the requisite number votes yes, then any further consideration of the bill is limited to only 30 additional hours. However, if 60 Senators do not vote yes on cloture, then the Senators opposing the bill will be allowed to speak against it indefinitely. Practically speaking, if the bill fails to get the 60 yes votes, either the bill is withdrawn and a compromise is negotiated, or the bill officially dies.

On Jan. 24, the cloture motion will have matured the requisite 30 hours and the vote can officially be taken.

By all accounts, there seems to be a rush to get this bill passed. There is rampant speculation that the sheer amount of lobbying money spent by the entertainment industry is the driving force behind the urgency of this bill. The biggest proponents of the bill are the MPAA and RIAA, and Politico has reported that the entertainment industry spent over $94 million last year on its total lobbying efforts in Washington.

(2) Who will be affected by PIPA?

Although the bill is intended to combat “rogue” websites operated overseas, the text of the bill, as currently written, has a much wider application. In addition to the much-discussed DNS blocking provision of the bill, many in the NY tech community would be directly affected if PIPA is passed. The bill is a potential burden on many bootstrapped startup companies, as it imposes compliance requirements on any site that either processes financial transactions, sells or serves online advertising, or provides even a single link to content that somehow infringes upon an intellectual property right.

PIPA provides both the Attorneys General and rights holders with the ability to bring suit against: 1) nondomestic domain names dedicated to infringing activities, 2) owners/operators of websites dedicated to infringing activities that are accessed through nondomestic domain names, and 3) if no individual person is identifiable, an in rem action can be brought against the nondomestic domain name itself.

Although the bill provides for temporary restraining order, preliminary injunction, or injunction against nondomestic domain names, there are other provisions contained within the bill that would apply to U.S.-based companies, which significantly broadens the scope of the bill.

PIPA imposes required actions based on court orders on the following types of entities:

(A) Application to Operators of domain name system servers:

This is the onerous “DNS blocking provision” that for the time being seems to be off the table for SOPA and PIPA.

This section requires a DNS server, used to provide the IP address associated with a domain name, to take reasonable measures to prevent the domain name from resolving to its associated IP address. Furthermore, for any site that is effectively yanked from the Internet via this method, the DNS server must instead resolve to a page that displays text indicating the site was removed pursuant to a court order obtained by the Attorney General.

Also of note, the DNS server, by its compliance with this provision, will not lose any of its immunity from liability provided under the DMCA. The DMCA provides a safe harbor for online service providers that remain “hands-off” with respect to content on their sites. Therefore, a service that complies with PIPA will not lose its immunity for becoming involved in regulating content under its purview, and so this provision acts as an incentive to comply with the court order.

(B) Financial Transaction Providers

As defined in the text of the bill, a financial transaction provider means almost any service that processes financial transactions, including regular banks, electronic fund transfers, and any type of online payment processing service such as PayPal or CCBill.

PIPA would require financial transaction providers to comply with a court order by taking reasonable measures, as fast as possible, to prevent, prohibit, or suspend completion of payment transactions that involve any U.S. customers associated with the domain name listed on the court order.

(C) Internet Advertising Services

As defined in the text of the bill, an internet advertising service is any service that, for compensation, sells, purchases, brokers, serves, inserts, verifies, or even clears the placement of an advertisement (including paid or sponsored search results, links, or placements) that are able to be viewed in any form and for any period of time on a website.

Examples of internet advertising services include: Google’s advertising products such as AdWords and AdSense, as well as any other online advertising company such as adBrite, AppNexus, Undertone Networks, etc.

PIPA requires that, after receiving a court order listing the domain name accused of infringement, an Internet advertising service that contracts with said website to provide or knowingly serve advertising to or for such site, must take technically feasible and reasonable measures, as expeditiously as reasonable, designed to i) prevent its service from providing advertisements to the Internet site associated with such domain name; or

(ii) cease making available advertisements for that site, or paid or sponsored search results, links or other placements that provide access to the domain name.

(D) Any site that provides “information location tools” that merely refer to infringing content

As indicated in the bill, an information location tool simply means any type of link, directory, or index that points users of a site to an online location that contains infringing material or infringing activity.

This section has a very broad application and could include such major sites as Wikipedia, YouTube, and any search engine.

PIPA requires that any provider of an information location tool must (i) remove or disable access to the Internet site associated with the domain name set forth in the order; or (ii) not serve a hypertext link to such Internet site.

(E) Failure to comply with a court order

Those who comply will be immune from liability with respect to any claims that arise from compliance with the court orders. However, those who knowingly and willfully fail to comply with a court order may be compelled to comply by an action for injunctive relief brought by the Attorney General.

III. CRITICISMS OF SOPA/PIPA

●   Drive Market Overseas. There is a possibility that SOPA/PIPA will drive U.S. dollars overseas.  Several sites have moved to foreign registrars that will not be subject to US jurisdiction under SOPA/PIPA.

○      Counter Argument: Proponents of both bills have sometimes argued that they would actually strengthen jobs as it would revive industries that have been hurt by Internet piracy.

●      Overly Broad Definition of Infringing Site.

○      The applicable definitions for infringing sites include the word ‘facilitate’, which can encompass a wide array of websites including User Generated Sites.

○      SOPA imposes on sites in which only “a portion of” the site is infringing.  Conceivably, an entire website containing tens of thousands of pages could be targeted if only a single page were accused of infringement.

○      Effect: Severe practical problems arise for sites with substantial user-generated content, such as Facebook, Twitter, and YouTube, and for blogs that allow users to post videos, photos, and other materials.  This may ultimately require UGC sites to police themselves.

●      Incentivizes Blocking. SOPA encourage over-enforcement by making companies immune from suit for mistakenly punishing sites outside the bills’ scope.

●      First Amendment. SOPA is a violation of the First Amendment because it allows a private party to suppress speech without prior notice or a judicial hearing.

○      Reasoning: Private parties can unilaterally get payment network providers and Internet advertising services to stop service to allegedly infringing sites.  SOPA’s immunity provisions create an incentive for advertisers and payment processors to comply.  This is a potential violation of the First Amendment as this scheme restrains speech without a judicial determination.

○      Law: The Supreme Court has stated,  “only a judicial determination in an adversary proceeding ensures the necessary sensitivity to freedom of expression [and] only a procedure requiring a judicial determination suffices to impose a valid final restraint.”  Freedman v. Maryland, 380 U.S. 51, 58 (1965).  “[P]rior restraints on speech and publication are the most serious and the least tolerable infringement on First Amendment rights.”  Nebraska Press Assn. v. Stuart, 427 U.S. 539, 559 (1976).

●   Due process concerns

○      Where notice to the owner/operator of the site is required under PIPA, there is no corresponding opportunity for the aggrieved site operator to be heard before the allegedly offending site or link is removed from the Internet.

○      Under SOPA’s private right of action, no notice is necessary before a plaintiff can have a site cut off from payment network providers and internet advertising services.

●      Expands secondary liability under copyright law. In defining an infringing website, SOPA uses words like ‘facilitate’ and ‘enable’.  There is potential that a site could qualify under the statutory definition but not meet the requirements for secondary liability under existing law.  In this regard, SOPA could cause a lot of uncertainty in the law.

●      PIPA Contrast to DMCA regime: The DMCA provides a take-down and counter-notice procedure. There is no counter-notice procedure contemplated in PIPA, and thus no chance for an aggrieved site operator or owner to protest the removal. The DMCA also provides for immunity for system-caching, while PIPA do not contemplate system caching. Furthermore, the DMCA also provides penalties for those who knowingly misrepresent a copyright violation, which are absent in PIPA and can lead to abuse of claims.

●      DNS Blocking. Under certain situations, SOPA and PIPA may require a service provider to block access to a foreign infringing site’s domain name.  Some have argued that DNS blocking could compromise the architecture of the internet.

○      NOTE: This provision now seems to be shelved by Congress in both SOPA and PIPA.

●      Ease of obtaining a court order: Although the act of obtaining a court order to effectuate removal of an infringing site may seem like a procedural hurdle, it really is not a high barrier, as evidenced by the numerous sites shut down last year by the Justice Department. Particularly troubling is the ease with which the DOJ has been able to receive court orders to seize domain names as part of its “Operation in Our Sites” program, a program that was also created to curb copyright infringement online. In fact, SOPA and PIPA may be viewed as an attempt to codify these domain seizures, which have been implemented under questionable authority and received much scrutiny in the press.

●      IMPOSES ON DOMESTIC SITES. A lot of proponents say SOPA will only affect foreign sites.  This is completely untrue.  Besides the impositions SOPA places on third-party sites, the private right of action under SOPA applies to all sites, not just foreign.

●      MONETARY CUTOFFS MAY BE INEFFECTIVE PROTECTION. Some have argued that the private right of action under SOPA would be ineffective in protecting rights holders anyway.  There has been arguments that a large portion of infringement still would occur even without a monetary incentive.  Further, some have argued that there are potential work arounds, such as advertisers not subject to U.S. jurisdiction. 

●      VEOH Case.  Although SOPA provides damages where a private plaintiff makes a material misrepresentation as to an infringing site, this does not necessarily protect sites from long and expensive litigation.  In Veoh, the defendant Veoh was accused of IP infringement but was ultimately proven to be free of liability.  Although Veoh won in court, the company went into bankruptcy due to the costs of the litigation.  SOPA does not do anything to fix this problem.  If anything, it exacerbates it by providing another cause of action that can be brought.