A new piece by David Pogue in Scientific American today echoes a very common argument about online digital theft: that if more movies and TV shows were available legitimately online, the problem of online content theft would take care of itself.  The problem with this argument is that it’s not borne out by the facts.  There are more legitimate avenues available today to watch movies and TV shows online than ever before: Hulu, HBO Go, Vudu, Crackle, UltraViolet, Epix, MUBI, Netflix, Amazon – and that just scratches the surface.  Yet analysis of data from comScore, Inc, shows that pages views on sites facilitating online theft has grown exponentially in the past few years.

In the piece, Pogue claims that none of the top 10 most pirated movies of 2011 are available to rent online.  In fact, many of the films on that list are available to watch instantly online.  Take Fast Five, for example, which made the list for 2011.  It is currently available to watch through HBO GO.  A quick search also shows that Thor and Rango, also both on the list, are available for instant streaming on Netflix and Amazon.  Now, no process is perfect – and that’s why the studios are listening to what their audiences want, and working to make their movies and TV shows available through newer, more innovative channels every day. Audiences deserve to be secure in knowing that the outlets where they watch movies and TV shows online are legitimate and safe. People want to get it right, and the entertainment industry is relentlessly innovating to help them do just that.

Pogue’s thesis is that people choose to download content illegally when it’s not available to them in a legal format.  He cites the availability of music on iTunes and TV shows on Hulu as evidence.  But, as we know, digital theft of music and TV hasn’t stopped – in fact, it’s increased.  That increase underscores the challenge we face: online content theft is a complicated problem – everyone can agree on that.  There isn’t one simple solution. That’s why it’s incumbent on everyone who has a stake in this discussion to come to the table to develop meaningful solutions that will protect the hard work of creators and makers while helping ensure that audiences have a seamless experience watching the shows and movies they love.

A new report from the Congressional Joint Economic Committee this week sheds some light on the increase in intellectual property theft in recent years and underscores the damage it’s doing to businesses all across the US economy.

Noting the many negative consequences of intellectual property theft on American industries, the report summarizes that, “Foreign infringement of intellectual property harms businesses by raising their costs, lowering revenue, and eroding profits.”

As an organization whose mission is to advance the business and the art of filmmaking – an intellectual property-intensive industry by nature – we’re obviously troubled by this ongoing problem.  And it’s only gotten worse over the last decade.

Investigations of domestic intellectual property theft emanating from foreign countries have increased in eight of the last ten years, according to the report.  And the increase in theft is more pronounced when you look at the hard numbers – in 2002, there were only 17 cases but in 2011, 69 investigations were brought. 

With almost 20 percent of American jobs in 2010 coming from industries that are IP-intensive, it’s not hard to imagine the widespread negative impact of intellectual property theft.  What is more, these industries accounted for more than a third of the nation’s gross domestic product (GDP) in 2010, one of the most significant measures of a country’s economic health and growth.

And the effect on companies’ bottom lines is huge.  The report cited one estimate that “the average company lost $101.9 million in revenues and incurred costs of $1.4 million” to identify and enforce intellectual property rights, “leading to an average decline in profits of $46.3 million.”

Perhaps most importantly, the report states that protecting intellectual property “is critical to ensuring that firms pursue innovation.”  It’s hard to think of a more urgent reason to work to stem this endemic problem.

Whether it’s the software design for a new smartphone, a lifesaving drug, or the next great American film, this report underscores how critical it is that we identify solutions that will protect the intellectual property of our country’s creators and innovators.

The nation’s major advertising trade associations have released a set of best practices to ensure that companies do not place ads on websites dedicated to selling counterfeit products and stolen content.

The Association of National Advertisers (ANA) and the American Association of Advertising Agencies (4A’s) released a Statement of Best Practices to curb advertising on “rogue” Internet sites, which ends up filling the pockets of the operators of these largely offshore sites.

The statement specifically advises marketers to include language in their contracts and insertion orders to prevent ads from appearing on ‘rogue’ sites dedicated to infringement of intellectual property rights of others.

Ads for trusted brands can inadvertently lend legitimacy to “rogue” sites and can mislead consumers into believing that these sites are offering safe and tested products and complying with the law. In reality, this could not be farther from the truth. These sites are stealing the intellectual property of US creators, and in turn, stealing from the American economy.

In addition to movies, music and other creative content, these rogue sites traffic in counterfeit prescription medications, household products and other goods. They are located throughout the world, and while they often look legitimate - featuring advertising from reputable companies and accepting major credit cards - they're really online havens for theft, enabling criminals to profit from content or intellectual property they had nothing to do with creating.

The potential harm from these rogue sites - exposure to malware, identity theft, unsafe and untested medicines, counterfeit products, and lost jobs and income for creative workers - is profound. 

The release of the statement is a sign of industry trying to take steps to tackle the problem of online piracy on their own and it is a big step in the right direction toward that goal.

In the aftermath of the heated debate on anti-piracy legislation, many – relieved of the polarizing climate in Washington – are now having conversations focused on the common ground that stakeholders on both sides of the issue share. Solutions-focused exchanges, like the one hosted by the Paley Center on Tuesday, exemplify this new attitude of open-dialogue and compromise. The discussion featured Fred Wilson, co-founder of Union Square Ventures, early investor in Twitter and technology industry advocate and Rick Cotton, the executive vice president and general counsel of NBC Universal.

Wilson – a frequent critic of legislation affecting the internet – gave rather unexpected comments at the event, which to some were representative of how much the conversation around piracy has progressed in just a few weeks. Wilson even pointed out that he “think[s] it’s very possible for the content industry and the internet industry to work on solutions.”

In the debate over pirated content, Wilson argued: “We know who the good guys are, who are licensed and operating legitimately.” He went so far as to suggest a “blacklist” to encourage public awareness of rogue sites profiting from illegal content. However, he also seemed to acknowledge the contentiousness of the topic he was wading into, suggesting that “Google should do this… they won’t but they should.”

As the moderator noted, search engines occupy a distinct place in the debate over rogue websites since their companies often profit from advertising which features illegal content. Wilson also surprised some in the audience when he agreed that a handful of known pirate sites should be shut down.

As CNet’s Greg Sandoval noted, in addition to his work in the tech industry, Wilson’s firm invests in legal forms of content sharing that are consistently threatened by pirated content. Sandoval writes:

“It won't come as a surprise that Wilson is sympathetic to at least some of the piracy problems that copyright owners face. His venture capital fund is invested in Turntable.fm, an online music service, and Boxee, software that enables owners to watch Web video on TVs.

“Both companies have stayed within the law and competed against companies that don't. Not having to pay to license content is a big advantage over those that do pay.” 

During the discussion, Cotton asked the audience to “take a big step back” to have a real conversation about the extent of the problem and how it harms the US.  “You have just a tidal wave of counterfeit physical products being distributed on the internet as well as stolen digital content,” Cotton shared, “so I think from the point of view of the United States –which is an advanced economy, it is a knowledge economy, it does not aspire to be a low-cost manufacturing economy – that the driving force is our invention, our innovation, technical invention, creativity…”

Cotton went on to say that ultimately, it’s in the long term national interest to come to the table and be sure that “the economic benefits of our creativity are not stolen and actually accrue to the United States.”

In the coming months, more of these discussions will take place as many stakeholders and institutions become more concerned about pirated material. After all, there appears to be clear agreement that online content theft is a problem in need of a solution.

Julian Sanchez, a research fellow at CATO, recently wrote a post on Cato@Liberty, which once again offers tired arguments about why the theft of intellectual property is not such a bad thing.

In his post, Sanchez’s main argument is that theft has a negligible economic impact – only some inefficiency – because theft is beneficial: that is, the consumers who access stolen content can choose to use the money they “saved” to purchase other products. Extending this argument, shoplifting has no economic impact since shoplifters can spend the money they “saved” on other products, a perspective which runs counter to treatment of crime in other “costs of crime” studies

Or taken another way, credit card fraud against consumers has no economic impact on the general economy since the person or company committing the fraud can spend his/her profits elsewhere. To support this argument, Sanchez pointed to a flawed Government Accountability Office report, which cited anonymous “experts” who viewed counterfeiting and piracy as “mainly redistributions” of wealth and thus argued that “any positive effects of counterfeiting and piracy on the economy should be considered as well as the negative impacts.” The Progress & Freedom Foundation, already accurately deconstructed the fallacy of this “expert” assessment in:  “Punk’d:  GAO Celebrates the “Positive Economic Effects” of Counterfeiting and Other Criminal Racketeering.”

Sanchez also sought to challenge the use of economic multipliers to assess the effects of piracy and counterfeiting on industry suppliers and other downstream parties.  To support this argument, Sanchez again chose to quote a portion of the GAO report citing anonymous “experts,” leaving out text that contradicted his assertions (the part excluded is in bold):  “Most of the experts we interviewed were reluctant to use economic multipliers to calculate losses from counterfeiting because this methodology was developed to look at a one-time change in output and employment.  Nonetheless, the use of this methodology corroborates that the effect of counterfeiting and piracy goes beyond the infringed industry.  For example, when pirated movies are sold, it damages not only the motion picture industry, but all other industries linked to those sales.”

He neglected to point out that most of the economic cost of piracy studies estimate the one-time effects in one year, if copyright piracy was eliminated and that they do not generally include activity by people who would not have otherwise purchased legitimately.  He also neglected to point out the hundreds if not thousands of economic models using multipliers in a vast number of contexts.  If Sanchez is saying such models cannot be used for piracy, it’s not clear why it would then be valid to use them for measuring impacts of things like tourism, the arts, or terrorism.

In conclusion, Sanchez argued against Congressional passage of the Stop Online Piracy Act, basing his reasoning on his own faulty logic that content theft and counterfeiting don’t cause widespread economic pain.  And that’s where he is wrong – even the GAO concluded that “the problem is sizeable, which is of particular concern as many U.S. industries are leaders in the creation of intellectual property.”

The bottom line: SOPA, and related bipartisan legislation in the Senate, the PROTECT-IP Act, will help American businesses and American workers by making it more difficult for operators of rogue websites, often based overseas, to steal American intellectual property.  These bills are supported by hundreds of businesses, consumer advocacy groups, labor organizations and intellectual property coalitions.  The time has come for Congress to protect these workers and businesses and to put tired arguments like those being made by Sanchez to rest.

It’s been only two days since the bipartisan House Judiciary committee leadership introduced  a  highly anticipated  bill to crack down on foreign rogue websites that steal and profit from counterfeit goods and stolen creative content like books and movies and music.  Yet those who seem to side with the rights of these rogue websites over the rights of American workers and businesses, are taking every step possible to confuse the public, falsely characterize its provisions and mislabel the bill.

For a clear and concise explanation of the Stop Online Piracy Act, Chairman Lamar Smith has put out a fact sheet that summarizes the bill and will clarify any uncertainty about what it does.

And for those who want to get their facts right about its name:  It’s called the Stop Online Piracy Act.

So let’s stop playing games.  More than 2.2 million hard-working, middle-class people in all 50 states depend on the entertainment industry for their jobs.  They work behind the scenes in production, and in small businesses like equipment rental, transportation, construction and food service.  Millions more people work in theaters, video stores, retail, restaurants and other businesses that depend on entertainment.  For all of these workers and their families, digital theft means declining incomes, lost jobs and reduced health and retirement benefits.

We thank the bill’s initial co-sponsors, Representatives Lamar Smith, Howard Berman, Marsha Blackburn, Mary Bono Mack, Steve Chabot, John Conyers, Ted Deutch, Elton Gallegly, Tim Griffin, Bob Goodlatte, Dennis Ross, Adam Schiff, and Terry Lee for introducing this bill and recognizing the importance of protecting American workers and businesses.

The Washington Post published a thoughtful editorial this morning on the PROTECT IP Act and the need for “a legal tool that stops those who persistently leech off of the innovations of others.” 
 
The Post acknowledges criticism of the bill by some who “point to the effectiveness of the Digital Millennium Copyright Act (DMCA),” but asks: “But what if the Web site is a consistent scofflaw?”
 
Noting that online theft “costs the copyright- or trademark-holders billions of dollars each year and thwarts the ability of writers, producers, songwriters and others in the creative arts to earn the royalties they are due,” the Post highlights PROTECT IP’s balanced approach:

Defendant Web sites would have the right to contest the allegation. An otherwise legitimate site that may have sold a product that turned out to be a fake or unknowingly linked to or posted an item to which it did not have the rights to would be spared from legal action.

…The Protect IP Act takes pains to protect Internet service providers, search engines and others that may have done business with a rogue site. They are not required to scour the Internet for offenders nor are they held liable if they happen to host or provide services to a site that is eventually deemed unlawful. They are only required to take “reasonable” and “technically feasible” measures to obey a court order.

The outpouring of support for this bipartisan bill from around the country – from businesses, local law enforcement, first responders, elected officials, and workers alike – gives it real momentum heading into the fall.  We encourage the Senate to take it up and pass it quickly once they return from their work in their states, and look forward to the introduction of a House counterpart.

In an important ruling for creators, a federal judge has decided that the U.S. government does not have to return two domain names seized by Immigrations and Customs Enforcement (ICE) for facilitating massive content theft. 

Rojadirecta.com and Rojadirecta.org hosted links to live sporting events and other copyright-protected content; when those sites were seized, Spanish company Puerto 80 sued, arguing it would suffer hardship because fewer people would visit its sites, and claiming that its First Amendment rights had been violated.

Federal District Judge Paul Crotty rejected those claims.  Importantly, Judge Crotty pushed back on Puerto 80’s claims that “in seizing the domain names, the Government has suppressed the content in the ‘forums’ on its websites… The main purpose of the Rojadirecta websites, however, is to catalog links to the copyrighted athletic events — any argument to the contrary is clearly disingenuous. Although some discussion may take place in the forums, the fact that visitors must now go to other websites to partake in the same discussions is clearly not the kind of substantial hardship that Congress intended to ameliorate.”

This is important in the context of PROTECT IP, the U.S. Senate bill that would strengthen U.S. law enforcement’s power to go after foreign rogue websites that traffic in stolen American-made content. On one level, the Rojadirecta case demonstrates why we need PROTECT IP in the first place: shortly after Rojadirecta’s .com and .org domains were seized, the site popped up on domain names registered in other nations outside the reach of American law, and so remain accessible to American consumers. 

Judge Crotty’s ruling also echoes a key element of the PROTECT IP Act, which defines a rogue site as a site that “has no significant use other than engaging in, enabling, or facilitating the reproduction, distribution, or public performance of copyrighted works, in complete or substantially complete form, in a manner that constitutes copyright infringement … or is designed, operated, or marketed by its operator or persons operating in concert with the operator, and facts or circumstances suggest is used, primarily as a means for engaging in, enabling, or facilitating” infringement (emphasis ours).  Judge Crotty essentially adopts this approach when he writes that Rojadirecta’s “main purpose” is to provide links to copyrighted content, not to provide a forum for discussion.

As Constitutional law expert Floyd Abrams wrote earlier this year, entities ‘dedicated to infringing activities’ are not engaging in speech that any civilized, let alone freedom-oriented, nation protects.  … [The PROTECT IP Act] does not impair or overcome the constitutional right to engage in speech; it protects creators of speech, as Congress has since this Nation was founded, by combating its theft.”  Judge Crotty’s decision reinforces that sound conclusion.

Rojadirecta will be back in court later this fall, and we’ll keep watching.