Ending the Unholy Alliance
An unholy alliance evolved over the last decade among search companies, ad serving companies, credit card companies and rogue websites. People seeking illegal digital property use unfiltered search engines to find it, ad serving companies facilitate users by serving ads to these search pages and to rogue sites, and credit card companies facilitate the sale of illegal content subscriptions.
The adservers and credit card companies split their revenue with the rogue sites. Everyone makes money efficiently–except the people who create the stuff that’s being ripped off, whether its movies, music, high fashion or pharmaceuticals. This is hardly a level playing field. But criticize the unholy alliance, and you’ll be demeaned as a shill or worse.
Missing from this cash machine? Responsibility. Like Sergeant Schultz, nobody sees nothing–nod nod wink wink–rogue sites are all someone else’s fault, and that someone always seems to be a couple steps outside the law in China, the Ukraine or somewhere from which they reach the valuable US market without the burden of US laws. This unholy alliance is a serious economic attack–large commercial interests that are global, well funded and cagey.
Should online property rights be different that offline property rights?
Nobody likes the idea of the government seizing private property, but nobody likes having their property stolen, either. The point is to help create a level playing field to encourage the launch of legitimate services which in turn support the jobs of those who produce the legitimate goods.
I’ve worked with many technology companies and creators who struggle to play by the rules. Some gain a toehold. But if entrepreneurs can’t enforce their rights effectively, that’s not market failure, that’s anarchy. Many give up in despair and will not launch another business in the space or finance another independent movie. The police investigate organized theft in the physical world, why not online? How can this happen in America’s free market?
There is No Market Failure if There’s No Market
Creating a new market is difficult–government has largely stayed out of the Internet which is a good thing, assuming the basic legal system provides a reasonably level playing field.
The current state of massive online theft is often referred to as a “market failure”–but it is more than a mere inefficient allocation of resources. It is a serious indicator that property rights are under attack. There can be no market failure without a market, and there can be no market without enforceable property rights.
The online story is not entirely dire, but nowhere near a level playing field. Where entrepreneurs choose to respect property rights, some firms attract investment and customers for legitimate business that pays everyone in the value chain–examples being iTunes Music Store, Amazon, Drugstore.com, and Netflix. Imagine if these entrepreneurs did not have to compete with stolen?
Somebody Call the Cops
Unsurprisingly, Chairman Leahy and Senator Hatch introduced the Combating Online Infringements and Counterfeits Act (“COICA”) in the last Congress. The legislation was a bipartisan effort to bring common sense to the Internet madhouse. COICA had broad support, many co-authors and passed the Senate Judiciary Committee on a 19-0 vote. Senators Leahy and Hatch intend to reintroduce the bill in the 112th Congress, and the Senate Judiciary Committee will hold hearings this week for the new bill.
ICE stepped up enforcement actions with court-ordered seizure orders of rogue sites whose illicit activities have exceeded the scope of the DMCA takedown notice. ICE is not a private prosecutor for Hollywood studios as it has been portrayed in some writings–ICE Director Morton confirmed that ICE and the courts sought a court ordered seizure of about 50% of the private sector referrals–seizures subject to full due process protections for defendants.
Rogue sites–who earn revenue for themselves and adserving companies selling all manner of stolen goods–receive thousands, or even hundreds of thousands, of DMCA takedown notices. It is unrealistic to think that entrepreneurs, especially independent creators, can fight this alliance with DMCA notices alone. The DMCA is not an alibi.
Without the help of legislation like COICA and law enforcement, this “catch me if you can” game requires 24/7 monitoring for illegal copies of everything from movies to pharmaceuticals. Entrepreneurs and small business cannot afford 24/7 policing.
Protecting Property Rights
Not only is rampant piracy a fundamental attack on the rights of American entrepreneurs and workers, it undermines our cherished system of private property. This problem is not just about “Hollywood” or Prada handbags–it concerns the value of many industries, small businesses and jobs to be protected by COICA and ICE, as well as our bedrock economic principles.
Both Senate action on COICA last year and the ICE seizures have already created positive effects. On December 2, Google announced voluntary changes to its Adsense policy–to determine if Google’s Adsense partners are “bad apples.” So it seems that carrot and stick are starting to have the desired market effect, although the final breakup of the unholy alliance has yet to be achieved.
If all government has to do to attract more entrepreneurs, investments and jobs to the online market is enforce the law against the “bad apples”, it should be done–carefully, but done. That is, after all, one of the main reasons we have government in the first place.
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