Payment Blockades in the Fight Against Cyberlockers

File sharing is the simple term that is used to describe the complex array of processes and technology involved in transferring digital information through online networks. [1]. It can be encountered in some form on almost every website. Among its most popular applications are websites and programs that host files submitted by users, including copyrighted movies and music. Since at least the mid-nineties, file sharing has been in constant friction with artists and industry groups who have lost millions of dollars from violations of their intellectual property (IP) rights. This has prompted attempts by the Federal Government and private organizations to combat illegal file sharing, with differing degrees of success. This blog explores payment blocking, one of the more recent methods, and how it may develop going forward.

First, an overview of illegal file sharing for context. In June 1999, Napster.com launched a peer-to-peer file service that specialized in the transfer and trade of Mp3 files. [2]. At its peak, the site had over 70 million subscribers, but by July 1, 2001, the company shut down its service in the fallout of an IP lawsuit by members of the Recording Industry Association of America. [3]. Napster was subsequently liquidated in 2002, following bankruptcy, and the company never recovered. [4]. In the years after Napster’s bankruptcy, the use of BitTorrent (a form of file transferring) gained widespread adoption and led to the creation of popular torrent hosting sites and clients such as The Pirate Bay and Limewire. [5]. In addition, other sites, such as Megaupload.com (Megaupload), accumulated user-submitted files and made them available for direct download from servers across the globe. [6]. Over time, many of these file sharing systems, generally known as cyberlockers, have been taken down at least once (some permanently) by federal interventions. However, they have always managed to return in some form or another.

The two most popular forms are those that allow for direct downloads, like Megaupload, and those that share content through a steaming service (playing content without transferring the actual file to the user). [7]. Both forms typically generate revenue by selling advertising space, premium memberships, and related software. [8]. The greater the internet traffic, the more revenue these cyberlockers produce, and they produce a lot!

The federal indictment of Megaupload in 2012 alleged that, at one point, the site was the 13th most visited website on the internet. [9]. The indictment further alleged that Megaupload had generated over 150 million dollars in premium memberships and over 25 million dollars in advertising revenue. [10]. Meanwhile, much of the material generating traffic was copyright protected, and each download arguably reduced the value of the owners’ IP.

Overall, for sites that offer direct downloads, the percentage of files violating copyrights has been found to be in upwards of 78%, and as high as 83% for streaming services. In addition, files on cyberlockers tend to include harmful malware and other illegal content. A recent study by NetNames, a staunch advocate of IP rights, found that more than half of current cyberlockers were responsible for infecting computers with malware, at least some of which likely facilitated identity theft. [11]. Further, the indictment of Megaupload alleged that the site was the frequent host of child pornography and terrorist propaganda. [12].

The question remains then, what is being done to stop cyberlockers? In steps the payment blockade. Approximately 80% of online transactions involve the use of a credit or debit card. [13]. Therefore, major credit transaction companies, such as PayPal, Visa, and MasterCard, can effectively slow the flow of money into cyberlockers by refusing to offer them payment processing services. [14]. This limits the cyberlockers’ ability to generate membership revenues and has the added effect of diminishing their capacity to reward pirates for uploading illegal content.

Currently, there are “best practices” frameworks in place that allow IP holders to report IP rights violations to payment processors. [15]. These processes have many steps. One process, for example, requires that IP holders send cease and desist letters, collect evidence of infringement, identify and describe infringing products, and provide evidence of their IP rights – all before submitting a complaint. [16]. However, there is some concern that they may not be implemented fairly. [17].

These frameworks are extrajudicial; they lack the kinds of procedural guarantees that merchants would otherwise receive in a civil trial. [18]. The standard for evidence of infringement is limited only by the effort payment processors are willing to accept in order to ensure just outcomes. Further, the staff investigating and passing on these matters may have no legal background. There is also an alarming incentive to satisfy powerful IP holders to the detriment of smaller merchants, especially where protocols place the burden of proof on the alleged offender. [19]. There may even be the potential for conspiracies between IP owners and powerful merchants to accuse competing merchants to reduce competition. While there may be a requirement to report in good faith, [20] there are still many who might find a benefit in an efficient breach. Thus, the effect is to create a system where merchants could potentially face financial ruin for only minor IP violations with a review standard limited to the payment processor’s business judgment.

It should not come as much of a surprise that payment processors would want some assurance that they can identify and prevent illegal transactions. What is interesting is that the Federal Government has put political pressure on payment processors to adopt these frameworks instead of legislating in the area. [21]. There are many reasons why Congress and the Executive branches would stay clear of regulation, especially considering the cost of oversight. However, it is concerning that the government is encouraging the adoption of potentially unscrupulous practices.

What is of even greater concern is that the Federal Government may be encouraging more than just frameworks. There is credible evidence to suggest that major payment processors Visa and MasterCard were pressured to deny transaction services to WikiLeaks in the wake of the website’s 2010 leak of military documents. [22]. The denial of service came without formal charges levied against WikiLeaks, and the effect of the blockade temporarily reduced the site’s income by 95%. [23]. There was also recently some suggestion that the Motion Picture Association of America (MPAA) had placed pressure on Senator Patrick Leahy to convince Visa and MasterCard to target specific VPN servers that were allowing users to mask their IP addresses when illegally downloading movies from Megaupload. [24]. The situation is all the more curious considering Megaupload founder Kim Dotcom’s well-known feud with the MPAA. [25].

For now, there are many ways that users and cyberlockers can circumvent a payment blockade. For one, the cyberlockers will continue to earn revenue from the sale of advertising space. In addition, cyberlockers may accept bitcoin and utilize an army of shell companies to conduct transactions. [26]. These both allow users to funnel money into a source that cannot be easily traced to the IP violator. It is not yet clear how payment processors will tackle these issue, and it will be interesting to note what influence, if any, payment processors will bring to the development and proliferation of bitcoin.

I’ll leave readers with a couple of thoughts to consider. First, knowing the inherent risks, pressures, and limitations of payment blockades, should they continue unobstructed or should there be greater oversight of the process? It might help to remember that Congress has recently failed to pass both the highly publicized Stop Online Piracy Act (SOPA) and the PROTECT IP Act (PIPA). Does it change your mind at all to know that PIPA was introduced by Senator Patrick Leahy, and that there may be strong political pressures at play? How far should such a regulatory scheme go? Currently, the Digital Millennium Copyright Act (DMCA) allows for an aggressive takedown process that is comical when IP owners accidentally target themselves [27], but disturbing when the owners incorrectly target innocent fair users. Should that kind of oversight concern voters when considering future legislation?

Second, should we be advocating for greater penalties against payment processors for supporting IP theft? Surly, the credit card companies have made plenty of money from these illegal transactions and a simple search online would have revealed their obvious contributions to IP rights violations. Why then do they deserve a gold star for implementing a blockade instead of a penalty for past offenses? It is possible to sue for contributory and vicarious infringement of copyright and trademark protections. [28]. These four claims were addressed in Perfect 10, Inc. v. Int’l Serv. Ass’n, where Visa was sued for providing processing services to a cyberlocker.

For contributory copyright infringement, the standard is whether the intermediary “induces, causes, or materially contributes to that infringing conduct.” [29]. The standard for knowledge is actual or constructive and must be based on a “specific instance of infringing activity.” [30].  The Court held that because Visa was not essential to the actions of reproducing and distributing the IP, they made no material contribution to the violations.

 

In the case of contributory trademark infringement, the standard is “intentionally induced an underlying direct infringement or continued to supply either a service or an infringing product to a direct infringer while knowing of the direct infringement.” [31]. Here, the Court held that Visa lacked direct control of the infringing website and could only influence their behavior by limiting service. [32]. By the same reasoning, the Court also rejected the claim for vicarious trademark infringement because Visa lacked actual or apparent partnership with the direct infringer with authority to bind them in transactions. [33].

 

Finally, the standard for vicarious copyright infringement is whether the intermediary “had, but declined to exercise, the right and ability to control or supervise a direct infringer from whose actions it directly profited.” [34]. Again, the Court found for Visa reasoning that the ability to influence infringement by financially punishing an infringer is different from the ability to supervise and control the infringer. [35].

File sharing comes with a moral divide. On the one hand, it has provided for legitimate and cutting edge applications of online media, opening up the door to research databases, social networks, and cloud computing. While, on the other hand, it has facilitated the illegal pirating and distribution of intellectual property on a global scale. How we respond to the later will largely dictate the freedom and the development of the former. That is why we should keep a close watch on the development of payment blockades, especially if they are given the full support of the Federal Government.

 

[1] https://www.techopedia.com/definition/16256/file-sharing

[2] http://fortune.com/2013/09/05/ashes-to-ashes-peer-to-peer-an-oral-history-of-napster/

[3] http://fortune.com/2013/09/05/ashes-to-ashes-peer-to-peer-an-oral-history-of-napster/

[4] http://fortune.com/2013/09/05/ashes-to-ashes-peer-to-peer-an-oral-history-of-napster/

[5] http://www.geek.com/gadgets/limewire-napster-the-pirate-bay-a-brief-history-of-file-sharing-1359473/

[6] https://www.scribd.com/document/78786408/Mega-Indictment (at paragraphs 4 and 6)

[7]https://media.gractions.com/314A5A5A9ABBBBC5E3BD824CF47C46EF4B9D3A76/7843c97d-fd81-4597-a5d9-b1f5866b0833.pdf  (at page 1)

[8]https://media.gractions.com/314A5A5A9ABBBBC5E3BD824CF47C46EF4B9D3A76/7843c97d-fd81-4597-a5d9-b1f5866b0833.pdf  (at page 3)

[9] https://www.scribd.com/document/78786408/Mega-Indictment (at paragraph 3)

[10] https://www.scribd.com/document/78786408/Mega-Indictment (at paragraph 4)

[11]https://media.gractions.com/314A5A5A9ABBBBC5E3BD824CF47C46EF4B9D3A76/7843c97d-fd81-4597-a5d9-b1f5866b0833.pdf  (at page 10)

[12] https://www.scribd.com/document/78786408/Mega-Indictment (at paragraph 24)

[13] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1526)

[14] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1526)

[15] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1528)

[16] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1550)

[17] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1560)

[18] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (Id.)

[19] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (See page 1560)

[20] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (See page 1553)

[21] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (See page 1527)

[22] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (See page 1524-25)

[23] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (page 1525)

[24] http://www.nbr.co.nz/opinion/senators-letters-mega-visa-mastercard-paypal-ck

[25] http://www.nbr.co.nz/opinion/senators-letters-mega-visa-mastercard-paypal-ck

[26] http://www.verdictfinancial.com/blocking-payments-wont-stop-piracy/

[27] http://arstechnica.com/tech-policy/2016/09/warner-bros-flags-own-site-for-piracy-dmca-google/

[28] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (See page 1531-36)

[29] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (page 1531)

[30] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (Id.)

[31] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1533)(quoting Perfect 10, Inc. v. Visa Int’l Serv. Ass’n, 494 F.3d 788, 807 (9th Cir. 2007))

[32] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1534)

[33] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1535-36)

[34] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1534)

[35] http://www.floridalawreview.com/wp-content/uploads/6-Bridy.pdf (at page 1535)

 

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~ by alexmenendezufl on September 10, 2016.

10 Responses to “Payment Blockades in the Fight Against Cyberlockers”

  1. The government’s role in regulating the internet is necessary, but to what extent? I see the importance of regulating piracy, access to illegal content such as child pornography and terrorist propaganda; however, the payment blockade to companies like WikiLeaks is a controversial issue and challenges Constitutional rights.

    If the Federal Government continues to support payment blockades of this magnitude, it would set a dangerous precedent that significantly limits or encroaches on companies’ and individuals’ freedom of expression and right to privacy. This could adversely affect citizens’ ability to pay money to legal entities of his or her choosing as well as significantly hindering legitimate companies, who have not been formally charged with any criminal violations, from receiving financial support from its target consumers. As a result, the government would be permitted to control and shutdown businesses of their choosing whether it was actually justified. In addition, allowing payment processing companies like Mastercard and Visa to enforce intellectual property rights is providing “judicial powers” which seems like a Constitutional violation on its face. It will be interesting to see how this controversy develops over time and how it will impact file-sharing companies going forward.

    I did find it interesting how the emergence of Bitcoin has assisted file-sharing companies such as WikiLeaks to somewhat get around the blockades. In a 2012 Forbes article, it stated WikiLeaks took Bitcoin payments equivalent to at least $32,000. [1]. Additionally, WikiLeaks has found another alternative by using Carte Bleue, a French national credit system, to receive payments because Mastercard and Visa are contractually barred from cutting off merchants through the French system. I wonder how the United States will react to WikiLeaks “work around” and what legislation will develop to regulate bitcoin or other alternatives being used to avoid the payment blockades. It will be interesting to see how this controversial issue will be resolved while balancing the importance of IP rights and regulating illegal content vs. individual freedoms and net-neutrality.

    [1] http://www.forbes.com/sites/jonmatonis/2012/08/20/wikileaks-bypasses-financial-blockade-with-bitcoin/#3739a24466c4

  2. Let me begin by admitting that I’m not convinced the use of payment blockades is a just weapon in the fight against cyberlockers. To me, there appears to be a lack of due process. Clearly, I’m not claiming a constitutional issue, since there is no evident state action (more on that later). However, I do believe credit transaction companies should provide their users with some sort of clear, appealable, and preferably nonpartisan, evaluation process before such drastic measures are taken.

    When PayPal, Visa, or Mastercard block payments to a cyberlocker, they do so, as you say, to “diminish their capacity to reward pirates for uploading illegal content.” But in doing so, they also punish those users that are utilizing the website for completely legitimate and legal services.

    Visa, Mastercard, Paypal, and Post Finance have all taking similar actions against Wikileaks and its editor-in-chief, Julian Assange, at the height of the series of materials supplied by Chelsea Manning and published on the site over the course of 2010. Mastercard explained that its “rules prohibit customers from directly or indirectly engaging in or facilitating any action that is illegal.” But who decided that the site was engaged in illegal activity?

    First, Assange had not been convicted of, nor charged with, any crimes relating to Wikileaks activity at the time these payment blockades were put in place against the site. Admittedly, many high profile political leaders had alleged the site’s activities were illegal, and there was an “active ongoing criminal investigation” into the site. However, no formal charges had been brought, and no formal conviction had been found. (I put aside separate allegations of sexual assault against Assange, considering there is no apparent nexus between the site and those alleged activities.)

    Second, even if Assange had been convicted of crimes, the payment blockades were unduly overbroad and hindered otherwise legal activity.

    The same goes for payment blockades enacted against cyberlockers. These sites, while they can be used for illegal intellectual property theft, have endless amounts of beneficial, legal uses.

    There is, as far as I can find, no clear explanation of how these financial institutions weigh the factors (nor what factors they even consider) in deciding to enforce a payment blockade. In fact, journalists have reached out to these companies and asked for an explanation, but have often been given no response at all or an inadequate response. The explanations given to the users and sites themselves are often just as inadequate or nonexistent.

    A similar process occurs, without a clear process or explanation, when webhosts kick sites off their servers for being suspected of illegal activities. Take for example Wikileaks being booted from Amazon or the numerous P2P sites that have been removed from their webhost’s servers. Another similar process is the endless amount of user generated content uploaded to sites like Facebook and Youtube, but then taken down for IP infringement when the content often violated no IP laws or fell clearly within a fair use defense.

    An additional problem here is that although there is no easily identifiable state action, many people believe these companies are blocking payments to these sites because of political pressure from federal agencies, foreign governments, and other political entities. This isn’t mere speculation. One senator, for example, called for webhosts to “terminate” their relationship with Wikileaks; and other senators have sought to have the site listed as a terrorist organization to prohibit banks from processing its payments.

    Similarly, many entertainment corporations inflict corporate pressure against this sites (likely with the threat of lawsuit), as mentioned in your blog in reference to the MPIA and Megaupload. Other times, these corporations inflict pressure against politicians to take action against these sites, as mentioned in your blog in reference to SOPA and PIPA.

    Moreover, these actions suppress the market place of ideas and prevent political discourse from effectively and accurately analyzing the allegations against these organizations. In the words of Assange, these actions are part of “the rise of economic censorship to crack down against journalists and publishers.”

    Don’t get me wrong. Financial institutions should take action against those individuals and sites that violate their terms of service – provided those terms of service are not unconscionable. And copyright should be protected from infringement. But the process that these institutions take when cutting off service to users and sites seems ripe for abuse (by those companies, by other corporations, and by political leaders and institutions.)

  3. Forgive me for beginning quite broadly, and potentially being out of my depth here, but in business of any kind it is common knowledge that what the players involved want least is simply uncertainty. When I read through the information provided and through this post I cannot help but think to myself “Does anyone understand the terrain of this issue right now?” I, for one, admittedly do not have a clue. As I review articles and this post it feels striking that there appear to be a massive number of unknown variables – companies eliminating services to other companies ostensibly to avoid government sanction only to be proven in the wrong about potential illegal activity [1], pay processors shutting down services just to ensure that they are not facilitating wrongdoing, U.S. Senators potentially acting unethically [1], the list goes on. I have long been suspicious of both PIPA and SOPA but am uneasy about the thought that there are billions of dollars worth of intellectual property that could be vulnerable to pirates, hackers, and the like as well as to the general public.
    As I have said above, it seems clear to me that at least one large problem is the level of uncertainty that seems to exist. It leads to all players trying to go out of their way to “do the right thing” and often this overreaction hurts others who are entirely innocent. To address the questions asked, however:
    1. Payment blockade regulations: There seem to me to be two questions here. Do we believe there should be more oversight of the process? Do we believe that a company should be able to choose their customers even if their customers are not breaking the law? Even if further oversight occurs, payment processors might still have some leeway as to which customers it wishes to keep when it suspects foul play – do we give government the power to decide which customers each company can eliminate services to and which they cannot? Even if a company has not broken the law, a private company may have suspicions of wrongdoing. Some common ground can surely be found but even bare certainty would be helpful.
    2. Regardless of how one feels about the level of punishment that should be attached to payment processors for supporting IP theft, it seems that this question should remain unanswered until the first is answered. Until there is a clear standard established for the level of discretion that payment processors will have in determining which companies they will serve, it will be difficult to know which were willing to serve them with actual or constructive knowledge of the activity taking place. In the event the first is clarified, I believe the discussion concerning potentially expanding penalties would be opened.

    https://torrentfreak.com/under-u-s-pressure-paypal-nukes-mega-for-encrypting-files-150227/

  4. I think it is very interesting to see how courts continue to handle the informal nature of payment blockades, specifically with regard to what effect encouragement of government officials has on the legality of services implementing them. In DataCell ehf. v. Visa, Inc., 2015 WL 4624714, *8 (E.D. Va. 2015) (opinion can also be found here) when dismissing an anti-trust case brought against Visa and MasterCard for blocking payments to WikiLeaks the court noted that “the federal government is exempt from antitrust litigation” and that “communications between private entities and the government are not subject to antitrust laws.” In that case the court treated the actions by the staffs of Senators Leahy and Lieberman as government actions rather than the actions of a true 3rd party. It would be odd if a company could state a claim of injury against the government based upon encouragement offered by legislatures outside of the formal legislative process, without any bills being passed or votes being cast. I don’t think DataCell stands for that but it might lay some groundwork for a future case if the right circumstances present themselves.

    Regarding the questions presented by the main blog post I do worry about the near complete lack of oversight in the process of applying payment blockades. Not having any preset process by which these blockades are implemented and then not having the ability to appeal the blockade seems grossly unjust and unfair to me.

    While I understand and appreciate the appeal of increasing penalties on payment processors whose systems are used by IP thieves I worry about the potential for overreach and chilling effect that might have on market. Would Venmo (which many of us law students use and find convenient) exist if penalties were greater or the burden of proof changed in such a way as to make it easier to bring and win cases against payment processors? I would be concerned about such regulations preventing new and innovative companies from entering the marketplace.

    (not sure if the hyperlinks I put in work so here are links to the DataCell opinion and the payment blockade that explicitly did not allow any appeals)

    http://law.justia.com/cases/federal/district-courts/virginia/vaedce/1:2014cv01658/311120/56/

    https://torrentfreak.com/paypal-starts-banning-vpn-and-smartdns-services-160205/

  5. First to start out I find payment blockades to be a very dangerous tool in combating IP theft and other copyright issues. Giving payment processors the ability to have the sole discretion on which payments to process and which payments to block can lead to the payment processor developing unjust motives. Giving these payment processors too much power can be a very dangerous thing.

    In response to whether there should be more oversight of the payment blockade process, I believe there should be more oversight. The lack of oversight can allow for a number of different problems to arise. First the ability of the payment processors to be influenced or threatened by political or other influential sources. Without the proper oversight any number of hidden agendas could determine which payments are blocked and lawful transactions and businesses may be stopped and shut down with out merit. With many businesses relying on these payment processors for the survival of their businesses the payment processors can basically determine which businesses it wants to fail for whatever reason it pleases. The power the payment processors have now with no oversight is simply unfair and unjust. In my opinion there should be a separate regulatory body to determine when a payment blockade is appropriate. This regulatory body would be responsible for investigating claims of wrongful payment blockade, and devise and appropriate remedy. I know this sort of regulation is likely to be expensive and time consuming but believe something needs to be done to limit the power of the payment processors.

    As to the second question of whether we should be advocating for greater penalties against payment processors supporting IP theft, I dont’ believe we should advocate for greater penalties. In my opinion the payment processors shouldn’t have to investigate into every aspect of a client’s business in order to process payments for that client. It should be the responsibility of some other regulatory agency to make sure IP theft is not occurring on these various websites. The payment processors should only have to worry about its business relations with its clients and not have to worry about the ins and outs of each clients business. I know once again regulation on such a large scale is not likely to be very effective but the responsibility of combating IP theft should fall on a separate regulator body and not the payment processors who where just doing their job.

  6. This is a very interesting topic! My comment is more narrowly focused on what happened to Mega.

    I whole-heartedly disagree with what happened to Mega in light that the report used to justify pressuring PayPal (a payment processing service) into terminating its relationship with Mega was not wholly accurate. [1].

    PayPal was under pressure by the two major payment processing services who owned 95.5% of the payment card market, Visa and MasterCard, to stop providing its services to Mega. [3]. Proving, through the use of statistics and other evidence, that its business was complying with all of the requirements of the Digital Millennium Copyright Act, was still not enough to repair Mega’s broken relationship with PayPal. Eventually, PayPal (allegedly) issued Mega an apology and acknowledged that it’s business is legitimate; however, PayPal still chose to distance itself from the file-hosting site. [1].

    PayPal, as well as Visa, MasterCard, and Senator Patrick Leahy, all relied on a report made by NetNames, that was most likely biased and did not have all of the information it needed to put together an accurate report. [1]. The report that branded Mega as a “rogue” site which is mostly used for copyright infringement, was backed by the entertainment industry. [2]. It would make sense that the entertainment industry would be behind such a report being put together and published. Such a report would shed light on the issues facing the industry, when it comes to having the work of its artists infringed upon and the loss of millions of dollars, by publishing the names of the companies that profit from allowing its users to get away with such illegal activity.

    This report only looked at a trivial sample of files that were publicly available online. [2]. NetNames dissected 500 online shared files out of the 500,000,000 files that Mega actually hosts, which never even get shared publicly. [2]. Is it fair to punish a company for the 0.000001% of the files that are infringing on copyrighted materials? As Alex addressed in his blog, surely there are credit card companies out there which have profited from such illegal transactions. Why is only Mega being “punished?” How come PayPal is “getting away” with most likely having facilitated the infringement of those 500 publicly shared files? Why not go after the user who is engaging in the illegal activity by suspending or freezing that user’s account, instead of going after the company who is trying to abide by every rule and regulation out there?

    These are the questions that Alex brought up in his blog. In answer to the above questions and the second part of Alex’s “thoughts to consider,” I do not believe it is fair to allow credit card companies which have profited off of the transactions made on file-hosting sites to get away scotch-free and given “a gold star for implementing a blockade” on the file-hosting site instead of being punished to the extent they helped facilitate such transactions which infringed upon IP material. Such actions seem to take away from the fact that companies, such as Mega, are not only conforming with relevant laws, but also, quickly removing material at the behest of content owners when infringement is found. [1].

    But the question then becomes, where do we draw the line (for file-hosting sites as well as payment processing services) on distributing blame for being involved in and/or facilitating the process of users infringing on IP material?

    [1] https://torrentfreak.com/under-u-s-pressure-paypal-nukes-mega-for-encrypting-files-150227/
    [2] https://torrentfreak.com/report-brands-dotcoms-mega-a-piracy-haven-140918/
    [3] https://www.rt.com/usa/214007-datacell-wikileaks-bank-blockade/

  7. I would like to first address whether payment blockades should continue unobstructed or whether there should be greater oversight on payment blockades. [1]. Greater oversight should be implemented to avoid peer-pressuring from the major payment processors, to minimize self-serving acts of the entertainment industry and politicians, and to avoid the creation of new payment processors with the intent to fund illegal activities.

    PayPal was peer-pressured by Visa and MasterCard to go against its own business judgment and withdraw from MEGA. [2]. At first, PayPal stated that it feels that MEGA’s business purpose was legitimate and that it was in compliance with US guidelines. However, after Visa and MasterCard withdrew from MEGA and increased their pressure on PayPal to do the same, the company decides to cease all business ties. [2]. Visa and MasterCard combined control 95.5% of the payment card market. [3]. Without any bright line rules, we are enabling two giants, Visa and MasterCard, to join efforts to set a market standard and allow them to dictate how and with whom other payment processors can enter into business. If there would be regulations, individual payment processors would have more clarity on the effects and legal consequences of their business relationships with certain cyberlockers.

    Additionally, it is no secret that the entertainment industry has great interest in shutting down most, if not all, file-sharing webpages. The entertainment industry also has the financial means and power to influence politicians and fund reports. An example of an entertainment industry backed report is NetName’s report titled ‘Behind The Cyberlocker Door: A Report How Shadowy Cyberlockers Use Credit Card Companies to Make Millions. [2]. The report sheds light on the revenue of cyberlockers and labels them as a piracy haven. [4]. However, the researchers were slobby in their execution. NetName used very small sampling sizes, for example it only sampled 500 of MEGA’s file. MEGA has an estimate of 500,000,000 files. The report also exclusively focused on publicly shared files/information and ignored the ones that are never publicly shared, which in fact makes up the majority of the files. [4]. The entertainment industry coupled with the report influenced politicians, such as Senator Patrick Leahy, to increase pressure on Visa and Mastercard to cease their business ties with the webpages named in the report. [4]. While I am all for changes implemented through the political process, I believe keeping the market unregulated allows and encourages certain industries and individual politicians to act with a greater self-serving interest. Our political system is built on checks and balances. Those checks and balances are ignored if politicians act based on the finding of one report and pressure from an industry that clearly has an interest in a certain, pre-determined outcome.

    Lastly, setting bright line rules would avoid the creation of new payment processors solely for the purpose of funding illegal activity such as file-sharing. On average, each cyberlocker webpage creates around 3.2 million dollars per year. The cyberlocking industry is very profitable. Individualized payment blockades by Visa, MasterCard, and PayPal may decrease such revenue but it does not stop it. [4]. Without any regulations, a payment processor start-up is not hindered from processing payment for those webpages. While Visa and MasterCard are more likely to use their influence to assure that such processors do not operate for a significant amount of time, such payment processor could still earn a lot of money in that short amount of time. Especially, since they would be the only payment processor that can be used. Pressuring the current, major payment processors to cease their business ties with cyberlockers only offers a temporary fix to an ongoing problem. Therefore, greater regulations are needed. Thus, payment blockade should not continue unobstructed.

    The blog also raised the issue whether we should be advocating for greater penalties against payment processors for supporting IP theft. The blog points out that the payment processors to date made millions on such illegal transaction. [1]. As I mentioned previously, I am in support of greater regulations of payment blockades. However, I do not believe we should punish companies retroactively. Visa’s and MasterCard’s ongoing payment blockades shows that those companies are interested in ceasing illegal activity on the internet. For example, both payment processors blocked payments to Wikileak when the cable scandal started. [5]. Also, PayPal is known in the industry to take an “aggressive stance towards BitTorrent sites, Usenet providers and file-hosting services.” [5]. In addition, PayPal withdraws from businesses when it feels that they are being used to fund illegal activity. For example, PayPal refuses to process certain payments for companies that provide tools to forego geo-filtering blockades. [5]. Nevertheless, if greater regulations are ever implemented, I believe that such regulations should include penalties against payment processors for supporting IP theft.

    [1] https://virtualcrimlaw.wordpress.com/2016/09/10/payment-blockades-in-the-fight-against-cyberlockers/
    [2] https://torrentfreak.com/under-u-s-pressure-paypal-nukes-mega-for-encrypting-files-150227/
    [3] https://www.rt.com/usa/214007-datacell-wikileaks-bank-blockade/
    [4] https://torrentfreak.com/report-brands-dotcoms-mega-a-piracy-haven-140918/
    [5] http://www.forbes.com/sites/andygreenberg/2010/12/07/visa-mastercard-move-to-choke-wikileaks/#1c18fc7f4bc2
    [6] https://torrentfreak.com/paypal-starts-banning-vpn-and-smartdns-services-160205/

  8. Initially, payment blockades seem like a good idea. Countless people make transactions online through payment processors like Visa, Mastercard and PayPal. If the process of paying for a service or product online is disrupted or the payment processors are penalized making it difficult for a consumer to get their service or product, ultimately that particular site will lose business. Making transactions online is all about easy access, convenience, speed and instant gratification. When that process is interrupted and the benefit of an online transaction is taken away, consumers will most likely find another service provider that offers online payments without any disruptions. In theory, this would work to help stop cyberlockers from making a profit off of illegal file sharing.

    As mentioned in the post, about 80% of online transactions involve the use of a credit or debit card. However, I don’t think that payment processors should bear the burden for providing services to cyberlockers. They are not actively involved in illegal file sharing and they are not the root of the problem. Payment processors are merely providing an intermediary service like they would for any other site that participates in making online transactions. Payment processors like Visa, Mastercard and Paypal have millions of card users and provide services to millions of websites and businesses. We cannot reasonably expect them to thoroughly check every single website they provide services to for illegal activity like illegal file sharing. That would pose an undue burden on payment processors. I think that payment processors should be responsible and not only report cyberlockers but also do their best not to do business with websites that clearly violate IP rights. However, they should not be penalized because like the reasoning given in Perfect 10, Inc. v. Int’l Serv. Ass’n, payment processors have no direct control over the infringing activity. They aren’t the real problem. By penalizing payment processors, we’re only hindering cyberlockers and not actually dealing with the problem.

    As you explained the “best practices” frameworks are extrajudicial and don’t really protect IP holders the same way government regulations would. You also explained that Congress and the Executive branches want to stay clear of regulation, especially considering the cost of oversight. I think that Congress would rather put pressure on payment processors than actually legislate in this area because it is easier for them and less costly. We have problems even identifying the cyberlockers and figuring out an effective way to stop illegal file sharing, so legislating such a nebulous area is difficult. I also think that protecting the rights of IP holders is not a great area of concern for Congress at the moment.

  9. First, I have to start by saying: This topic is everything! I believe that there is a lot of confusion in regards to the current climate and any (or the lack of) legislation surrounding these types of intellectual property issues. Partly because this field is so new and the landscape is constantly changing at such a rapid pace, I believe it is difficult for people to take the time to properly educate themselves or to keep up with this rapidly changing field. I also predict that we will continue to see more apprehension and lack of legislation in this field. Looking at this in a simpler context: who are the lawmakers of the land? Lawyers. Who are the people who are (typically) responsible for identifying, ruling on, and engaging in these types of issues? Lawyers. However, as a whole, lawyers are widely known to be digitally inept and adverse to anything remotely electronic. This field is so new for many lawmakers, legislators, and lawyers, and you can literally see the hesitation in law firms and other legal institutions to “get with the program.” Hopefully, with the influx of new, young lawyers who have grown up in an age of fast-paced digital progress, we will begin to see a shift in the current climate regarding these issues, as lawyers and lawmakers alike begin to embrace these issues rather than ignore them.

    As to the issue at hand, I believe that the relevant inquiry should begin with identifying and analyzing the original intent behind the introduction of laws governing intellectual property, specifically those involving trademarks, patents, and copyrights. Although trademark and patent laws are (arguably) much more protectionist in nature than that of copyright laws, the sole motivation behind such laws has been and always will be to encourage, promote, inspire, and aid in the proliferation and dissemination of creativity and new and unique ideas. This is and has always been the cornerstone of intellectual property legislation. Granted, there is also the added purpose of protecting an artist’s creative work; however, and particularly in regards to situations involving copyright, promoting continued creativity has always been a mainstay, and many courts have been hesitant to rule otherwise for fear of stifling creativity.

    Taking that in mind, we can apply this mindset to the current issue. There are a lot of interesting topics that are touched upon in this post. But the first thing that came to mind while reading this week’s articles was the potential first amendment violations that might be at play. Looking at sites such as Wikileaks and Mega, it seems well established (although there have been arguments made to the contrary) that these sites are not engaging in any illegal activity. What they are, in fact, doing, is aiding in the dissemination and free-flow of information. There may be some concerns regarding the classified nature of certain information; however, I am unaware of the legal implications as it regards both divulging information that has been deemed as “classified” or the withholding of information, regardless of its classification. It seems to me as though in this day and age any information that does not have some type of inherent privacy interest attached to it (such as a person’s personal information, social security number, etc) should be fair game. If not, then it begs the question why sites like Wikileaks and Mega are still operational and their Directors are not in prison?

    Paypal’s blocking of unblocker sites also seems legitimate enough. After all, copyright infringement is a major concern, and companies that willfully ignore the intellectual property interests of others should be punished. In that same vein, companies whose IP interests are being bypassed should have some type of recourse. But it does seem that financial services like Paypal are being caught in the crossfires of these IP battles. One of the questions I had while reading these articles was: wouldn’t there be some type of argument against these financial services for vicarious liability? As that was also one of the issues posed in this week’s principal blog, it seems that I am not the only one with this question. As was mentioned in the principal blog post, “The Court held that because Visa was not essential to the actions of reproducing and distributing the IP, they made no material contribution to the violations.” I, for one, find this laughable. How can Visa not be found essential to the actions of reproducing and distributing the IP when it has been well established that the majority of transactions in this arena occur electronically and it was also found that Visa and MasterCard together controlled 95.5 of the card market for Wikileaks? And that was in 2014! I’m sure its even closer to 100% for most other sites at this point. But this kind of ruling is consistent with my original assertions that lawmakers are: 1) prone to ruling against copyright infringement or findings of liability for fear of stifling creativity, and 2) courts are afraid of adopting any bright-line rule in these types of cases because this is still an area of high ignorance and uncertainty.

    As to streaming services, this was particularly significant, as I know that these types of services are extremely popular among the general public. Millions of people use streaming websites. But why can’t streaming sites pay copyright holders for licensing to legally stream content? Wouldn’t that be a quick-fix to this issue? I think that there is a legitimate interest in the free-flow of information, and I truly believe that society is moving in the direction where all of these types of services will soon be freely shared by all. However, the obvious downside is that the film and entertainment industry is losing money in the process. So I guess the real question is: What is the real value at stake? Artistic enjoyment, or financial compensation? Both are important, but it will be interesting to see how these interests play out in the future.

    A quote I found interesting in this week’s blog post was, “What is interesting is that the Federal Government has put political pressure on payment processors to adopt these frameworks instead of legislating in the area.” I think this goes back to my original assertion that the Federal Government is simply AFRAID to legislate in this area! They do not understand it! And, naturally, we fear what we do not understand. I agree that it does seem like the Federal Government has adopted somewhat of a “laissez-faire” attitude regarding anything cyber-related. Instead, they attempt to essentially employ bullying tactics like requesting senators and financial services to enact blockades to force sites offline. With the way and the pace that society is changing, I, for one, am very interested to see how the field of IP legislation continues to develop in the future.

  10. It is easy for consumers (including myself) to become ignorant to the detailed workings of the websites they use on a regular basis. I am pretty sure that most people know about Napster, LimeWire, and the like: companies that were infamous for being used for illegal downloading and virus acquiring. However, most people do not think about the implications of these companies and how intellectual property is being jeopardized.

    It is important for companies like Visa, MasterCard, and PayPal to take a stand against companies that threaten intellectual property and security of its users. I think the line gets blurred between taking a stand and infringing on a private company’s or consumer’s rights. If the company itself disagrees with the practices of a cyber-locker and wants to restrict business, I could understand that. If the company is going to do that I think consumers should be well-informed so they can decide if they agree or want to choose to switch companies to avoid the payment blockade. I see that as private businesses deciding whether or not to conduct business together. I am personally most disturbed by the likelihood that politics has made its way into the battle and Big Brother is suggesting (or strongly nudging) how private companies should conduct their business. It crosses the line when politics are involved without legislation being passed to implement certain reasonable regulations. But then again, just because a piece of legislation is passed does not make the implementation acceptable. The political system is not strong enough to check and balance itself from a misuse of political power at every corner. Credit card payments are the main way that online payments are processed and a payment blockade from major credit card companies can be the sole demise of a company. When those payment blockages are being pushed by a political agenda the waters become very murky.

    The blog asked whether there should be tougher penalties on credit card companies for supporting IP theft and I think that there should. However, those regulations are better in theory than they would be in practice. It would be very difficult to prove that a company has knowledge of every (if any) IP theft. Private companies like Visa cannot micromanage and investigate every company that its consumers send payments to. It is unrealistic. It is scary that there is such potential for oversight but I like to think that as time goes by, the oversight and the loopholes will at least start to diminish through proper legal actions.

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