The House Committee on the Judiciary, Subcommittee on Intellectual Property, Competition and the Internet held a hearing on “Promoting Investment and Protecting Commerce Online: Legitimate Sites v. Parasites, Part II” on April 6, 2011, to further examine methods of theft online – including both copyright infringement and counterfeiting. The webcast can be found on the Committee’s web site. Although a transcript of the proceedings (and any supplemental questions and answers) are not yet available, when they are published, they should appear in the Government Printing Office’s repository: House Committee on the Judiciary: Hearings – 112th Congress.

Testifying before the Subcommittee were Hon. John Morton, Director of the U.S. Immigration and Customs Enforcement; Floyd Abrams, a First Amendment expert who testified on his own behalf; Kent Walker, Senior Vice President and General Counsel for Google; and Christine Jones, Executive Vice President and General Counsel for the GoDaddy Group. (Their prepared remarks can be found by following the links associated with each of their names.)

At the opening of the hearing, Rep. Goodlatte (Va.) explained the basic purpose of the hearing (to examine methods of theft online) and clarified a misunderstanding that had arisen after the last hearing on March 14. He explained that although ICE (U.S. Immigration and Customs Enforcement) had seized domain names in the recent few months, those seizures were based on existing law – particularly the Pro-IP Act enacted several years ago.

In contrast, this hearing and any proposed legislation resulting from it was intended to find new tools to address theft online — existing laws did not provide enough enforcement tools. Many of the websites being discussed as “rogue” websites in these hearings are foreign-based and/or -operated. Thus, there is no property in the U.S. at issue, and the sites could not simply be “seized” by ICE. He concluded, “any efforts to pass new legislation will not be based on seizure laws and process because there is no property in the U.S. to be seized. Thus, new tools are needed to address theft online.” (All of the quotes taken from the hearing for this blog post are paraphrased, not exact transcriptions, as a transcript is not yet available. But, they’re close.)

Rep. Watt (N.C.) put the discussion into a neat container: we need to deter “theft of products online as we protected against theft of property on the ground. What might romantically be referred to as ‘piracy,’ we refer in my neighborhood as ‘theft’ or simply, ‘stealing.'”

Rep. Conyers (Mich.) asked simply: “Why don’t we just cut off all the money? Why don’t we eliminate some of the financial incentives by cutting off the funding from customer through the payment processing system, or cut off the funding from some of the advertising networks?” He also suggested considering a private right of action, noting that the suggestion was “almost unheard of.” Finally, he admonished that “[w]e need to use this hearing as another opportunity to come up with some legislation we can be proud of.”

Following these introductions, each of the witnesses was given five minutes to summarize the testimony that they had prepared, and proceeded to answer questions posed to them by the participating representatives of the House. The hearing lasted about 3½ hours, and it’s impossible to do it complete justice here. The questions and answers, and the various speeches made by some participants, were detailed and enthusiastic. I’d encourage you to watch the whole thing.

In the meantime, some highlights:

ICE Director John Morton expressed great concern that all of American industry is “under assault” right now and repeatedly argued that government enforcement should only be one “tool in the toolbox,” but simply could not address effectively every act of infringement or counterfeiting. Industry has to be involved. In essence, he said, “[w]hat you’ve heard, though, is that industry can do a lot more, on a greater scale than the government ever can. We are part of the solution, we are not THE solution, not by a long shot.” He further explained the context in which the ICE domain seizures had occurred, noting that they were made under existing legislation, but are ineffective against a foreign website with foreign operators, because of jurisdictional limits.

Floyd Abrams, Esquire, addressed applicable First Amendment principles and recommended that any legislation must be narrowly drafted so that it’s addressing only those sites that are “all but totally infringing. . . . if the entity is nothing but a transmitter of infringing products, you are permitted to deal with it as long as the remedy is not overbroad.” He recommended that the Committee use existing regimes such as Rule 65 (of the Federal Rules of Civil Procedure) governing injunctions and temporary restraining orders and the Copyright Law’s enforcement mechanisms, and not to “start from scratch.”

Kent Walker, Esquire, explained Google’s point of view, and responded to numerous questions throughout the hearing. Specifically, he testified:

• That the DMCA process was sufficient because it “strikes right balance between free speech and rightsholders.”
• That creating a private right of action should be discouraged because it would allow individuals to “shake-down companies that are making legitimate efforts to comply.”
• That Google’s efforts have already been successful and Google was already doing what it could.
• That Google does not want to be in the position of being “judge, jury or executioner” in deciding what content was infringing or pirated. Instead, he advocated for significant cooperation with the content industry, so that the content industry could identify which web sites contained infringing works or counterfeit products.
• He discouraged the imposition of any new burdens and explained that each method of combating infringement (whether through AdWords/AdSense campaigns on the advertising side or Google’s AutoComplete function and display of results on the searching side) that had been proposed during the hearing was overbroad.
• He denied that Google had benefited from “illicit websites” through advertising revenue: “These sites cost us money, sir. They cost us money to get rid of them, they cost us money when we find them and we have to refund money to advertisers. They cost us money when they use fake credit cards or stolen credit cards to pay for what they’re doing. We have no interest in having advertising on these sites. We have no interest in having advertising leading to these sites.”
• Discussing some practical differences between infringers and counterfeiters, which necessitate different enforcement efforts, he explained:
  • The infringers (generally) had no trouble drawing traffic to their sites because they were offering content for free – their way of making money on these sites was through advertising, which could only be profitable if more people were drawn to their sites.
  • The counterfeiters (generally) were selling products and making money, but they needed to drive traffic so that more sales could be made.
• He recommended “cutting off the money to these guys, cutting off the advertising . . . [and] the financial services. When you talk about cutting off the pure search side of it, the risk is that you are both overbroad and ultimately ineffective in” eliminating the bad conduct.
• He proposed a limited definition of “rogue website” be used to define sites that were subject to takedown or other sanctions under this legislation. He suggested: “1) that the site is knowingly violating copyright law; 2) that it contains complete copies of works or counterfeit goods; 3) that it has a commercial purpose; and 4) it refuses to respond when notified by rightsholders. Within that construct, we’re comfortable with the notion that the site is dedicated to infringement.”

Ms. Jones agreed that input from the content industry was critical, but argued that it did not end the analysis:

• “Like Google and others, we do rely on the content industry to let us know when they find things that are inappropriate.”
• She argued that it was necessary to go further, and achieve cooperation from the other participants in the “broader Internet ecosystem” to make it very difficult for infringers and counterfeiters to achieve profits in the US market.

• Continued assistance from law enforcement was critical to the success of any multi-pronged attack.

• Made some concrete recommendations to combat these rogue sites: 1) “follow the money”; 2) “shut down all chokepoints in the system because we have to disincentivize the bad actors”; and 3) “take away ability to search for, pay for, and ship counterfeit goods.”

• Recommended that any new legislation in this area should not be limited to a specific technology or a specific means of infringing, but instead focus on “top-level concepts.” In other words, there will be technologies in the future that we cannot contemplate now – any legislation should be careful to address the conduct, and not the method of infringing or delivering the counterfeits.
• Suggested that a safe harbor be provided to protect industry participants from liability if they complied with the new statute’s requirements.

• Also advocated in favor of penalties that should be assessed against those who do not comply: “Unless and until we provide a consequence for businesses who facilitate criminals, there will always be criminals who can find a safe harbor [I think she meant “safe haven” here].”

Reaction by various members of the Committee was mixed, and they had their own suggestions of how an enforcement tool could be fashioned and provided observations of some of the challenges to be faced. Among them:

• Rep. Lofgren (Cal.): She explained that she was reminded “how useful it might be to have some of the big tech presences engaged in deep conversations with content holders who are understandably concerned about what’s happening to them. That might yield a successful result that might be far superior than what the non-engineers in the Congress might craft.”
• Rep. Berman (Cal.): Responding to Mr. Walker’s suggestion that the DMCA was adequate to address these concerns, he explained, “if that legislation were really working, I don’t think we’d be having this hearing. I don’t think there’d be a Senate Bill. I don’t think Customs would be undertaking the initiatives it’s undertaking.” At base, however, “billions of dollars and thousands of jobs were being lost because of digital theft and we’re focused on trying to do something about it.”
• Rep. Wasserman-Schultz (Fla.): Expressed concern about the length of time over which Google continues to allow web sites to remain (for instance on its Blogger site) even after receiving a takedown notice. She asked that Rep. Goodlatte include in his investigation an analysis of the amount of time it reasonably takes to act on takedown notices under the DMCA.
• Rep. Sanchez (Cal.): Suggested that ICE direct its symposiums in public education to a younger audience, the ones who might be participating in the infringement, instead of focusing on industry leaders, government officials and congressional staff, as these would already be on board with the concept that this conduct must stop.
• Rep. Jackson Lee (Tx): Asked whether Google has a team or department that deals with implementing the takedowns under the DMCA, as they could give input into crafting the legislation. [Mr. Walker responded that they had such a group of people and they’d be happy to work with the Committee.]

Many more thoughtful comments and suggestions were made by other members of the Committee and the witnesses, and I again encourage you to watch the webcast.

Finally, while it is not clear what the Subcommittee will do with all of this information and these suggestions, Mr. Adams had the right approach when he suggested, “all we can do is everything we can to drain the actions of this sort of the profits that have been building up over the years, and increasing more and more as time passes.” As Director Morton opined, ” We have to do something. My perspective is, do nothing and you fail.”

Prior posts in this blog on other hearings on a potential, new COICA bill (Combating Online Infringement and Counterfeits Act) can be found under the label COICA.

The House of Representatives’ Subcommittee on Intellectual Property, Competition and the Internet (which is a subcommittee of the Committee on the Judiciary) held a hearing on March 14, 2011 entitled “Promoting Investment and Protecting Commerce Online:  Legitimate Sites v. Parasites, Part I,” addressing how to combat online infringement by rogue websites.

While I have not yet watched the webcast available on the Committee’s web site, an article by the Bureau of National Affairs suggests that the hearing was devoted to the same kind of inquiry that the Senate Judiciary Committee considered last month, and thus raises questions about what a revised COICA bill could look like. (For a discussion of the Senate’s hearing, see my prior blog post.) The BNA article reported that Rep. John Conyers, Jr. “lashed out at the witnesses [toward the end of the hearing] and expressed his profound disappointment at what he perceived is a dearth of suggestions for action that Congress could take to address the problem being addressed.”

The witnesses who testified during the hearing and provided written remarks were Maria A. Pallante (Acting Register of Copyrights, U.S. Copyright Office), David Sohn (Senior Policy Counsel, Center for Democracy and Technology (CDT)), Daniel Castro (Senior Analyst, Information Technology and Innovation Foundation (ITIF)) and Frederick Huntsberry (Chief Operating Officer, Paramount Pictures).  Their written remarks are available on the Committee’s site.

As of this writing, a date for the second part of this hearing has not yet been posted to the Committee’s site.