Intellectual property rights holders have proposed aggressive legislation to pull the rug out from under Internet infringement by cutting off advertising and credit card payment services to domains allegedly used for “piracy” — in effect broadening secondary liability for copyright infringement — and by giving the government expansive powers to block Internet access to websites that are said to “facilitate” infringement.

But a coalition of technology companies, Internet service providers, consumer groups, and civil liberties and human rights organizations have mobilized against the initiative, leading to the U.S. Congress’s January 20, 2012 postponement of planned votes on H.R. 3261, the Stop Online Piracy Act (SOPA), and Senate bill S.968, the Protect IP Act (PIPA). Critics complained these bills would upend the balance between timely protection against infringement and due process of law, between protecting intellectual property and providing breathing space for online innovation, and between copyright enforcement and the First Amendment. These voices won out, at least in the near term, as sponsors of both PIPA and SOPA have stated their intent to rewrite the bills to address some of the critics’ concerns.

Proponents argue that copyright and trademark law has, to date, proven inadequate to deal with the rampant piracy, much of it emanating from foreign websites, which threatens America’s IP industries. They contend that sterner provisions — including a “market-based system” for choking off financial support for infringement — are needed. They further contend that there must be a mechanism for preventing these foreign sites from being accessed in the United States by using the Domain Name System as a type of virtual import barrier. Opponents, on the other hand, have denounced SOPA and PIPA as creating an Internet censorship regime and tampering with the integrity of the Domain Name System that is the foundational building block on which the Internet has been constructed. We discuss SOPA as it was proposed to the U.S. House Judiciary Committee in October 2011 and PIPA, as it was passed by the U.S. Senate Judiciary Committee to the floor of the Senate in May 2011. Although it is almost certain that both bills will see substantial revision in the coming months, it is also likely that some of the core aspects in each bill will remain in the revised bills.

SOPA’s Notice and Cutoff System

SOPA includes a self-described “market-based system,” which empowers rights holders to try to throttle infringing websites financially, by denying them payment processing and advertising. Section 103 of SOPA creates a notification system reminiscent of the take-down regime of the Digital Millennium Copyright Act, which in many ways it displaces. SOPA’s notification system allows IP rights holders to send cutoff notices to Internet advertising agencies and payment processing services, requiring that they cease to provide services to the target website, without any prior judicial determination of infringement.

Notifications Regarding Websites “Dedicated to the Theft of U.S. Property”

To be an appropriate target, the website must be “dedicated to the theft of U.S. property.” § 103(a)(1). The definition of such a site is somewhat convoluted, but is satisfied if the site (or some portion thereof) is (i) “primarily . . . operated for the purpose of . . . or is marketed. . . for use in [] offering goods or services in a manner that . . . enables, or facilitates [copyright infringement] [or] the sale . . . of [counterfeit] goods,” or “(ii) the operator of the website . . . has taken deliberate actions to avoid confirming a high probability of the use of the U.S.-directed site to carry out acts that constitute” infringement. The bill leaves undefined — and therefore to the discretion of rights holders — what constitutes “deliberate actions to avoid confirming” a likelihood of infringing uses. The definition also does not distinguish between sites with a high probability of episodic or occasional uses for infringement, and sites that are most likely used largely for infringement.

There is no requirement that the rights holder notify the target website before sending the notification. Pursuant to § 103(b)(4), a valid notification must be in writing and contain, among other things:

  • Identification of “specific facts to support the claim that the Internet site… is dedicated to theft of U.S. property and to clearly show that” the rights holder will suffer “immediate and irreparable injury” absent timely action,
  • Information showing the payment provider or advertising service is providing services to the accused site, and
  • Identification of evidence indicating the site is a U.S.- directed site.

The requirements are seemingly elaborate. But it appears that in practice they could be satisfied by a routine and perfunctory writing, particularly in light of the vagueness of key parts of the “dedicated-to-theft” definition and the fact that potential penalties for sending an erroneous notification only apply if the rights holder “knowingly materially misrepresents” that the site is dedicated to the theft of U.S. property. § 103(b)(6).

Response — Counter Notifications

Upon receipt of a proper notification, the advertising or payment processing service is to “take appropriate steps to ensure timely delivery” of the notification to the accused website, and — if a counter notification is not received — the service provider is required to cut off payment or advertising services within five days of the notification. The counter notification must state, under penalty of perjury, that the site operator has a good faith belief that the site is not dedicated to the theft of U.S. property (the rights holder’s accusation that the site is dedicated to theft need not be made under penalty of perjury). Counter notifications regarding foreign websites must also include their consent to jurisdiction of U.S. courts and they must agree to accept service of process from the rights holder. § 103(b)(5).

If  there is a counter notification or if the advertising and/or payments services are not cut off, rights holders can bring an in personam action against the owner of the domain or the operator of the accused website or an in rem action against the Internet site or domain name, seeking injunctive relief. § 103(c). If such relief is granted, the court can also require the advertising service or payment processing service to take “technically feasible and reasonable measures, as expeditiously as possible, but in any case within 5 days” of service, designed to cut off their service to the accused site. § 103(d). They have seven days to object. Advertising and payment processing services are immunized from suit and from liability regarding any actions designed to comply with orders under SOPA.

Immunity for Voluntary Action Against Sites Dedicated to Theft

Section 104 of SOPA also broadly immunizes a wider range of actors — service providers, payment providers, advertising services, advertisers, search engines, domain name registries, or registrars — for, in addition to the actions described above, “voluntarily blocking access to, or ending financial affiliation with an Internet site.” The conditions for this immunity are merely that they reasonably believe the site to be a “foreign infringing site” (discussed below) or a site “dedicated to the theft of U.S. property” if they also reasonably believe the action is “consistent with the entity’s terms of service or other contractual rights” (as would commonly be the case).

Injunctive Relief Provision of PIPA’s § 4

Like SOPA, PIPA also contains a provision aimed at allowing rights holders to attack the financial support mechanisms for websites perceived to engage in or facilitate infringement. However, PIPA lacks the extrajudicial “notice and cutoff” regime in SOPA. Instead, § 4 of PIPA establishes a judicial mechanism by which rights holders may initiate an in rem action against the domain name of a site that is claimed to be “dedicated to infringing activities” and obtain a preliminary injunction or temporary restraining order that may be served on advertising services and online payment processors. Recipients of such court orders would be required to cease providing services to websites that are subject to the orders. Such service providers would be immune from suit and liability for their actions to comply with such orders.

PIPA’s § 4 is somewhat narrower than its SOPA counterpart, in that it does not establish a notice and counter-notice procedure, and PIPA provides minimal due-process protections to targeted websites. However, such protections are truly minimal, as rights holders would be able to obtain orders through ex parte proceedings without prior notice to the targeted websites.

U.S. Department of Justice Domain Name Seizures and Blocking Orders

The broadest reaching aspects of both SOPA and PIPA concern the ability of the U.S. Department of Justice (DOJ) to seize domain names and disable access to websites. The DOJ has, for several years, used civil and criminal forfeiture procedures to seize domain names upon a showing of probable cause that they have been used to facilitate certain criminal activity. However, its ability to conduct seizures without the assistance of foreign law enforcement is limited to webservers located in the United States or domains managed by U.S.-based registries (e.g., .com and .org). Sites using domains such as “.CN” are beyond the reach of the DOJ.

Both SOPA and PIPA would enable the DOJ to seize and obtain injunctions over so-called “foreign infringing sites,” that are not currently subject to seizure under federal criminal and civil forfeiture law.

PIPA Injunctions Directed Toward DNS Operators, Search Engines, and Others

Section 3 of PIPA is aimed at “rogue websites operated and registered overseas.” This section would authorize the DOJ to seek injunctive relief from a U.S. District Court against an “internet site dedicated to infringing activities” if the site’s domain name is used within the United States and the site conducts business directed to U.S. residents and harms U.S. IP rights holders.

The DOJ can then serve the injunction on four classes of third parties. First, it may serve the orders on U.S.-based operators of non-authoritative domain name systems (DNS), who would be required to prevent the identified domain name from resolving to the IP address associated with the domain. This provision, in particular, has been heavily criticized as a censorship order, and one that could add instability to the domain name system globally. Second, the DOJ could serve the orders on search engine operators, requiring them to “take reasonable measures” not to serve a hypertext link to the identified sites. And finally, the orders could be served on Internet advertising services and online payment processing providers, obligating them to cease providing services to the targeted sites.

As in other provisions of PIPA, recipients of court injunctive orders would be immune from suit and liability for their actions in response to an order served on them by the attorney general.

SOPA Injunctions Directed Toward ISPs, Search Engines, and Others

Section 102 of SOPA would permit the DOJ to obtain injunctions against “foreign infringing sites,” which are defined as a websites that: (1) are directed at least in part to the United States, (2) are committing or “facilitating the commission of” criminal IP violations, and (3) would be subject to seizure in the United States in an action brought by the DOJ if the site were based in the United States. In this sense, SOPA is somewhat narrower than PIPA, in that the authority of the DOJ is restricted to sites for which it can establish probable cause to believe they are committing criminal violations of IP law.

However, once the DOJ makes this showing, the scope of the injunctive orders it may obtain is largely the same as in PIPA. The orders may be served on search engine providers, payment processing providers, Internet advertising services and “service providers”, all of whom must take action within five days.

Also like PIPA, the statute has built-in incentives for recipients of DOJ orders to act without looking deeply into the merits of the orders. Recipients of DOJ-obtained court orders are immunized from activity they undertake in response to the orders. But, the government may take legal action against any search engine, payment network provider, or Internet advertising service that does not comply with the orders.

Predictable Impact of SOPA and PIPA

If the elements of SOPA and PIPA discussed in this article remain in any bill that is ultimately passed into law, they would codify a regime that will enable rights holders to cut off services on sites they claim are sources or enablers of infringement. The claim may be based on an accusation alone, not a judicial determination that the claim was well- founded.

Generally speaking, it is unlikely that entities receiving § 103 notifications or court orders will scrutinize too critically either the assertion that the accused site is dedicated to infringement or an assertion that a foreign site is U.S.- directed. Payment processors and Internet advertising services have a limited economic interest in any particular accused customer; they commonly lack the resources or incentive to assess such claims with care; and they are likely to comply with the obligations imposed by the Act in the absence of a counter notification. Further, § 103 authorizes rights holders to obtain a “show cause order,” requiring recipients of notifications who have failed to act on a notification to “show cause” why they have failed to comply with the notification and why monetary sanctions should not be imposed against them. Thus, given the carrot of immunity, and the stick of monetary sanctions for failing to act on notifications, SOPA incentives are heavily weighted toward acting on notices with little review. The five day deadline for response will mean that, in many cases, the accused website does not receive timely notice of the claim and threatened cut-off. The perceived administrative burden of getting involved in a SOPA fight could well be enough to induce many service providers to exercise their “voluntary” cut-off right under § 104.

Regarding foreign websites, those confronting what they consider a dubious contention, that they are subject to U.S. jurisdiction, will face a difficult choice — either allow advertising, payment and other services to be cut off or pay the price of defending themselves in U.S. courts even if they lack meaningful contact with the United States.

The failure to limit or define what kinds of “facilitation” or “enablement” are sufficient to trigger “dedicated to theft” or “dedicated to infringing activities” status suggests that any private party (or government entity, foreign or domestic, for that matter) that seeks to suppress unpopular speech on websites could use SOPA or PIPA to achieve this goal. They need only identify some use or quotation of something that the entity itself said in writing in order to claim an infringement, justifying a notification that would likely cut off income to and advertising relating to the objectionable website. One can imagine that a repressive government or an organization seeking to squelch whiste-blowers or to suppress criticism may claim that quoting its own words or documents represents copyright infringement, and hence that a website featuring such matter should be denied income or advertising as one “dedicated to theft” of intellectual property.

These are all issues that will need to be addressed by Congress as it revisits SOPA and PIPA. The White House has stated that it “will not support legislation that reduces freedom of expression, increases cybersecurity risk, or undermines the dynamic, innovative global internet.” In drafting a bill that addresses these important concerns, as well as the very real problem of foreign-based websites used to advertise and distribute counterfeit and pirated goods, Congress will need to give greater consideration to the potentially far-reaching impact of laws designed to protect a legitimate, but narrow set of interests.