Analysis: SOPA and its effect on digital distribution for independent development

[Attorney Mona Ibrahim breaks down the controversial Stop Online Piracy Act, revealing the alarming effects it could have on independent developers.] The Stop Online Piracy Act (SOPA) is one of the most contentious pieces of legislation to hit the Internet in recent history, even more so than the Pro IP Act. The Act is purportedly designed to institute measures that will restrict piracy arising from foreign websites. However, the effectiveness of those measures has been put into question by the legislation’s opposition. According to opponents of the Act, the government and private authority granted by the legislation creates a number of complex concerns, including freedom of speech, user privacy, and Internet security. These concerns are only the tip of the iceberg. Additionally, that original purpose seems to only appear sporadically in the legislation. Some of the procedures and policies presented in the body of the Act, particularly those concerning private enforcement actions, seem to have little to do with preventing piracy originating in foreign countries. Instead these provisions raise the question as to whether they are meant to work hand in hand with the DMCA safe harbors or operate as back door. While the DMCA safe harbors are a far cry from perfect for the purpose of eliminating piracy, they are at the very least effective, although not always efficient. The 78 page Act in its original form is a substantial body of legislation with a bare minimum of eight moving parts. These parts break down to both government enforcement and private enforcement. This poses another problem in the Act: according to opponents, the Act’s lack of cohesion and the sheer number of regulations it imposes on any number of Internet businesses makes meaningful discussion concerning the entirety of the Act a difficult proposition. Tackling the entire body of the legislation in one go would be next to impossible. Yet taken in parts, we can get a clearer picture of the potential effect this Act may have on things like digital distribution for small game developers. One of the more disconcerting parts of this legislation from the perspective of independent game development comes in the form of the private enforcement actions available under Section 103 of SOPA. Section 103 This section permits private individuals and entities to pursue civil actions against website owners. Additionally, the legislation gives private parties the authority to cut off financial support to that website by forcing payment vendors and advertisers to suspend their services. [UPDATE: Ibrahim discusses amendments to SOPA in an updated post on her Under Development Law weblog.] Who is liable under section 103? Section 103 of SOPA, entitled “Market-Based System to Protect U.S. Customers and Prevent U.S. Funding of Sites Dedicated to Theft of U.S. Property”, at its outset does not to apply strictly to foreign sites. By way of example, other parts of the legislation impose regulations on “Foreign Internet Sites”, which are defined as Internet sites that are not a Domestic Internet Sites*. Alternatively, Section 103 uses an entirely different and considerably broader definition to define those sites punishable under that section. Instead of focusing on foreign sites, this section imposes regulations on any “Internet site dedicated to theft of U.S. Property”. This is not limited to either foreign or domestic sites, but pretty much any site that falls under that definition. And the definition itself is expansive. It embodies any website or any portion of that website that can be construed as operating for the purpose of or is marketed for the use of offering any goods or services in a way that “engages in, enables, or facilitates” copyright or trademark infringement. This language is problematic for several reasons. First, based on the legislation’s use of a new definition for liable parties, it is clear that Section 103 isn’t intended to apply solely to foreign websites. On the contrary, the new definition potentially casts a wide net on any Internet site that contains or points to infringing content. Secondly, the entire site itself need not be used exclusively for infringement purposes. If any portion of the website (for example, a single page from a forum) can be construed as operating for infringement purposes, the entire site can arguably fall victim to a claim from a private party. There is also the problem of determining whether the website owner his or her self need be the direct cause of the infringement. Because expansive terms such as “enables or facilitates” are used in the act, there is a strong argument that website owners need not be the direct infringer. Instead it seems the legislation intends to impose a new standard of secondary liability on website owners—however, U.S. law already maintains a legal standard for imposing secondary liability that is not contemplated in the Act. Furthermore the DMCA Safe Harbors exist in part to prevent secondary liability from being imposed on those sites or services that support user generated content. Under U.S. law a defendant can be held liable for indirect infringement in two cases: contributory infringement and vicarious infringement. Contributory infringement requires that the defendant have “knowledge of the infringing activity of another and induces, causes or materially contributes to that infringing conduct.” Gershwin Publishing Corp. v. Columbia Artists Management, Inc., 443 F.2d 1159 (1971). This is a significantly higher standard of review than the one provided in the legislation. After all, the mere fact that a site or a page from that site containing or pointing to infringing content exists arguably “enables or facilitates” that infringement—the plain meaning of “enable” is “to make able”, and the definition of facilitate is “to make easier or less difficult”. Neither definition requires the exacting standard of inducing, causing, or materially contributing to infringement. Vicarious infringement also imposes a higher standard than that set forth in the Act. Under U.S. law a defendant can be held vicariously liable if the defendant “has the right and ability to supervise the infringing activity and also has a direct financial interest in such activities.” Shapiro, Bernstein & Co., Inc v. H.L. Green Co., Inc., 316 F.2d 304 (2d Cir. 1963). Although both the right to supervise and the requirement of a direct financial benefit are broadly construed in many jurisdictions, this standard is still higher than the “enabling and facilitating” standard imposed by the legislation. SOPA and the DMCA In addition, imposing liability for either contributory infringement or vicarious infringement is curtailed to a great extent by the DMCA Safe Harbors. The safe harbors limit service provider liability if that website institutes and complies with a notice and takedown procedure for infringing content. The site must also register the agent that will receive those notices with the Copyright Office. Even if a website would ordinarily be held liable under a contributory or vicarious theory due to something like user generated content, they are shielded provided they follow the rules set forth in the DMCA. This creates a potential conflict between the DMCA and SOPA—although the Act maintains that it does not diminish liability under the DMCA Safe Harbors, nothing in SOPA expressly requires potential plaintiffs to exhaust available remedies under those Safe Harbors. Another source of conflict is the website owner’s knowledge of infringement. Under the DMCA, website owners that host user generated content are not required to monitor for infringement except as needed for the takedown procedures. It’s often believed that the more monitoring and moderation a website owner engages in, the higher the likelihood that they might be accused as having knowledge of a particular case of infringement, thereby eliminating the DMCA Safe Harbor shield. However, SOPA will hold a site liable if it “is taking, or 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 copyright infringement. Construed narrowly, this will only apply if a website owner refuses to investigate “red flags” pointing to infringing activity. But interpreted broadly, this could also apply to those sites that actively refuse to moderate or monitor user generated content beyond the takedown procedure for the purpose of maintaining the DMCA Safe Harbor liability shield. How Section 103 works So what can plaintiffs do once they’ve decided to go after a website that they believe infringes on their intellectual property rights? The Act requires harmed parties to send a notification to payment vendors and advertising providers asserting that the website infringes on an intellectual property right. This notification is similar to the one required under the DMCA. Once the payment vendor or advertising provider receives the notice, they have five days to terminate services to the website. This is in contrast with the DMCA’s take down provision, which only requires service providers to act “expeditiously”. The payment vendor or advertising provider, upon receiving notice, must also ensure “timely delivery” of that notification to the allegedly infringing site. There is no requirement that the payment vendor or advertising provider send that notification prior to terminating their services. The website owner can then file a counter notification asserting that the website isn’t infringing. The counter-notification procedure, in some ways, presents a difficult choice to foreign sites. Under the counter-notification procedure the website must concede to U.S. Jurisdiction. In other words the foreign website owner, who may assert the position that their site isn’t a U.S. directed site for purposes of the Act, must avail itself to U.S. laws in order to have their payment and advertising services restored. The alternative is not sending a counter-notification to preserve their jurisdictional claim and having those services terminated permanently without further legal action or evidence of actual infringement. This could possibly lead to a chilling effect for foreign sites; it may also give competitors of those sites an easy way to eliminate their foreign competition without the need for due process or a valid infringement claim. This isn’t a far-fetched possibility: according to Google, more than half of the takedown notices it receives under the DMCA Safe Harbor were sent by businesses targeting competitors. Furthermore, the notice and counter-notification procedure shares the same “flaw” as the DMCA safe harbor notice procedure—a plaintiff need only have a good faith belief that the website is infringing when submitting a notification, whereas the defendant must have that same good faith belief “under penalty of perjury”. This imposes a higher degree of liability on the defendant for misrepresentations. SOPA’s effects on Digital Distribution Digital distribution has changed the face of game development. Independent game developers are able to release quality products and see real profit without relying on conventional box sales. However, SOPA may end up causing serious problems for the very digital retail channels that have revolutionized the industry. Instead of targeting specific infringing content, the Act permits private parties to cut off all revenue and payment options to a digital distribution channel even if most or all of the content of the site is non-infringing and original. This will make better sense if we use an example (note that this is a hypothetical and any resemblance to past or future real life events is purely coincidental): You’ve got Edge, baby: “Game Downloader” is a popular, community based site that lets game developers upload their products for sale in the global marketplace. Approximately 40% of its developers are based in the US, while approximately 60% of game purchasers are US residents. The website is based in the U.K. and makes its profit through user fees and paid advertising. Both the payment vendor and the advertising providers for Game Downloader are located in the U.S. When a game is uploaded the site automatically creates a separate page through the developer’s profile. The page provides payment options, information concerning the game, and download options. “D-Day studios”, also located in the U.K., uses Game Downloader to sell its products and has experienced satisfying results with its sales. Its latest release, “Edge Wielder”, has become a huge hit and has received excellent reviews from critics. However, trouble is brewing—Game Downloader has received a complaint from the alleged owner of the “Edge” trademark and wants Game Downloader to remove the game. Game Downloader refuses, stating that no copyright violation exists and it has no obligation to remove the game. Angered, the trademark owner sends notifications to Game Downloader’s payment and advertising vendors asserting his rights under the recently enacted SOPA. The trademark owner alleges that a portion of the Game Downloader site (citing the “Edge Wielder” page) that is directed to the U.S. market, “engages, enables, and facilitates” the sale and distribution of goods bearing a counterfeit mark as defined in section 34(d), and the trademark owner is the owner of the counterfeited mark. Not wanting to lose their immunity under SOPA by failing to comply, both the payment vendor and the advertising provider terminate services to Game Downloader and send the website the SOPA notification. As the website is based in the U.K., it hesitates in sending a counter-notification that may impose U.S. jurisdiction on the company. In the meantime, the site is forced to shut down as games can no longer be purchased through the site and many innocent game developers not a party to the action are forced to look elsewhere for digital distribution. This is just one (not particularly unrealistic) way in which SOPA could be used to injure legitimate distribution channels. In reality this scenario can play out in a variety of contexts, from mobile marketplaces like the iTunes store to digital retailers like Steam. The harm to innocent, non-infringing parties due to the questionable allegations of a plaintiff acting in “good faith” could be substantial, and many distribution channels may hesitate to direct sales to U.S. markets as a result of this threat. Instead of protecting intellectual property, this kind of usage has the ability to drive digital distribution channels away from the U.S. marketplace altogether, thereby increasing the likelihood that once-legitimate purchasers will rely on piracy to get the content that’s no longer available. Conclusion There is no question that piracy is detrimental to the games industry—however, creating legislation that can significantly hinder legitimate digital distribution will likely have a damaging effect. Film, music, and video games all benefit from recent advances in digital distribution. More and more customers are using Netflix, Hulu, Steam, and other digital content providers instead of relying on piracy. Throwing a wrench into that progress is unlikely to protect anyone’s intellectual property interests. Other options exist, both legislative and commercial, that may have a better chance at reducing piracy. Improving digital distribution, making content accessible and reasonably priced, and providing content that is of higher quality than what customers can find through illegitimate channels has already seen exceptional success. Hulu alone has seen exponential growth since 2009. Although digital rental and sell-through currently accounts for only 1/5 of total revenue for the film industry, there is clearly room for improvement and growth—and it’s still growing, with digital video rental increasing 19% in 2010. Game digital retail channels like Steam and Impulse are also providing more and better options for customers. On the legislative front, an alternative bill to SOPA as been presented. The OPEN Act puts jurisdiction over foreign online piracy in the hands of the International Trade Commission without passing authority to private parties. Although flawed (particularly with regard to enforcement), the OPEN Act is a clear attempt to steer intellectual property enforcement away from injuring innocent non-infringers prior to any show of evidence supporting infringement. SOPA shouldn’t be treated as the best or only option to preventing online infringement and has the potential to cause considerably more harm than good. For the sake of the future of game development, it’s unfortunate that organizations like the ESA, which should be taking steps to protect digital distribution, are working towards making digital distribution a minefield of legal liability. For the sake of balance and argument, I recommend checking out this post in favor of SOPA. It presents some alternative interpretations to some of the language I've pointed out here and is worth taking into consideration. [Mona Ibrahim is a Trademark, Entertainment & Media law attorney based in Seattle, WA. She is the Principal Attorney of the Law Offices of Mona A. Ibrahim. Her practice emphasizes copyright and trademark dispute resolution, IP registration, entertainment & media transactions, general business transactions and employment law. Mona is an avid gamer and is dedicated to serving the gaming and game development communities by providing education, helpful strategy, and legal assistance when necessary. THE INFORMATION IN THIS ARTICLE IS FOR EDUCATIONAL PURPOSES ONLY. The content of this article is not legal advice. It only constitutes commentary on legal issues, and is for educational and informational purposes only. Reading this article, replying to it via comments, or otherwise interacting with this article does not create an attorney-client privilege between you and the author. No information you provide in the comments portion of this article shall be deemed confidential.]