Anti-Counterfeiting Legislation: PIPA, SOPA and the OPEN Act
Kelley Drye Client Advisory
January 23, 2012

Congressional intent to protectU.S.intellectual property owners from ongoing theft and fraud by foreign owned web sites has morphed into a viral Internet rights debate generating front page news and web site blackouts to protest proposed legislation to "censor" the Internet.  The facts are more complicated, but the legislative process will now slow down to take account of the strong reaction of the public at large to the proposed bills.

IP Holders and e-Commerce Providers Beware

Intellectual property owners and Internet services vendors alike should be aware of the potential implications of the proposed legislation and its impact on Internet commerce and architecture, as well as legal liabilities for fraudulent activity.

Theft in the Digital Age

Intellectual Property theft is a growing problem across a wide range of industries in theUnited States.  Combating the supply of counterfeit products into theU.S.market is the target of numerous federal initiatives seeking to protectU.S.intellectual property, protect consumer health, protectU.S.networks from cyber threats, and enhanceU.S.competitiveness in global markets.

Capturing Pirates

Theft of digital content over the Internet in particular is prosecuted under the Digital Millenium Copyright Act for domestically owned and operated websites, but the DMCA does not offer jurisdiction over foreign websites.  Additionally, a wide range of patented and branded products such as pharmaceuticals and electronics are fraudulently manufactured and marketed by foreign entities outside of theU.S.justice system, then sold from foreign websites toU.S.consumers, bringing harm to consumers, companies andU.S.infrastructure.

Congress proposed legislation to stop the flow of counterfeit product that is being sold in theUnited Statesby foreign websites dedicated to infringement, often referred to as "rogue" sites.  This legislation ignited a fierce debate among digital content owners, Internet service providers, Internet security experts, and free speech rights advocates.  There is wide support from Members of Congress on both sides of the aisle and in the business community to halt counterfeit sales over the Internet, but the means of getting that done has raised concerns about liability, enforcement, and security.

Regulating the Flow of Goods Over the Internet

Three pieces of legislation are driving the debate on how to stop the sale of stolen IP and counterfeit goods into theUnited Statesfrom foreign owned and operated web sites.

The Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act of 2011 (S 968 known as  PIPA), introduced by Senate Judiciary Committee Chairman Leahy (D-VT) in May 2011, authorizes the U.S. Attorney General to take action against non-domestic domain name registrants, or owners of Internet sites dedicated to infringing activities, and to advise internet service providers that may be critical to blocking access to those sites of their obligation to take action against the infringing sites. Internet service providers are described in the bill as "operators of nonauthoritative domain name system servers, financial transaction providers, Internet advertising services, and providers of information location tools, including search engines, online directories, and other indexes with hypertext links or referrals to online locations."

The Stop Online Piracy Act (HR 3261 known as SOPA), sponsored by House Judiciary Chairman Lamar Smith (R-TX), introduced in October 2011, requires payment network providers and Internet advertising services to notify and suspend service to the infringers at the request of the content holder.  Content holders can bring action against these payment and ad service providers through a private right of action, if they fail to act.

SOPA's reliance on Internet search engines and payment networks to police foreign rogue websites provoked a long and highly volatile committee markup before Congress recessed in December.  Concerns were also raised that the proposed technical fix of blocking access to the domain name system may harm the security of the system overall.  Moreover, free speech advocates raised concerns about requirements in the bill to block access to infringing sites as a kind of censorship.

Growing political and public concern with how SOPA and PIPA structure the prosecution of infringing rogue websites over the past month have caused many early industry supporters of the bill and several co-sponsors of the House and Senate bills to withdraw their support.

The Online Protection & ENforcement of Digital Trade Act (The not yet numbered OPEN Act), was introduced into both chambers by Senator Ron Wyden (D-OR) and Representative Darrell Issa (R-CA), among others.  The OPEN approach places enforcement against infringing sites in the hands of the U.S. International Trade Commission which currently has authority to protectU.S. intellectual property against foreign infringers.

Next Steps

This legislation to combat piracy by foreign Internet businesses has pitchedU.S.content owners against Internet operators, and jarred many companies conducting business over the Internet to evaluate the potential implications of liability for fraud and a revised Internet architecture to their business operations.  For large search engines, payment networks and advertising services the stakes are high, the proposed legislation would challenge their existing business practices.

PIPA and SOPA sponsors have now offered to modify their bills to accommodate security concerns to the DNSSEC system but differences remain among the stakeholders regarding the responsibility of search engines to police rogue sites, and the private right of action.  The legislative process has slowed and stakeholders are advocating alternative enforcement methods.  Please contact Kelley Drye for further information and advice on the impact of SOPA, PIPA and OPEN  to your business.

To view a summary and comparison of the three bills prepared by the Congressional Research Service, please click here.

For more information about this Client Advisory, please contact:

Paul C. Rosenthal
(202) 342-8485
prosenthal@kelleydrye.com