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Joint Strategic Plan on Intellectual Property Enforcement SECTION 2 An effective enforcement strategy against commercial-scale piracy and counterfeiting therefore, must target and dry up the illicit revenue flow of the actors engaged in commercial piracy online. 4 That requires an examination of the revenue sources for commercial-scale pirates. The operators of direct illict download and streaming sites enjoy revenue through membership subscriptions serviced by way of credit card and similar payment-based transactions, as is the case with the sale and purchase of counterfeit goods, while the operators of torrent sites may rely more heavily on advertising revenue as the primary source of income. As a result, an effective “follow-the-money” approach must include, at a minimum, the continued voluntary engagement of third parties, including payment processor networks, the online advertising ecosystem, and the banking sector to minimize the flow of money to website operators engaged in illicit activity. 1. Strengthen Payment Processor Networks’ Efforts to Curb Illicit Proceeds. Illicit actors that engage in the commercial sale of counterfeit goods, or provide online subscription services for mass piracy websites, depend on payment services provided by credit card companies and money transfer entities (collectively, “payment processors”). With the continued growth of global e-commerce and streaming services, illicit actors may be able to reap billions of dollars in illicit proceeds every year from transactions made through payment processors. 5 All legitimate payment processors prohibit the use of their services and platforms for unlawful conduct, including IP-infringing activities. They do so by way of policy and contract through terms of use and other agreements applicable to their users (herein referred to as “Terms of Service”). 6 Yet, notwithstanding these prohibitions, payment processor platforms continue to be exploited by illicit merchants of counterfeit products and infringing content. Examples of the ways in which illicit actors exploit legitimate payment processors include, “(i) opening multiple accounts at the same bank, (ii) opening multiple accounts at different banks, and (iii) aggregation.” 7 Furthermore, sophisticated actors have come to understand that investigative transactions (i.e. trace messages) are conducted by law enforcement and rights holders to glean merchantidentifying information for targeting purposes, and these actors have in turn implemented detection systems to thwart these “test” transactions conducted for investigatory purposes. 8 In addition, some credit card companies are “openloop” payment networks, meaning that they do not have direct contractual relationships with merchants; instead, they rely on a third-party acquiring or issuing bank to take action against a merchant should the bank suspect wrongful activity by the merchant. 9 Since termination of payment processing services happens at the level of the individual consumer or merchant account and without regard to the underlying business (such as the offending website), the website may continue to transact business after some of its payment processing rights have been terminated. Both legitimate payment processors and IP rights holders have expressed concerns over these increasingly sophisticated exploitative techniques, and they have a shared desire to minimize the rate of illicit financial transactions. Cutting the source of revenue to illicit actors greatly reduces the commercial viability of websites dedicated to counterfeit sales, piracy, and related illegal activity. 10 Implementing an effective follow-the-money approach requires a number of key members of the online ecosystem—including rights holders, payment processors, merchant banks, and others—to work in concert to stem the money flow to illicit enterprises. 11 Several years ago, with IPEC’s leadership and support, a number of leading payment processors adopted a set of best practices to investigate complaints and withdraw payment services from websites dedicated by their operators to distributing counterfeit goods and engaging in commercial piracy. 12 Building on this, third party organizations have launched efforts that have helped grow and implement the payment processors’ voluntary best practices. 13 These voluntary and private-sector-driven mechanisms demonstrate a growing recognition among a wide spectrum of actors in the Internet ecosystem that they have an opportunity to secure a legitimate and safe online environment and deter illegal activity online, including counterfeiting and infringement. 14 Opportunities exist for expanded collaboration between all stakeholders to augment these voluntary initiatives and stay ahead of the rapidly changing tactics illicit actors employ to unlawfully exploit 62
Office of the Intellectual Property Enforcement Coordinator legitimate payment processing services and engage in counterfeiting and infringement in the rapidly evolving online environment. Expanded collaboration, for example by geographic scope, and enhanced transparency (including sharing with the public generalized, anonymized data on the nature and profile of merchant accounts terminated by payment processors for violating the Terms of Service for counterfeiting and infringement), will improve benchmarking of these voluntary initiatives and enable stakeholders to identify further opportunities to deny criminals financial support. ACTION NO. 2.3: Encourage benchmarking studies to gauge and strengthen voluntary best practice initiatives. IPEC and USPTO, with private sector input, will facilitate benchmarking studies of current voluntary initiatives designed to combat revenue flow to rogue sites to determine whether existing voluntary initiatives are functioning effectively, and thereby promote a robust, datadriven voluntary initiative environment. 2. Strengthen Online Advertising Networks’ Efforts to Curb Flow of Illicit Revenue. ACTION NO. 2.1: Support efforts to enhance payment processor voluntary initiatives. IPEC—as well as members of the U.S. Interagency Strategic Planning Committees on IP Enforcement—will consider opportunities to further engage with the voluntary payment processor initiatives currently in place, including with regard to the number of active participants in, and geographic scope of, the initiatives and best practices. Consideration will be given to multistakeholder engagement with the private sector, public interest organizations, academia, and bi-lateral engagements with other governments to understand the expansion of these voluntary initiatives’ application in other countries, and other tools to support and expand these voluntary agreements designed to cut-off worldwide funding to illicit merchants. ACTION NO. 2.2: Encourage enhanced transparency in the operation and effectiveness of the private-sector-led voluntary initiatives to combat revenue flow to online commercial pirates and commercial-scale traders of counterfeit goods. Payment processors are encouraged to make appropriately generalized and anonymized data publicly available as part of their best practices and initiatives to permit study and analysis of illicit activity intercepted on their networks. Such data will allow study by public and private actors alike to identify patterns of behavior or tactics associated with illicit merchants. IPEC, along with members of the U.S. Interagency Strategic Planning Committees on IP Enforcement, will identify means to enhance data-driven research opportunities in the area of illicit online financing trends, tactics, and characteristics. The unlawful exploitation of copyrighted material is substantially financed by advertising dollars. As one report stated: “Ad revenue is the oxygen that allows content theft to breathe.” 15 Ad-supported piracy is extensive. According to one report, online advertising supports up to 86 percent of IP infringing websites that allow web users to download or stream infringing content for free to the end-user. 16 Whereas the rogue website operator pays nothing for a downloaded or streamed movie or song, for example, the ads that appear beside the misappropriated content generate revenue for the website operator—generally in the form of pure profit. The artist, label, and studio do not see a penny. The ad network that delivered ads to the website dedicated to offering infringing content also generates revenue (FIG. 33), while again, the artist, label and studio receive no compensation for their work. Everyone profits, except the creator and/or authorized distributor of the original content. FIG. 33: Example of “Pay Per Click” (PPC) Ad Flow in a Piracy Model. SECTION 2 63
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U.S. JOINT STRATEGIC PLAN ON INTELL
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B. In Furtherance of a Healthy Doma
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PREAMBLE A Reflection on Creativity
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Senior Advisory Committee Establish
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INTRODUCTION IP-intensive industrie
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EXECUTIVE SUMMARY Services, the Dep
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ENDNOTES Office of the Intellectual
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Office of the Intellectual Property
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SECTION 4 CONTENTS PROMOTE FRAMEWOR
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ACKNOWLEDGEMENTS With thanks to, an
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