UK Student Strikes Deal to Avoid US Prison Time For Web Piracy

As this blog reported in July 2012, a student in the United Kingdom was facing extradition to the U.S. on charges of illegal copyright piracy.

The student, Richard O’Dwyer, a 24-year-old college student from Great Britain, was facing possible extradition on criminal charges of copyright infringement. The possible punishment: 10 years in a U.S. federal penitentiary.

In 2008, O’Dwyer first set up a website, TVShack.net, which allowed users to search for and link to other sites, including ones that the federal authorities argue showed pirated movies and television shows.  

The US government shut down TVShack.net in summer 2010.  But Mr. O’Dwyer was apparently unbowed.  TVShack.net had been growing in popularity, and it made about $230,000 from advertising over the course of two years, federal prosecutors claim.

“America? They have nothing to do with me,” Mr. O’Dwyer had declared, according to his mother.  He then subsequently reopened his site as TVShack.cc, which he reckoned was beyond the reach of the United States.  He was wrong.

A few months later came a knock on the door from the British police. A judge ruled that Mr. O’Dwyer would not be prosecuted in Britain.  Instead, the US Department of Justice would seek to extradite him.

Prosecutors also claimed that O'Dwyer was well aware that the material was copyrighted.  They cited an announcement on TVShack that urged users to be patient with download times because they were “saving quite a lot of money (especially when putting several visits to the theater or seasons together).”

Subsequently, the BBC has reported the student has struck a deal to avoid extradition.  A High Court judge was informed that Mr O'Dwyer was expected to travel to the U.S. in the next 14 days to complete a plea agreement, pay an undisclosed sum in compensation and give undertakings not to infringe any copyright laws again.  If he does, he may face immediate extradition.

Feds Seize 130+ Domain Names and Shut Down Websites on Cyber Monday

On the biggest online shopping day of the year with consumers estimated to have spent over $1.5 billion, federal officials shut down over 130 websites that were selling illegal counterfeit items on the Internet.

Project Cyber Monday 3 marks the third year in a row that U.S. Immigration and Customs Enforcement (ICE) has shut down numerous websites selling counterfeit goods.

“Everything from Ergobaby carriers to New Era hats, Nike sneakers, Tiffany jewelry, Oakley sunglasses and NFL jerseys, just to name a few. Even counterfeit Adobe software was for sale,” ICE Director John Morton said during a conference call.

ICE’s National Intellectual Property Rights Coordination Center  and Homeland Security Investigations partnered with EUROPOL, the European Union’s law enforcement agency, to take down 101 websites that were hosted on U.S. internet servers and 31 websites hosted in Europe.

ICE obtained court orders to shut the websites down after investigators purchased items from the websites and confirmed that the items were fake.

“Counterfeit Hermes purses, Christian Louboutin shoes and various Nike apparel, all of it fake, all of it substandard,” Morton said about the quality of the knock-off items.

“When IP rights are violated, jobs are lost, businesses are stolen and ultimately consumers are cheated. Remember, counterfeiters care about making money and only about making money. They don’t pay health care. They don’t pay pensions. They don’t pay taxes. They don’t care about the people that work for them and they don’t, frankly, care about the consumers who purchase the products,” Morton said.

China Accuses U.S. of Waging an "Invisible War" on the Internet

The Chinese government has demanded that the U.S. cede control of the Internet, accusing it of waging an "invisible war" against its enemies on the web.

In an article appearing in China's official newspaper, China accuses the U.S. of conducting a "pre-emptive strike" by refusing to give up control of the Internet in the name of protecting what it calls a “global resource.”

China claims that the U.S. has taken unfair advantage of its control over the Internet to launch an "invisible war" against its enemies, and to intimidate and threaten other countries.

The article cites as an example how, during the Iraq war, the U.S. government in 2003 asked ICANN to terminate all services related to Iraq’s TLD “.IQ” leading to all websites linked to such domain names disappearing overnight.

The article also points out that 10 of the Internet's 13 root zone servers are located within the U.S., allowing the federal government to "supervise the Internet for national security reasons" under U.S. laws.

By doing so, however, China argues, the U.S. federal government actually gains access to all information transmitted online while "other countries can do nothing about it."

As a "big country on the Internet," China says that it "opposes the U.S.' unreasonable and unilateral management of the Internet" and seeks to work with the international community to "build a new Internet governance system."

Internet Scammers Target Sophisticated Law Firms

A creative and sophisticated Internet scam has targeted sophisticated law firms.

Indeed, the Gioconda Law Group PLLC was targeted by this type of scam artist, but (thankfully) we were able to recognize it very quickly.


It works like this:  A potential foreign client that appears to be legitimate will send an unsolicited e-mail inquiry seeking legal assistance in collecting a relatively modest commercial debt that it claims is owed to them.


For example, a Taiwanese company that supplies parts and equipment to electronics vendors will contact a New York law firm, claiming that it sold $1.2M worth of goods to a New York-based electronics business.


The company will provide a variety of written documentation to the law firm that appears totally legitimate, including signed contracts, supply agreements, purchase orders and invoices.


The company will gladly sign a formal lawyer's engagement letter and agree to pay the lawyer for his time and effort in seeking to collect on the debt.

The company will eventually send an e-mail to the lawyer saying, "Great news!  The debtor has agreed to pay for the goods and send you the settlement check for processing.  Please deduct your fee and send us the remainder by international wire transfer."


If the lawyer doesn't catch on by then, he may indeed deposit the settlement check, and wire the funds to the company.

However, the check he deposits is counterfeit, and the law firm is left holding the bag for the missing funds that it wired to the foreign company from its trust account.

Sound implausible?  

Some of the biggest law firms in the country have been suckered into writing trust account checks or wiring money to bank accounts based on funds they thought had cleared their trust accounts, only to later learn that the check deposited with the law firm was a forgery.  The result is that the law firm ends up on the hook for hundreds of thousands of dollars, while the recipient of the money has disappeared.

Minnesota law firm Milavetz, Gallop & Milavetz (MGM) fell victim to such a fraud three years ago.  Founding partner Robert Milavetz says that when MGM got an email from a 40-year old Korean woman seeking to collect a $400,000 judgment owed her for an accident, the firm thought nothing of it: "We do this kind of thing every day," he says. "We help people get settlements. That's what lawyers do."

In one recent case, a pair of foreign nationals are facing criminal charges for allegedly having duped 70 U.S. lawyers and law firms out of $29M and of having tried to make off with another $100M from 300 more.

Lawyers must implement and consistently utilize a high level of due diligence when taking on new clients, especially ones that are self-introduced through online channels.

Ask for tax returns or other official documentation demonstrating that the client has been a solvent business for at least the previous two or three years.  Ask for professional references or other credentials, and don't let your zeal to take on a new matter cloud your judgment.

The moral of the story is, if the deal sounds too good to be true, it probably is.

Trademark for Hacker Group's Logo Triggers Declaration of Cyber War

Wired reports that a retail store in France had an idea that it may soon regret:  the store filed for a trademark for hacker group Anonymous' logo.

The retail store named Early Flicker, and the representative of that brand, Apollinaire Auffret, wants to own Anonymous' slogan, as well: "Anonymous. We are legion. We do not forgive. We do not forget. Expect us." in connection with commercial products. The store sells t-shirts on eBay France.

Representatives of the international hacker group produced a disturbing video stating:

Hello Citizens of the world, we are Anonymous.  Dear brothers and sisters, now is the time to open your eyes and expose the truth.  
Anonymous logo and slogan has been defiled and registered through the National Institute of Industrial Property (INPI).  An online t-shirt company called "Early Flicker" or "E-flicker" has registered the anonymous slogan and logo and passed it on as their own. Now under French law, the company owns the rights to the anonymous logo and slogan. The company's website is pickapop.fr.
  In a response the National Institute of Industrial Property said that "the conditions seem fulfilled since the mark is registered and it does not seem to have made use." Their arrogance and ignorance of what they have done will not go unpunished.  Anonymous will take down any business they have going on the internet and the 99 percent will not stop until the registration has been revoked and a public apology has been made.
  The name of Anonymous will not be the whore of the world.
  We are Anonymous. We are Legion. We do not forgive. We do not forget. Expect us.

The video depicts a representative of Anonymous in a Guy Fawkes mask speaking in a computer-generated voice.

The hacker group's threat is not likely to be an idle one.  In the past, Anonymous has targeted the US Department of Justice, the CIA, MasterCard and the Chinese government.

The Internet is Becoming a Perpetually Lawless Frontier

In the American frontier of the 19^th Century, outlaws found virtually unbounded opportunities to rob pioneers of their treasured few possessions, while the few understaffed lawmen faced difficulty detecting, arresting, holding, and convicting wrongdoers.  In the early 21^st Century, the Internet represents a similarly lawless frontier.  A virtually infinite supply of domain names and websites has generated a gold rush mentality, as millions have sought to cash in by speculating on the virtual real estate that the Internet seems to offer.

The Internet’s frontier mentality has also attracted its share of brigands.  Those seeking to rob web users of their hard-earned money are the same types of predators who mastered the arts of deceit, theft and counterfeiting on the bygone frontier.  While their methods may be far more sophisticated, their fundamental approach is the same as old-fashioned con men.

Without any form of meaningful regulation, a dramatic new expansion of the Internet frontier is occurring, and is threatening to undermine any semblance of law and order that has been struggling to develop over the Internet.  The Internet Corporation for Assigned Names and Numbers, (“ICANN”) recently announced that it has received applications for more than 1,900 new domain name extensions, including: .BID, .BUY, .DEAL, .DESIGN, .DISCOUNT, .FASHION, .FREE, .GIFT, .HOT, .JEWELRY, .LOL, .LUXURY, .ONLINE, .SALE, .SHOP, .STORE, .VIP, .WATCHES, .WEB, .WTF, and .WOW.  Hundreds of these applications will likely be approved, and tens of millions of new domain names may be in use with these new extensions by the end of next year.

“ICANN’s program may open up new opportunities, but it also presents a whole new frontier of potential—and likely—abuse by those seeking to profit from the name, reputation, and content of others,” said Scott Bain, Chief Litigation Counsel for the Software and Information Industry Association, quoted by the Washington Post.

But everyday e-commerce web users are already facing a never-ending barrage of spurious websites selling counterfeit products online.  It is absolutely clear that in the absence of appropriate and effective legal structures requiring stricter verification and identification of domain name ownership and control, a dramatic and unprecedented expansion could be catastrophic for brand owners and consumers alike. 

Faced with the bruising public defeat of the Stop Online Piracy Act (“SOPA”) in January 2012, brand owners have undertaken aggressive actions to address online counterfeiting, including filing mega-lawsuits in federal court using existing laws and technology.  However, the online counterfeiting threat persists, and by some accounts has increased markedly.

ICANN president Rod Beckstrom said in a recent press conference that the group has added new provisions to protect intellectual property, including the option for rapid takedown when brand holders feel their IP may be threatened.  ICANN also reserves the right to take a domain name back if it there is significant abuse.

But ICANN should not be entitled to create a perpetually lawless frontier without applying consistent and binding legal regulations about the already-rampant intellectual property abuse occurring on the Internet.  

Without strict disclosure and domain name ownership laws in place, ICANN runs the risk of establishing the Internet as perpetual “wild west,” without any lawmen on their way to bring law and order to the troubled frontier.

Congress should act now to intervene and hold additional public hearings on how ICANN’s proposed domain name expansion program will affect consumers and brand owners, in the absence of laws addressing intellectual property abuse and consumer fraud already perpetrated online.

Internet Independence Declared, But the War to Regulate the Internet Has Only Just Begun

Wikipedia, Yahoo, Google and Facebook are among the usual suspects that have successfully galvanized public opposition to proposed online regulations.  The same cast of characters recently declared an Internet "Day of Independence."  But those seeking to enforce existing laws and enter into treaties regulating the Internet are finding themselves facing even more formidable foes – ranging from China to the U.S. Federal Reserve Bank.  And all signs suggest that the war to regulate commerce on the Internet has only just begun.

Part I:  Early Attempts at Regulation

Having been accused of aiding and abetting trademark infringement by jewelry icon Tiffany & Co., online auction site eBay successfully convinced the U.S. Court of Appeals for the Second Circuit that it was not vicariously responsible for the multitude of counterfeit Tiffany products that were being sold through its popular trading platform. Rather, the appeals court held that the onus lies on the brand owner to diligently police its marks against counterfeit items sold by eBay users.

After the eBay decision, brand owners’ focus began to shift away from eBay when seeking to stop the online sale of counterfeits, and began to focus more on websites and China-based “trading boards,” such as Alibaba, TradeTang, DHGate, Taobao and others. “Posting on these heavily-trafficked wholesale sites, a manufacturer located in mainland China or Hong Kong can make and sell hundreds of thousands of counterfeit products per week, and ship to distributors located all around the globe.  His sales make ten thousand listings for counterfeit goods on eBay seem like small potatoes in comparison,” says one source familiar with the Chinese trading sites.

As China’s online infrastructure expands, so too does the number of trade board users.  According to estimates, China now has 1 billion mobile phone subscriptions, but only about 14 percent of these already operate on China’s faster 3G networks, a number that will only increase as that nation invests in cellular infrastructure.

As a result, international trading boards run by Chinese Internet giant Alibaba Group are gearing up for an explosion in the number of consumers using their smartphones and tablet devices to buy products online in the next two years.  For example, Taobao Marketplace and Taobao Mall, which between them account for more than 400 million users, are already reporting a rapid sales growth by means of their iPad and iPhone applications.

Part II:  The Empire Strikes Back

The Chinese government has not sat idly by while its growing online companies are accused of harboring online counterfeiters.  When the U.S. Trade Representative recently listed Alibaba’s Taobao online retail site as one of the world’s most notorious markets in a U.S. government report, China’s Ministry of Commerce shot back with a vigorous attack:  “Since there is no conclusive evidence, there is no detailed analysis, this is very irresponsible and not objective,” said China Ministry of Commerce spokesman Shen Danyang.  “China believes the U.S. should … make fair assessments and avoid creating unnecessary negative effects for Chinese companies.”

In response to the mounting pressure, Alibaba hired high-powered lobbying firm Duberstein Group, and former Bush White House trade official James Mendenhall, now a partner at First Lady Michelle Obama’s former law firm Sidley & Austin, to represent Alibaba Group in talks with the U.S. government and industry groups.  These measures have already improved Alibaba Group’s image.

But an increase in the number of recently filed court cases suggests that the number of Chinese merchants that are actively trafficking in counterfeit goods on the Internet, through the use of “rogue websites” operating under spurious domain names incorporating trademarked brands, continues to skyrocket.

According to brand owners, “rogue websites” are unauthorized e-commerce sites that mimic legitimate channels of trade.  Consumers are lured to these sophisticated and well-designed websites that are replete with corporate advertising, credit card logos, and other indicia of legitimacy.  These sites often call themselves “sale outlets” in order to suggest that their merchandise is authentic.

However, such sites are actually devoted to illicit conduct, typically trafficking in counterfeit products, or offering illegal downloads of pirated music, movies or software.  These sites are also sometimes also used to steal consumers’ identities when the consumer reveals credit card information to make purchases, according to experts.  The U.S. Chamber of Commerce notes that studies demonstrate the dire implications and consequences of rogue websites distributing their illicit goods and illegal content to consumers.

Part III:  The Long Arm of the United States

In response to the growing problem, U.S. law enforcement and brands alike have taken concerted legal action against thousands of such sites in recent months. Similarly, the U.S. Department of Justice’s recent international raids on MegaUpload sent the signal that the federal government does not perceive online digital piracy of movies and music to be a victimless crime.

But following through to see these complex cases to completion is another story.  First, online distribution networks are fluid, and the common ownership and control of rogue websites is very difficult to trace and track down, requiring constant monitoring.  For example, forensic investigators using advanced data-mining software programs such as RogueFinder are able to link dozens — even hundreds — of seemingly unrelated domain names and websites.  This careful research can thereby lay the foundation to properly sue the anonymous entities operating a vast number of infringing websites, but also illustrates the enormous challenge of monitoring online counterfeiting networks that not only grow exponentially but are also in a constant state of flux.

Using this type of data, federal courts in New York, Florida and Nevada have ordered thousands of domain names and corresponding websites to be taken down, and handed over to intellectual property owners.  But Internet counterfeiters can simply shift the infringing content to new websites with new domain names only days later, brazenly hawking the same counterfeit products in open violation of court orders.

Second, no longer relegated to dimly lit basements and backrooms in factories, some accused infringers are now organized--and well represented.  MegaUpload’s founders have showed up in federal court in Virginia represented by mega-firms Hogan Lovells, Squire Sanders, Sidley Austin, and most recently, Quinn Emanuel. 

And their high-priced legal representation has paid off, so far.  The Quinn Emanuel lawyers have already raised questions about the procedural aspects of the Justice Department’s MegaUpload seizures, and have cast serious doubt on whether New Zealand’s arrest warrants will even stick, undoubtedly giving Justice Department lawyers heartburn.  “I frankly don't know that we are ever going to have a trial in this matter,” District Judge Liam O’Grady said to a Justice Department prosecutor at a recent hearing in the case.

Part IV:  "Follow the Money"

Law enforcement authorities have realized the critical importance of regulating online payment processing—which is essential to Internet counterfeiters’ business model—but have found it equally challenging to monitor and seize cash flows associated with the purchase of counterfeit goods online.

In April 2012, the U.S. Department of Justice and U.S. Immigration and Customs Enforcement seized more than $896,000, plus the domain names of seven websites accused of selling counterfeit sports apparel. Aggressively using anti-money laundering statutes in conjunction with the PATRIOT Act’s specific provisions giving the federal government jurisdiction over “Interbank” accounts, the Justice Department was able to use warrants to allow the U.S. to seize $826,883 that had been transferred from PayPal accounts to Interbank accounts held by Chinese banks in the U.S.

However, while the PATRIOT Act gives Justice Department lawyers a powerful weapon, no such provision exists in U.S. law for intellectual property owners acting on their own in civil cases.  In fact, some intellectual property owners have been stymied in their ability to even gather insight into the finances of international counterfeiters from international banks operating in the U.S. itself.

In one such case, Tiffany & Co. alleged that major Chinese state-owned banks maintain bank accounts for counterfeiters in China that ship fake designer goods into the United States.  The three accused banks - Bank of China, China Merchants Bank and the Industrial and Commercial Bank of China - all have branches in New York City.  The luxury-goods maker had petitioned to have the Chinese banks freeze assets in accounts owned by the alleged counterfeiters and turn over information about the clients to their attorneys.

However, the banks’ lawyers pointed out that the Federal Reserve, which regulates New York-based branches of foreign banks, supports the notion of treating each branch as a “separate entity,” and the idea that New York branches of foreign banks cannot be used as conduits through which to export American laws abroad.  A lawyer for the New York Federal Reserve had presented an oral argument in a similar case involving offshore accounts, warning that a decision in favor of disclosure could spark “a global asset hunt” in the New York court system, according to a court transcript.

In fact, an amicus brief the Federal Reserve Bank filed became part of a series of arguments in the Tiffany case that led District Judge Pauley to rule that Tiffany needed to seek information from the banks’ headquarters in China – and not in a New York courtroom.

However, just weeks after the Tiffany decision, another judge in the same courthouse, faced with essentially identical facts, held that luxury brand group Gucci America, Inc., was entitled to information held by Bank of China and other Chinese financial institutions, and that those banks were required to freeze the defendants’ assets. This matter is currently before the Second Circuit Court of Appeals, which is now charged with resolving the contradictory rulings

It is clear that a simple legal solution to bringing the Internet in line with established laws and traditional norms of intellectual property ownership is simply not in the foreseeable future.   Beleaguered intellectual property owners, faced with such significant opposition, must both adapt their existing business models, and continue to lobby for the passage of more creative laws as well as aggressive application of existing laws.  However, doing so will likely place them in a protracted battle with political and commercial forces far more powerful than they may have ever bargained-for.

And that is just the beginning.