Commercial Piracy: Business Ethics and Law

Adam R. Tanielian Introduction The internet has opened up lines of communication worldwide in ways once unimaginable. New markets and opportunities present themselves with expansion of the World Wide Web. But along with opportunities come new threats. The information superhighway is an education tool, a toy, a meeting place, a forum for new ideas, and a library filled with virtually all content imaginable. Not everyone wants to pay for access, though. In fact, many internet users believe that all information should be free of charge. Hackers and copyright infringers, or “pirates”, spend their lives trying to liberate information from the capitalist economic construct, committing multiple offenses in their quests. A world without monetary exchange for information implies a virtual demolition of professional publishing and arts. Without potential to profit, there can be no such market as we have today. Such is the confounded logic of the hacker and pirate. In centuries past, copyright infringement was of a limited scope and contained to only physical media – books, films, phonograms. Since the public internet’s debut, copyright infringement has grown thousands of times its size in the mid-20th century. Today, piracy is a market segment, 95% of which is online (SSRC, 2011). Websites that specialize in offering infringing content to users are highly profitable, popular, and more abundant with each passing year. Despite the injury to copyright owners, these sites continue to operate and pirate networks continue to proliferate, apparently due to unethical business practices and legal loopholes. Research Questions What is the legal framework on the issue of online piracy? What are some opinions of avid internet users on the subject of piracy? What are some characteristics of sites that host or refer users to infringing content? Do infringing websites pass themselves off as being compliant with copyright laws?

Background on Piracy Law and Research Treaty, Statute, and Case Copyright became a permanent part of international law with the 1886 Berne Convention. State parties to the treaty undertook to protect works of persons of all member states against the unauthorized reproduction, communication to the public, sale, rental and adaptation. The 1994 WTO TRIPS Agreement restated principles outlined in the Berne Convention, and required all members to provide criminal penalties for infringement. WIPO’s 1996 Copyright and Phonograms Treaties further reaffirmed commitments among members to prohibit copyright violations in the online context. Rights granted come in two categories: economic and moral. Moral rights pertain to the creator’s right to be named as such, and to object to the unjust distortion or mutilation of the work. Economic rights are rights to commercial gain. State parties to treaties have done well in implementing domestic legislation which prohibits infringement of economic rights, but moral rights are not always protected. Some nations, such as Thailand and Brunei, also provide private domestic use exclusions to infringement, whereas others like the USA do not. While nations have shown widespread support for IP protection treaties, and domestic statutes consistently implement provisions of those treaties as related to economic rights, enforcement has been far less uniform internationally. Each nation has its own legal regime and cases demonstrating application of statutory proscription of copyright infringement, but a global case law review would be exhaustive and inefficient. Since the wealthiest Western nations are leaders in this area of law, we shall cover the entirety of online piracy case law in a few short examples from the USA and Canada. Infringement may be direct, contributory, or vicarious. Direct infringement is the most serious crime and carries the greatest penalties. Contributory infringement includes intentionally inducing or encouraging direct infringement. Vicarious liability may arise when a person profits from direct infringement while declining to stop or limit it (Pinsky Law, 2010).

In Fonovisa, Inc. v. Cherry Auction, Inc. (1996), the US Court held that “providing the site and facilities for known infringing activity is sufficient to establish contributory liability. US Courts have not yet established a sturdy norm that stands up to criticism in finding direct infringement. In Sega v. MAPHIA (1994), the Court found direct infringement for allowing video games to be posted on a bulletin board system, but in Sega v. Sabella (1996), the court found only contributory infringement despite the material facts being almost identical to those in the former Sega case. Canadian courts have been said to show preference for users, whereas the US courts show preference for publishers (D'Agostino, 2008). The Canadian court showed its preference for users or consumer rights over those of producers and corporations in BMG Canada v. Doe (2004), when the trial court judge applied the Copyright Act §80(1)(c) and held that “downloading a song for personal use does not amount to infringement”. A&M Records v. Napster (2000) in the USA held the opposite, finding that users who upload and download files violate both distribution and reproduction rights despite the opinion in MAI Systems Corp. v. Peak Computer, Inc. (1993) which held that temporary fixation of a file into a computer’s RAM – including a host server – meets the requirements for reproduction under the Copyright Act. The US Supreme Court has preferred to consider users of file sharing websites the direct infringers while holding website owners and operators are contributory and/or vicarious infringers (see MGM v. Grokster, 2005). In BMG v. Gonzalez (2005), the US Circuit Court upheld individual downloader liability for direct infringement. American Courts levied astronomical fines against individual downloaders in Capitol v. Thomas (2006) and Sony BMG v. Tenenbaum (2010). Academic and Industry Research Survey studies involving university student participants are of special significance to the subject of IP ethics. Students often demonstrate commitment to core theories and principles founded in higher education. They play a leadership role in the present tense among their peers, and upon completing courses of study are more likely to assume leadership roles

in the future. Behavior of college students, while overlooked by some or discarded as a youthful phase soon to pass, influences what is considered normal and socially acceptable. Studies consistently show that students view copyright infringement as an acceptable practice. Coincidentally, monetary value of piracy is highest in some of the world’s most educated societies like Western Europe and the USA (Schwabach, 2008; BSA, 2011-2012). Siegfried’s (2004) survey of 224 university students in the USA showed opinions favored piracy. 68% thought "most people copy commercial software instead of buying it." 66% thought it was okay for students to copy commercial software. However, only 37% thought it was legal to copy commercial software. 82% thought it was ok to download music for free, which is illegal in the USA. Siegfried’s findings showed willful illegal behavior in the variance between perceptions of morality and legality. Worldwide, several studies have found a similar moral disposition toward unauthorized copying of protected works, regardless of the legal system of the jurisdiction. Acilar (2010) found Turkish university students thought software piracy saves money, and that it is morally justifiable if it leads to scholastic or other economically productive activity. European and American undergrad IT students in a Martin and Woodward (2011) study did not see a problem in copying a company word processing or spreadsheet program onto a home computer. Chinese students in a Liu and Chen (2012) study relied upon the “doctrine of social harmony” to justify tolerance of unethical IP issues. Tyler (1997) found views about morality and the legitimacy of the law most influenced law-related behavior. In cases of piracy, behavior of users suggests their view is that the law is not legitimate and the behavior is not immoral. Legal positivists may avoid questioning the value of a law, but others disagree about morality of lawful and unlawful behavior. If a law can be held as fundamentally unjust, then it will be easier to justify violating that law as civic leaders like Martin Luther King Jr. and Gandhi demonstrated. When unlawful behavior is prevalent, and society decides the behavior is not immoral, it is more difficult to stigmatize what may be considered normal.

When law is considered invalid, whereas unlawful behavior may be considered moral or not immoral, classical English law theories often lead to application of more harsh punishments for offenses. Punishment is often viewed as a deterrent to unlawful behavior, and there is at least anecdotal evidence to support such a view. Public opinion in English-speaking societies has frequently supported raise of penalties in attempts to deter crime. However, this has been shown an ineffective strategy (ibid) as seen also by continued high prevalence of online infringement following cases like Capitol v. Thomas (2006) and Sony BMG v. Tenenbaum (2010). Proponents of this costly system of strict penalties may not be aware of the economic or social burdens such relief entails. In regards to IP law, the retribution model of distributive justice may be favored by persons who are largely unaware of the law itself. FAST (2011) surveyed businesspeople in the UK on the topic of IP protection. Eighty-six percent of respondents felt SMEs were not sufficiently protected, but two-thirds were unaware of government IP law reform plans. Notwithstanding lack of knowledge of the law, the most common suggestion about how protection could be improved (42%) was to increase punishment. Tyler (1997) found participation could be used to increase the perceived legitimacy of the law, and recommended socialization of IP laws to motivate development of a more voluntarily compliant public. However, voluntary compliance has not yet been a successful initiative. Brown (2012) found that exposure to positive anti-piracy messages did not change behavior among consumers who prefer free if and when it is available, regardless of potential legal consequences. Various demographic criteria have been associated with propensity to commit copyright violations, such as age and socio-economic status (SIIA & KPMG, 2001; Acilar, 2010; Moores & Esichaikul, 2011; Brown, 2012). In general, younger and poorer people are more likely to use unlicensed material. Culture may be the stronger motivator still, and when discussing the international IP system, cultural influences on behavior become more significant than demographics.

Traditionally, higher individualism related to higher respect for IP, while higher collectivism has been associated with greater tolerance for infringement (Moores, 2003; Santos and Ribeiro, 2006; Haque, Khatibi, and Rahman, 2009). Chinese students in the Liu and Chen (2012) study were more tolerant of unethical IP behavior than American students. Malay students in an Egan (2008) study were more likely to copy on research papers than Australian students. In the Martin and Woodward (2011) study, American students viewed more work scenarios as more unethical than European students. General trends, however, are not without their exceptions. Recently, new discoveries have been made showing that subcultures defy national norms and certain aspects of traditional culture do not apply to modern beliefs. Special 301 reports (USTR, 2001-2012) feature a range of countries on Watch and Priority Watch Lists, including both individualist and collectivist cultures. In Spain, an individualist nation on the world’s scale (Hofstede, 2013), online piracy is considered a part of the culture (Fritz, 2010). Canada ranks high on the individuality scale, but it was on the Priority Watch List in 2011. Butt (2006) found that Canadian students more frequently downloaded pirated software than Pakistani students, although this could have been due to slow internet connections in Pakistan. Nonetheless, as globalization continues, we see active culture exchanges and dynamism in areas that were historically more static. Research Method Exploratory research was conducted to discover information regarding online file storage, sharing, video hosting, and other popular websites where users can download media without registration or fee. Searches were conducted on Google using keyword strings like “watch movies free online” and “download Skyfall” among queries for other titles and artists (e.g. Lincoln, Homeland, Red Hot Chili Peppers). Some Google searches resulted in direct links to download sites and others led to directory sites such as, which provided active links to thousands of television and film titles.

Sampling Sites were tested for infringing activity by downloading samples and steaming media offered on each site. Those sites which provided free, open access to copyright protected content were considered infringing sites, regardless of governing laws in territories where they may be incorporated. Expansive directories which specialize in procuring links to external host pages were also considered infringing sites. The sample consisted of 26 websites. Procedure Each website was visited and its homepage inspected for a link stating “copyright” or “DMCA” or “intellectual property” or any similar word or phrase that would lead to a policy on copyright. In cases where no such link was found, but a “terms of use” or “terms of service” or similarly worded link appeared, those terms were read for mention of valid copyright law or ethics. Searches were also conducted to determine physical locations of infringing sites, IP addresses, estimated valuations, and estimated daily site traffic. These data were retrieved primarily through Further information about the physical location of the site registrant was retrieved through,, and Results 25 of 26 sites were useable. No valid information was available in Whois, GoDaddy, website.informer, or webdetail regarding, AKA, one of the largest directories of infringing video content on the web. Site Content Four of the 25 sites specialized in mp3 and other music format downloads. Two of those hosted files for direct download (#19 & 20 on Table 1). The other two provided downloads through the site, but claimed not to host (#21 &22). The latter two music websites did not resemble the directory type of site, such as #24 which did not host any material or support streaming media prior relocation to another external site. #24 changed its name to at the end of 2012, and since started offering legal sales on iTunes and Hulu. However, alongside the new legal ones, #24 still

offers links to infringing sites like it did as #23 was a directory site with embedded streaming capacity. Eighteen of the sites hosted videos for view or download. Any number of television programs and films were available on sites #1-18. Site #18 provided direct downloads of diverse content, including mp3, rar, zip, doc, pdf, avi, flv, mp4, and mkv files. Youtube (#25) was set aside from other sites due to its enormous size, valuation, and level of daily activity. #25 provides primarily streaming video, much of which is not copyright protected or falls under fair use definitions due to short duration. However, extraordinarily large numbers of infringing media were found on Youtube. In many cases, a full length film or television show is split into multiple parts of roughly 8-10 minutes each, which can be watched in succession. Hundreds of full-length music albums were found on Youtube, where video is most often a static picture of the album cover. In combination with external sites like and computer applications, Youtube videos can be downloaded, converted and stored for reproduction or other use. Copyright Policies 18 of 25 sites had clearly-worded links to copyright policies on the homepage. 4 of 25 had copyright or other IP policies written into terms of use. 3 of the 25 sample sites did not have a link to a copyright policy or terms of use which contained an IP policy. Location 16 of 25 sites were linked to physical addresses in English-speaking nations – USA, UK, CA, and AU. Two sites were of unknown origin in all four information databases. Six were registered to physical addresses in Eastern Europe or the former USSR. Offshore locations – Dominican Rep., Seychelles, Bahamas, Panama – were associated with 12 sites. Value Estimated values for #1-24 ranged from over 27,000USD to nearly 38.5 million USD. Nine of those sites were worth more than 1 million USD. Four were estimated as worth less than 100,000USD. Youtube was valued at over 1.5 billion USD.

Table 1: Sample Information
Site 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24

Location1 USA, GB USA, GB UK, USA unknown, SC unknown, none Germany, AU Russia, BS, SC Moldova, SC Moldova, SC unknown, DO, CA USA unknown Russia, PA, USA UK, PA UK, PA unknown, USA USA USA USA, AU USA, PA USA Belarus, PA Russia Romania


First entry from, others from GoDaddy, Whois, website.informer 25 USA

Copyright Policy on Homepage? yes yes yes in terms of use in terms of use in terms of use in terms of use yes yes yes yes no yes yes yes yes yes yes yes no yes yes no yes Sum 1-24: Average 1-24: yes

Estimated Value USD 210,000 USD 639,000 USD 97,000 USD 2,075,000 USD 150,000 USD 137,000 USD 857,000 USD 116,000 USD 321,000 USD 252,000 USD 51,000 USD 56,000 USD 108,000 USD 6,315,000 USD 2,211,000 USD 27,000 USD 27,158,000 USD 38,446,000 USD 697,000 USD 4,664,000 USD 170,000 USD 4,279,000 USD 9,137,000 USD 1,088,000 USD 99,261,000 USD 4,135,875 1,536,256,000

Daily Views 75,000 281,000 34,000 909,000 53,000 37,000 373,000 41,000 140,000 111,000 18,000 19,000 37,000 2,598,000 969,000 7,500 11,084,000 18,658,000 306,000 1,915,000 60,000 1,756,000 3,761,000 479,000 43,721,500 1,821,729 635,000,000

Site Traffic Average daily views for sites #1-24 ranged between over 7,500 and more than 18.6 million. Six of those sites had greater than 1 million views per day, and nine had less than 100,000. Youtube had an estimated 635 million views per day. Discussion Missing data in Whois and other registers for some websites suggests criminal activity. Organized crime groups are known to operate copyright infringing websites (UNODC, 2010). Questions of money laundering arise due to offshore addresses for sites. Many of the sites offer pay or premium services in addition to free services. Considering the high volume of viewers and high probability of multiple downloads per viewer, the likelihood that royalties are being paid on each transmission is nil. Profits may exceed what is reported, and valuations may be higher than estimated due to fraudulent accounting under the unscrupulous business models. While users may not be acting immorally, criminal business practices are beyond unethical. Green (2002) found IP infringement is not similar to "theft" and the paradigm of criminal law is not ideal for regulation of IP violations. Behavior in society suggests copyright violations are normal, and not immoral, thus civil remedies are perceived as more appropriate. However, treaties require criminalization of copyright offenses, so criminal penalties shall continue. Considering the profitability of infringing sites, which is so great that some like actually pay uploaders, those companies need to be held legally liable for direct infringement, and not allowed to pass off liability to users by exploiting legal loopholes. Every site except for #24 provided download or streaming media on-site, and thus there must be some fixation of data into company computer RAM, which meets the MAI Systems v. Peak Computer (1993) test for reproduction. When data is transferred from one user to another via a company program or server, and company RAM is used, then the company distributes the material. The entire process is commercial and profitable for the company. Unauthorized commercial reproduction and distribution fits the definition of direct infringement. Both civil and criminal remedies should be available under law.

Conclusions “All the major industry groups support stronger ISP liability for infringing activity on their networks” (SSRC, 2011). Before such an expansive approach is taken, however, authorities should try to focus their efforts more locally, upon the sites offering the content. At a ratio of nearly 2 million viewers per site daily at 24 infringing and procuring sites, justice cannot possibly be served if individual users are held liable for direct infringement. If courts were to consider the more active and profitable role that companies are playing in the process of reproduction and distribution of material, the internet could more easily and swiftly be restored to an ethical place of work and pleasure. References A&M Records, et al. v. Napster et al., No. 00-16401, 00-16403, 239 F.3d 1004 (US 9th Circuit Court 2000). Acilar, A. (2010). Demographic Factors Affecting Freshman Students' Attitudes towards Software Piracy: An Empirical Study. Issues in Informing Science and Information Technology, 7, 321-328. BMG Canada Inc., et al. v. John Doe et al., No. T-292-04, FC 488 (Canadian Federal Court Trial Division 2004). BMG Music, et al. v. Cecilia Gonzalez, No. 05-1314, 03 C 6276 (US 7th Circuit Court of Appeals 2005). Berne Convention for the Protection of Literary and Artistic Works (1886). Brown, S. (2012). Attitudes towards Music Piracy: The Impact of Positive Anti-Piracy Messages and Contribution of Personality. Proceedings of the 12th International Conference on Music Perception and Cognition and the 8th Triennial Conference of the European Society for the Cognitive Sciences of Music, July 23-28. BSA. (2011-2012). Annual Software Piracy Study. Retrieved 9 Feb 2013 from Butt, A. (2006). A Cross-Country Comparison of Software Piracy Determinants Among University Students: Demographics, Ethical Attitudes and Socio-Economic Factors. Emerging Trends and Challenges in Information Technology Management, 1(2).

Capitol Records, Inc., et al. v. Jammie Thomas-Rasset, No. 06-1497 (MJD/LIB) (US District Court, District of Minnesota 2011). D'Agostino, G. (2008). Healing Fair Dealing? A Comparative Copyright Analysis of Canada's Fair Dealing to UK Fair Dealing and US Fair Use. McGill Law Journal, 53, 309-363. Egan, V. (2008). A Cross-Cultural and Cross-Gender Comparison of Attitudes to Plagiarism: The Cast of Malaysian and Australian Business Students. AFBE Journal, 1(1), 19-33. FAST. (2011). FAST IP Survey: Time to Toughen Up The Law to Protect Micro & SME's IP. Retrieved 9 Feb 2013 from Fonovisa, Inc. v. Cherry Auction, Inc., No. 76 F.3d 259 (US 9th Circuit 1996). Fritz, B. (2010). In Spain, Internet Piracy Is Part of the Culture. LA Times, March 30. Retrieved 9 Feb 2013 from Green, S. (2002). Plagiarism, Norms, and the Limits of Theft Law: Some Observations on the Use of Criminal Sanctions in Enforcing Intellectual Property Rights. Hastings Law Journal, 54, 167-242. Haque, A., Khatibi, A., and Rahman, S. (2009). Factors Influencing Buying Behavior of Piracy Products and its Impact on Malaysian Market. International Review of Business Research Papers, 5(2), 383-401. Hofstede, G. (2013). National Culture: Canada. The Hofstede Centre. Retrieved 9 Feb 2013 from Liu, X., & Chen, Y. (2012). A Cross-Cultural Comparison Between Americans and Chinese in Their Attitudes Towards Information Ethics. Issues in Information Systems, 13(1), 5967. MAI Systems Corp. v. Peak Computer, Inc., No. 991 F.2d 511 (US 9th Circuit Court of Appeals 1993). Martin, N., & Woodward, B. (2011). Computer Ethics of American and European Information Technology Students: A Cross-Cultural Comparison. Issues in Information Systems, XII (1), 78-87.

Metro-Goldwyn-Mayer Studios Inc. et al. v. Grokster, LTD., et al., No. (04-480) 545 U.S. 913 (2005), 380 F.3d 1154 (US Supreme Court 2005). Moores, T. (2003). The Effect of National Culture and Economic Wealth on Global Software Piracy Rates. Communications of the ACM, 46(9), 207-215. Moores, T., & Esichaikul, V. (2011). Socialization and Software Piracy: A Study. Journal of Computer Information Systems, Spring Issue, 1-9. Pinsky Law. (2010b). Patent, Trademark, Trade Secret, and Copyright Protection, from Santos, J., and Ribeiro, J. (2006). An Exploratory Study of the Relationship Between Counterfeiting and Culture. Polytechnical Studies Review, III(8), 227-243. Schwabach, A. (2007). Intellectual Property Piracy: Perception and Reality in China, the United States, and Elsewhere. Retrieved 9 Feb 2013 from Sega Enters. Ltd., and Sega of America, Inc. v. MAPHIA, et al., No. 857 F.Supp. 679 (US District Court, ND of California 1994). Sega Enterprises Ltd. v. Sabella, No. C 93-04260 CW (US District Court, ND of California 1996). Siegfried, R. M. (2004). Student Attitudes on Software Piracy And Related Issues Of Computer Ethics. Ethics and Information Technology, 6, 215-222. SIIA & KPMG. (2001). Doesn't Everybody Do It? Internet Piracy Attitudes and Behaviors. USA: KPMG. SSRC. (2011). Media Piracy in Emerging Economies. Retrieved 9 Feb 2013 from Sony BMG Music Entertainment v. Joel Tenenbaum, No. 721 F. Supp. 2d 85 (US District Court, District of Mass. 2010). Title 17 U.S.C., US Copyright Act (1976). Tyler, T. (1997). Compliance with Intellectual Property Laws: A Psychological Perspective. New York University Journal of International Law and Politics, 29, 219-236.

UNODC. (2010). The Globalization of Crime: A Transnational Organized Crime Threat Assessment. Vienna: UNODC. US Digital Millennium Copyright Act (DMCA) (1998). WIPO Copyright Treaty (1996). WIPO Performances and Phonograms Treaty (1996).

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