Chilling effect: how ICE tackles the criminals

Richard O’Dwyer could spend 10 years in a US jail if he is found guilty of committing online piracy. The British student, who set up filesharing website TvShack, has never set foot in the US.

His arrest and pending extradition followed an investigation by US Immigration and Customs Enforcement (ICE) officials, who claim he infringed US rights owners’ copyright. ICE oversees the National Intellectual Property Rights Coordination Center (IPR Center), which coordinates the US government’s response to IP crimes.

Set up in 2000, the centre brings together government agencies such as the FBI and other bodies including Interpol. Erik Barnett, deputy director of European aff airs at the IPR Center, insists that it only targets genuine criminals and will continue to clamp down on IP ‘theft ’.

“Criminals have international organisations and cooperation in place,” he says. “We obviously should have the same—if not better—to defeat them.” Barnett uses Kevin Xu as a prime example of this organised crime.

The Chinese national is believed to have been the largest online distributor of counterfeit pharmaceuticals in the world before, in 2009, a judge sentenced him to more than six-and-a-half years in prison. Bringing Xu to justice, after an investigation requiring undercover operations lasting a year, soon led to the arrest of more individuals in the UK. In a separate case in Baltimore in the US, law enforcement officials arrested nine individuals for importing huge volumes of counterfeit goods.

It is clear that the IPR Center has a wide-ranging remit, one that allows it to tackle individuals and organisations far beyond US borders. This extensive influence has attracted controversy and claims of bullying tactics, particularly in the case of O’Dwyer, a 23-year-old student at Sheffield University in the UK. Barnett, however, rejects the criticism and defends the work of those working at the centre’s base in Arlington, Virginia.

“These multilateral investigations are absolutely attacking criminal enterprises. But— and it’s somewhat understandable—for whatever reason, they don’t get the attention that you might get for arresting an individual running a number of piracy sites earning hundreds of thousands of pounds a year,” he says.

To support his assertions, Barnett details the centre’s achievements and the challenges it faces. From October 2010 to October 2011, Homeland Security Investigations—a division of ICE— made 8,556 ‘seizures’, valued at $483 million. A seizure can constitute one counterfeit handbag, for example, or a 40-feet long sea container storing a huge number of goods.

Although border seizures have risen by 40 percent this year, officers must inspect an increasing number of small parcels. However, these parcels may only contain one or two goods, compared to 10,000 items on board a sea container.

“WEBSITE TAKEDOWNS ACT AS A STRONG DETERRENT TO WOULD-BE CRIMINALS. OF THE FIRST NINE WEBSITES SEIZED IN 2010, ONE OF WHICH HAD THREE MILLION VISITORS PER MONTH, ONLY TWO CAME BACK ONLINE.”

“You either have to flood these facilities with inspectors, incur the cost and basically shut down commerce—which we cannot do—or you have to think ‘where is the choke point that will have some earlier impact on the sale of counterfeit goods?’,” he says. As a result, officials have altered their tactics and are trying to block counterfeit sales by strangling their sources: Internet websites. This approach is embodied by Operation In Our Sites, perhaps the most controversial initiative associated with the IPR Center.

Set up in June 2010, the operation targets websites that distribute counterfeit goods or facilitate online piracy. ICE has so far seized 748 domains— one of which includes O’Dwyer’s TvShack—and typically swoops every few months to surprise website owners.

It is perhaps best known for targeting websites on ‘cyber Monday’: the Monday following the US Thanksgiving public holiday, believed to be the biggest US retail shopping day of the year. “For any criminal enterprise, when you take away one of their best business days, you are disrupting their ability to earn a criminal profit,” Barnett says.

But this approach has attracted opposition. Critics argue that sometimes the only link between a US government agency and the websites (which may be operated from abroad) is that they are registered to Verisign, the US company managing .com and .net domain names. Barnett disputes this claim, explaining that agents thoroughly assess each case before investigating it.

“Is there a US rights holder that is impacted by that counterfeit good or pirated material?” “Is the website owner clearly targeting a US-based audience for the sale or distribution of these goods?” These are a couple of the questions officials ask. “When we seize counterfeit hard goods sites which are advertising in US dollars, that to us is a clue,” he adds.

He admits this approach will continue to generate opposition, especially when ICE arrests website owners from countries as far away as China. But he emphasises that officials must always adhere to rigorous standards, which are laid down in US legislation.

“I think one thing that has been overlooked is that Homeland Security Investigations and the IPR Center are not unilaterally seizing domain names,” says Barnett. In fact, he says, officers must record their every move, often writing 20 or 30-page long reports before obtaining a court order from a magistrate judge.

“IN THE CASE OF FILE-SHARING WEBSITE MEGAUPLOAD, SHUT DOWN BY THE FBI ON COPYRIGHT INFRINGEMENT GROUNDS, THE IPR CENTER’S BADGE, PLACED ON THE DISABLED SITE, HAS BEEN VIEWED MORE THAN TWO BILLION TIMES”

The government must prove that a website was engaged in criminal activity, or benefiting from its proceeds, and “that burden never shifts to the website operator”. “I understand it when people want to be critical—but that doesn’t always recognise the way that we have chosen to undertake these operations with significant due process,” he adds. “I would welcome anyone who has a better solution for a US law enforcement agency dealing with criminal enterprises organised in China.”

For brand owners, one crucial question is: do ICE’s takedowns offer a permanent cure to the counterfeiting and piracy disease? The answer is, probably, no. But, according to Barnett, website takedowns act as a strong deterrent to would-be criminals. Of the first nine websites seized in 2010, one of which had three million visitors per month, only two came back online. Even after reappearing, the sites’ traffic levels dropped by 99 percent, cutting 99 percent of the advertising revenue too.

Perhaps most interesting is the wider deterrent effect that ICE’s work has had: after officers seized the first nine websites, 81 other domains, considered to be heavily engaged in piracy, voluntarily shut down. “Twelve of those sites— and this is a statistic I find fascinating—started to link to legitimate vehicles offering online content,” Barnett notes.

For a man who says he has never seen such a knock-on effect in 17 years working as a law enforcement officer, this is an interesting trend. “Usually, if you arrest a drug dealer in a neighbourhood, the other drug dealers don’t stop selling—actually, business tends to get better. That’s something that I think is a reflection of these domain name seizures,” he adds.

What’s more, brand owners can liaise with the IPR Center if they become aware of websites or markets selling counterfeit goods. Barnett welcomes this ‘public-private’ partnership, but he warns that referring evidence to the centre does not guarantee that it will investigate. He says that officers will take action only when there is sufficient evidence that meets a certain threshold.

“While I think brand owners should work with law enforcement, and I do believe most of them understand this, I think there has to be a recognition that it is not definitely an opportunity to have enforcement just because you have a referral.” Owing to the nature of sophisticated criminals, investigations can be complex, often requiring undercover operations. “That takes time and I think rights holders have to understand that there isn’t going to be a 30-day turnaround,” he says.

A tipping point

Another big question for brand owners is: can the IPR Center and its partners actually stop consumers buying counterfeit goods and using pirated material? Three years ago, law enforcement’s ability to deter such activity would have been minimal, Barnett says. But things are changing. After placing seizure notices on each of the 748 websites, he says that these warnings have been viewed more than 90 million times: a sign that a tipping point has been reached.

“We’ve started to look at the audience and think, well, that in itself is a opportunity for education: people are seeing seizure notices and learning that these are sites that offer counterfeit goods or pirate material,” he says.

As well as these notices, the centre is educating the public about IP crimes. The announcements, which can reach hundreds of thousands of people each time, detail the number of jobs lost to counterfeit sales. Barnett is realistic, though: “We’re not suggesting that a seizure notice or a public service announcement is, in itself, going to stop the purchase of counterfeit goods.”

But in the case of file-sharing website Megaupload, shut down by the FBI on copyright infringement grounds, the IPR Center’s badge, placed on the disabled site, has been viewed more than two billion times. Barnett points out that if only 1 percent of these viewers stopped purchasing counterfeit goods, that’s 20 million people.

Similarly, if a tenth of the 90 million viewers of the ICE-seized domains stopped downloading or buying illegally, it would equal 900,000 people. Assertions such as these are only guesses of what might happen but they point to an interesting argument: the authorities can use an inexpensive tactic to warn large numbers of people about infringing IP.

Barnett says there is a great deal of work ahead and admits that law enforcement is not the complete answer to this problem. “It is going to take far more than that,” he notes. “We don’t have enough agents to stop counterfeit products entering the US, or to stop the consumption of pirated material on the Internet.” So while website seizure may not be the whole answer, it is certainly a tool that can supplement the IPR Center’s much wider and more complex approach to combating IP infringement.

As long as these efforts intensify, and as long as non-US citizens are arrested, controversy and opposition will exist. But Barnett is clear that US officials do have the mandate to tackle IP ‘theft’, that they adhere to strict legal requirements and they will adapt to the criminals’ increasingly sophisticated tactics.

It doesn’t matter where the alleged crimes have occurred, or in which country their perpetrators reside, US law enforcement will not hold back.