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Long Live the IP Czar?November 11, 2008

Those who thought the days of the Russian monarchies were a thing of the past may be surprised to hear that our nation will soon have its own czar, namely the ‘IP Czar’. On October 13, 2008, President Bush signed into law a bill that will create a centralized position in the executive branch to head up the fight against piracy and intellectual property violations. The Prioritizing Resourcing and Organization for Intellectual Property Act of 2008 (more commonly known as the ‘Pro-IP Act’) stiffens penalties for illegally copying and distributing music and movies, and appoints a new ‘IP Czar’ to oversee enforcement of the new measures. The czar is not expected to be named before the end of Bush’s term in January.The Pro-IP Act includes the following provisions, among others:Creation of an ‘Intellectual Property Enforcement Coordinator’, or ‘IP Czar’ to be appointed by the President. The duties of the IP Czar include coordinating the efforts of several diverse federal agencies – U.S. Trade Representative, Department of Homeland Security, the State Department and the Department of Justice – to combat counterfeiting and other forms of intellectual property infringement;Increasing of Statutory Damages for Trademark Counterfeiting: The law raises the minimum and maximum statutory damages award a successful trademark owner can receive. A plaintiff that successfully pursues a civil counterfeiting action can choose between actual damages or profits and statutory damages. Under the new law, if the plaintiff elects statutory damages, it will receive an award of $1000 to $200,000 per counterfeit mark, a doubling of the awards previously made available; Increasing Certain Criminal Counterfeiting Penalties: In cases where the defendant knowingly or recklessly causes or attempts to cause serious bodily injury or death, the law increases the maximum penalties for trafficking in such counterfeit goods. Examples cited by Congress include counterfeit pharmaceuticals, UL labels and brake pads; andExpansion of Government Power to Seize Equipment: In criminal enforcement matters, equipment used in the commission of the criminal infringement may be seized and forfeited. While championed by a broad base of intellectual property holders, including the Recording Industry Association of America (RIAA) and Motion Picture Association of America, the bill experienced several bumps along the path to approval. Following its introduction, the Justice Department (DOJ) sent a strongly worded letter to Congress opposing certain provisions of the bill, as well as urging that the Cabinet level czar position was unnecessary and would take away the department’s autonomy.The DOJ had even more objections to earlier versions of the bill, which included one provision, since struck, authorizing the DOJ to take on civil cases and collect damages for private copyright holders, actions never before assigned to the DOJ. The DOJ noted the result of this provision would have been DOJ prosecutors serving as pro bono lawyers for private copyright holders regardless of their resources. The White House agreed with the DOJ and successfully lobbied the Senate to remove the language tasking the DOJ with suing copyright and trademark infringers on behalf of Hollywood, the recording industry, manufacturers and software makers. The Bush administration also said it did not want an IP czar, a position on par with the nation’s drug czar Congress created in 1982 to wage the war on drugs. The President, however, presumably relented, and signed the bill into law following its passage by the Senate. Following fairly vocal and widespread opposition, some were left wondering why the bill passed so overwhelmingly. The plain numbers seem to make the case for the importance of intellectual property to the American economy. According to the U.S. Chamber of Commerce, 40 percent of the nation’s growth comes from intellectual property, including music, movies, pharmaceuticals, fashion and software.However, by far the biggest backer of more enforcement against infringers and counterfeiters is the entertainment industry. In this regard, the entertainment industry says it is losing billions of dollars every year in stolen intellectual property. In fact, the U.S. Chamber of Commerce estimates that counterfeiting and piracy costs the United States nearly $250 billion annually. Over the last five years, the recording industry has taken a real financial hit that it attributes to piracy. CD sales have been declining for the last five years, and online music sales are not making up for the loss. The industry says what is happening is that people are using peer-to-peer online serves to swap unauthorized music files.Now that more people have high-speed Internet connections, the movie industry is also concerned that it will begin to see a decline in sales. And, it is not just individuals that Hollywood seems to fear, but increased sophistication of piracy of music and movies by organized groups that are using the Internet to making enormous profits.By becoming law, ‘the Pro-IP Act sends the message to IP criminals everywhere that the U.S. will go the extra mile to protect American innovation,’ said Tom Donohue, president and CEO of the U.S. Chamber of Commerce. Rick Cotton, general counsel for NBC Universal, said the bill would give movie and music makers more tools to fight what he called a ‘tidal wave’ of counterfeiting and piracy of everything from medical devices to automobile parts to media by organized crime. This, he said, were the reasons for the law, and was not about stopping teenagers from downloading music on their computers. According to the Center for Public Integrity, the entertainment industry is the eleventh largest campaign contributor in the U.S.; last year it contributed nearly $20 million into lobbying Congress. Based on this momentous support, perhaps it is not so surprising that the bill sailed through.While justification for the law now appears to be a moot point, there are still many who oppose its merits. The technological industry as a huge producer of software and intellectual property is arguably one of the biggest winners with the bill’s passage, there is also a sense that the bill is part of a larger entertainment-industry agenda aimed at squelching technological innovation. A recent example in support of this theory is a lawsuit filed against RealNetworks to keep the company from releasing software that allows users to make copies of DVDs to put on laptop hard drives. From a more practical standpoint, public interest groups argue that the law will be ineffective as it is intended to aggressively attack the symptoms of a disease that is becoming increasingly epidemic. Many predict that the Pro-IP Act will succeed only in driving the black-market activity further underground. For nearly a decade the recording industry and law enforcement groups have been waging a series of running battles against illegal music file-sharers. Yet, the file-sharing remains rampant and, by some estimates, up to ten times larger than the legal online music market. Will adding steeper penalties against file-sharers and counterfeiters really succeed in controlling violations where steep penalties already exist? After a decade of fighting, the law has neither slowed file sharing, nor compensated artists for their work.Quite sensibly, public interest groups suggest the entertainment industry may be better served spending its time and money trying to come up with a different business model instead of fighting what may be a futile battle. For example, the ‘free’ model is premised on the notion that since file sharing cannot be stopped, why not just give away the music tracks as loss leaders? The tracks may then be used promote the artist and drive sales of other associated products, such as concert tickets and merchandise. Prince recently used this model to get his music into the hands of as many people as possible and help promote his upcoming tour. It was later reported that all of Prince’s UK dates had sold out almost as soon as they went on sale.An alternative model uses subscription services, such as those available from Rhapsody, where the user would pay a set fee per month, for example, to access a virtual library accessible from nearly anywhere, i.e. your car, cellphone, computer, television, etc. and listen to any music you like. While such services have not yet reached mass adoption, it is believed they may increase in popularity as people no longer find it as important to own their music due to its mass accessibility.Another model employs an old idea of collecting a music tax, possibly from the Internet Service Provider (ISP). The idea is to charge the customers of ISPs and cellphone carriers a flat-rate fee as part of their data service plan in exchange for the right to download and share the major record labels’ music over an ISP’s network. In that way, filesharing is decriminalized and the recording industry is guaranteed revenue. Other forms of music tax could include a tax on digital audio players, similar to how some countries tax blank CDs, or direct through government.In summary, while the Pro-IP Act offers hope, at least in theory, of reducing intellectual property piracy and counterfeiting, it would be worthwhile to continue to investigate alternative proposals for ensuring that artists are fairly paid for their work without trying to stop sharing.Wendy K. Marsh is a member with McKee, Voorhees & Sease, PLC, an intellectual property boutique, based in Des Moines, Iowa. She splits her time as chair of the firm

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