On the morning of Jan. 20, just 15 miles north of Auckland, New Zealand, police helicopters zeroed in on a sprawling estate in the sleepy hamlet of Coatesville. Armed with automatic rifles, officers rappelled out of the choppers and onto the grounds of an ostentatiously huge mansion, a 24,000-square-foot palace estimated at $24 million. Their quarry was the owner, a wealthy German native named Kim Schmitz. They apprehended him at home, where he reportedly waited out the invasion in his bedroom clutching a sawed-off shotgun.
Schmitz, 38, hardly looks the part of a Bond villain. Pudgy and bespectacled, he seems better suited to watching a Bond marathon on Spike. But in the early Aughts, he emerged from the burst of the dot-com bubble to found the popular torrent site MegaUpload and other Mega-named ventures powered by ad revenue. Under his better-known alias, Kim Dotcom, he's regarded by the international entertainment industry as a kingpin of hijacking intellectual property.
His ventures bankrolled a life of riotous excess. According to various news outlets, the more than $50 million in assets authorities seized included a fleet of Mercedes Benz sports cars; life-size sculptures of giraffes, rhinos and other exotic animals; millions of dollars' worth of art; $8 million in capital investments; and a fully loaded personal helicopter. A New Zealand judge cited the last item as evidence of Schmitz's "flight risk" status when denying him bail.
But Kiwi law doesn't criminalize wanton douchebaggery. So at the urging of the U.S. Department of Justice, New Zealand police took another tack: They charged Schmitz with facilitation of piracy. Specifically, federal prosecutors allege, Schmitz is guilty of copyright infringement through MegaUpload. They charge him and his site with stealing money from U.S. copyright holders, by disseminating protected, monetized content to consumers all over the world via the Internet — for free.
Schmitz denies the charges. He counters that what MegaUpload provides is no different from YouTube, which often features unlicensed reproductions of copyrighted works. Nevertheless, the high-rolling Internet mogul — whose vanity plates read "STONED," "HACKER" and "GOD" — stands accused of conspiring to rob more than $500 million from the music and movie industry.
"I'm an easy target," Schmitz told New Zealand's TV3 after making bail last week. "My flamboyance, my history as a hacker, you know, I'm not American, I'm living somewhere in New Zealand, around the world. I have funny number plates on my cars."
Tastelessness aside, Schmitz is right about making an easy target. From his ridiculous lifestyle to the means by which he supports it, "Kim Dotcom" is a perfect poster child for the uber-pirate archetype, a digital buccaneer with a penchant for trinkets and an amoral worldview. Yet he's also a hero to file sharers in the boundary-free etherworld of the Internet, where jurisdictions are vague, borders don't exist, and content is free fruit ripe for the picking.
So which is he? Is Kim Schmitz Blackbeard the pirate, stealing from the rank and file as well as global oligarchs? Or is he Prometheus the firebringer, delivering art directly to the people and bypassing the industry's corrupt and decrepit gatekeepers? Those poles capture something of the debate surrounding the illegal downloading of movies, music, photographs, articles, TV shows and other intellectual property from the Internet.
The furor came to a head in the U.S. in January over a notorious pair of anti-piracy bills nicknamed SOPA and PIPA, the former co-sponsored by two Tennessee lawmakers. If enacted, the bills would make Internet users everywhere culpable for alleged copyright infringement and subject to civil and criminal penalties. Though the proposed legislation is American, its implications are international. The pool of potential defendants is an ocean: According to a 2012 report published by the International Federation of the Phonographic Industry and Nielsen, one in four Internet users "regularly access unlicensed services."
Resistance among the voting public — spurred in part by highly visible public protests by the likes of Wikipedia, Google and Reddit — was strong enough to shut down both SOPA and PIPA before they came to a vote in January. Both bills have been postponed indefinitely, in what many regard as a sound defeat.
Even though SOPA and PIPA are hibernating, however, the arguments surrounding them aren't cooling down. If piracy is eroding the foundation of the entertainment industry, as the bills' proponents claim, is sweeping new legislation really the best way to fight it? And if existing laws allow the U.S. to crack down on Kim Schmitz all the way in the Southern Hemisphere, why are tougher laws needed? Someday soon, consumers, artists and lawmakers will have to decide which is more dangerous: leaving Kim Dotcom to plunder the seas of online content, or unleashing the bureaucratic equivalent of the Kraken to stop him.
In Nashville, it's more than an arcane discussion of intellectual property rights. Labels, publishers and performers claim online pirates are helping themselves to billions in booty from Music Row's coffers. The victims, they say, aren't faceless suits: They're working musicians, struggling songwriters and fledgling bands whose means of making a living are being shoplifted. The industry has hired lobbyists to make the case both on Nashville's Capitol Hill and in Washington that illegal downloading is outright theft and should be punished as such.
"We've seen our local music industry decimated," says Rep. Jim Cooper (D-Tenn.), who co-sponsored SOPA in the U.S. House. "They've lost billions of dollars of sales. I don't pretend it's the good old days ... but there's got to be a way to protect songwriters and protect Internet freedom at the same time."
But is legislation the answer? And if industry executives are slow to adapt to a changed media world, where does that leave the artist?
That's what Chris Sevier wonders. By day, Sevier is a Nashville copyright attorney. By night, he's shlepping for his record label, Severe Records LLC. Severe Records' current artist roster boasts only 16 acts, positioning the company far from the Sonys and UMGs of the entertainment world, and even further from those companies' multimillion-dollar salaries.
Even so, Sevier says, piracy has "a trickle down" effect on his business. He believes that doing something about the problem is better than doing nothing. As a musician, label owner and lawyer, Sevier sees every angle of the controversy over copyright infringement versus free speech. Perhaps for that reason, he comes down somewhere in the middle.
"Generally speaking, I'm a proponent of legislation like SOPA and PIPA," Sevier tells the Scene. "It speaks to authors' rights. We shouldn't sacrifice the whole for the one. I don't buy that this is a free speech issue, necessarily, because that argument ignores the rights of creators who should be getting paid for their work."
At the same time, he doesn't think SOPA or PIPA would solve the problem of how to reclaim material that has already been made available for free. He also believes the legislation as written could create PR nightmares and tangles of new litigation.
"We have to be careful, because any time we resort to going to the courts and increasing litigation, that isn't a way to fix things, either," Sevier says, adding that copyright cases can drag on for years and aren't good publicity for record companies. "So the fact that they could possibly go in there [and prosecute] unilaterally seems like a due process violation."
Sevier laments the departure of friends who have left Music City for greener musical pastures over the years, saying that he doesn't think the industry of the high-flying '90s, when compact discs were king and cash was flush, will ever return.
"It's terrible," he says. "They would have gainful employment [in Nashville] if the problems weren't there."
But even Sevier admits those "problems" have as much to do with an industry reluctant to compete with pirates as much as it does with pirates themselves.
"I wish they would spend resources in ways that would try and create leverage and harness the situation where content can be monetized instead of making it some kind of free speech issue," Sevier says. "And I hate making it a free speech issue, because authors' ideas are going to be obliterated if nothing is done. I think those free speech rights must be protected, absolutely, but there's got to be a way to do something while respecting those rights at the same time."
He argues that current Internet copyright law — such as the Digital Millennial Copyright Act and the PRO-IP Act — isn't sufficient. But it's a big jump from the DMCA, which grants immunity to websites accused of carrying unlicensed copyrighted material if websites remove the material themselves, to the likes of SOPA, which would pave the way for unilateral legal action. And given the proficiency of hackers to always stay one step ahead of the curve — the hacktivist collective Anonymous claimed responsibility in January for taking down the RIAA's website "for the lulz" — it's dubious whether this legislative quantum leap would net any positives to curb piracy, and by proxy protect content creators.
Part of the problem is that the vast majority of the public understands little about the proposed legislation, while the vast majority of legislators understand little about the bills' technological implications. From lawmakers confusing IP numbers with individuals to repeated calls for "nerds" to explain the basic workings of the Internet, the hearings surrounding the bills did little to enlighten the public — or to convince the tech-savvy that the legislation would do anything but open Pandora's inbox of unforeseen complications.
In the House, the bill, introduced last year by Rep. Lamar Smith (R-Texas), is known as the Stop Online Piracy Act (SOPA). In the Senate, where Sen. Patrick Leahy (D-Vt.) introduced it simultaneously, its unwieldy handle is the Preventing Real Online Threats to Economic Creativity and Theft of Intellectual Property Act (PIPA).
The closely aligned bills would attempt to squelch copyright infringement for creative works as well as physical goods, like counterfeit pharmaceuticals. As a counterstrike, SOPA and PIPA would create a filtering service that blocks IP addresses for sites accused of posting unlicensed content on blogs and websites. This would prevent Internet users from accessing them, causing the sites in theory to shrivel from neglect.
The bills would also empower the Department of Justice to aggressively track and prosecute offending foreign websites, their supposed targets. The chief difference is that SOPA focuses on Internet service providers to restrict data, while PIPA targets domain-name providers and ad networks. But the desired effect is the same: a crackdown on networks that give away the industry's somethings for nothing.
That sets off warning bells for the bills' most vocal critics, many of them tech companies. As written, they argue, SOPA would effectively "break the Internet" by requiring ISPs and search engines like Google to heavily censor their results. To them, this would destroy the Web's most advantageous characteristic: its freedom. Filtering the Internet's domain name service, they add, would only create the opportunity for government meddling — something like China's much-derided, restrictive "Great Firewall."
Worse, they say, it would greenlight prosecution outside of U.S. jurisdiction via ex parte hearings, in which only one party (i.e. the copyright holder) need appear in court to initiate legal action against a site or an individual (i.e. the pirate). Opponents claim the result would have a chilling effect on free speech, while stifling Internet innovation at our own economic peril.
Supporters, led by the so-called Big Three media companies — Sony, Universal Music Group and Time-Warner — and a cadre of Beltway lobbyists and lawmakers, fired back that the bills were needed to combat the disastrous effects of piracy and file sharing. The Recording Industry Association of America claims these cost the U.S. some 750,000 jobs and billions of dollars in lost revenue. The Motion Picture Association of America estimates the movie industry's piracy-related losses at $58 billion annually.
In January, the din of competing voices reached a crescendo, paradoxically enough, in a note of perfect silence. Less than 48 hours before Kim Schmitz would be arrested, a consortium of high-profile websites (including Wikipedia, Google and the social-media site Reddit) joined in an Internet "black out" protest. Mimicking the gag rule and blindfolding they argued SOPA and PIPA would become, the sites disabled their features and blacked out their logos. They also urged visitors to take up their metaphorical pitchforks and contact their legislators.
The public response was so intense that it paved the way for President Obama to safely chime in on the debate, with only some rhetorical cyber-rattling from media companies as pushback. In response to some 100,000 signatures to an online petition, the Obama administration denounced SOPA and PIPA as legislation that "reduces freedom of expression, increases cyber security risks or undermines the dynamic, innovative global Internet."
In the end, SOPA was indefinitely shelved before it could even make it out of the House Judiciary Committee. A number of representatives withdrew their support. On Jan. 18, the same day of the blackout protests, Senate Majority Leader Harry Reid announced that a vote on PIPA would be postponed until it became something palatable to the American public.
The defeat of SOPA and PIPA — however provisional — may have brought cheers of victory from opponents, but it didn't end the rancor or quell the concerns behind the bills. In the aftermath of the bills' collective failure, Nashville Songwriter Association International executive director Bart Herbison told Music Row magazine that he was disappointed, and accused Google of expressing concerns that "were never accurate to begin with."
"Most of their previously expressed concerns were addressed when key provisions were removed," Herbison said. "Nonetheless, while copyright holders won the debate, we lost in the court of uninformed public opinion. Over the past few weeks this moved from a debate on the issues to a political debate ... and that is when support began to erode. The tech community did a great job of instilling fear and confusion over both bills."
Speaking in January to a gathering of reporters at his local office in the downtown Nashville public library, Cooper maintained that he signed onto the bill mainly to take the copyright-infringement debate public. "The reason I co-sponsored the bill is, and co-sponsorship means, if you understand what that means, it doesn't mean you voted for it," he said. "It means you think it's a subject worthy of serious discussion at a congressional level."
But Julie Samuels, an attorney for the digital rights advocacy nonprofit Electronic Frontier Foundation, says she finds those remarks disingenuous. At least early on in the battle over the bills, she says, she got the sense that a corporate agenda was clearly driving the proceedings, and lawmakers wanted that kept offstage.
"I actually have a really hard time with that, because the one thing we saw, more than anything in the fight over SOPA and PIPA, it was really pushed through without an open discussion at the outset," Samuels says. "It was a backroom deal, there was no one at the table who really understood the technology of the Internet or the potential negative effects of the bill, and I think that was part of the problem."
That much was clear after a series of House Judiciary Committee hearings held throughout the winter revealed the collective ignorance of the nation's elected officials on the technological matters at the heart of SOPA and PIPA.
"I was trying to think of a way to describe my concerns with this bill, but we're going to do surgery on the Internet and we haven't had a doctor in the room telling us how to change these organs," said committee member Rep. Jason Chaffetz, R-Utah, at a Dec. 15 hearing. "We're basically going to reconfigure the Internet without bringing in the nerds, without bringing in the doctors."
In the media coverage leading up to the January blackout protest, a narrative of congressional technical ineptitude emerged, and in the process the story evolved a new focus: the power of Internet grassroots organizing.
"What we saw in D.C. was that the supporters of SOPA went too far, and they basically awoke a sleeping giant in the tech community at large," Samuels says. "People realized that this bill was being kind of rammed through without an open conversation about what was best for the millions and millions of artists, creators and, frankly, Internet users that it would impact.
"Now we're having a conversation, and this is good, but it took more than introducing that legislation to have that conversation."
Groups like the Electronic Frontier Foundation contend that at their core, SOPA and PIPA are the latest examples of a sustained legislative effort bankrolled by Big Entertainment. They charge that instead of focusing resources on innovative content delivery services and respecting existing federal law, companies such as Sony, Universal Music Group, CBS Entertainment and Viacom are funneling crates of money to politicians in an effort to put a sleeper hold on the Internet.
They may have a point. Collectively, the television, motion picture and music lobbies have thrown roughly $2 million at the 32 members of Congress who signed onto SOPA. Among those are the bill's two Tennessee co-sponsors, Cooper and Rep. Marsha Blackburn (R-Tenn.). According to campaign contribution data culled from OpenSecrets, recording industry lobbyists donated $16,300 to Cooper between 2009 and 2011. That made him one of the top three House recipients for money from the recording industry, behind Rep. Howard Berman (D-Calif.), who netted $72,350, and Blackburn, who received $38,000 during the same time period.
In all, SOPA's corporate supporters have spent $90 million in their lobbying efforts. Further, according to data compiled by Maplight, "entertainment interest groups that support these bills gave 7.2 times as much ($14,423,991) to members of the U.S. Senate as Internet interest groups that oppose these bills ($2,011,332)."
There is clearly a lot at stake.
For his part, Cooper says the debate has produced "more heat than light." But he maintains that artists need protection from the likes of Schmitz. Hence SOPA, the industry's line of defense against legions of neck-bearded man-children illegally downloading Taylor Swift songs and hentai porn in their parents' basements.
"Some famous people probably don't miss the money, and some not-so-famous people really miss the money," Cooper says. "They were never for taking Napster down or Pirate Bay. Some people are so pure on this side of the issue, they disregard the creative side of the business. ... Looking at it as an economist doesn't help put bread on the table in Nashville, Tennessee. You can be abstract all day long and you'll still have starving songwriters.
"What we need to do is at least [create] a bridge to new business models. Somebody's making money off this. Now, it might be Ukrainian pirates. We'll never get that money back."
Concerns over lost revenue are intensified by the grim state of music industry economics in the post-compact disc era. According to data from the RIAA, the year that compact discs controlled their highest share of market dominance was in 2002, when CDs accounted for 95.5 percent of industry revenues. By 2010, CD sales had shrunk to barely 50 percent. This year, industry analysts expect digital music sales to eclipse CD sales for the first time.
Technological sea change is one thing. Hard data on the true economic costs of piracy are another — and due to piracy's illicit nature, they're hard to come by.
A good place to start: the aforementioned 750,000 lost jobs touted by the RIAA. The technology blog Ars Technica found that this oft-touted figure dates back to a 1986 Christian Science Monitor article concerning President Ronald Reagan's version of the PRO-IP Act, an anti-piracy bill signed into law in 2008 under President George W. Bush. Back when the CSM article was written, the recording industry was advancing an anti-piracy advertising campaign ("Home Taping Is Killing Music") that targeted abuse of blank cassette cartridges.
But even though the RIAA continues to tout these figures, a 2010 Government Accountability Office report found that they have no empirical basis.
"Three commonly cited estimates of U.S. industry losses due to counterfeiting have been sourced to U.S. agencies, but cannot be substantiated or traced back to an underlying data source or methodology," the report says. "First, a number of industry, media and government publications have cited an FBI estimate that U.S. businesses lose $200-$250 billion to counterfeiting on an annual basis. This estimate was contained in a 2002 FBI press release, but FBI officials told us that it has no record of source data or methodology for generating the estimate and that it cannot be corroborated.
"Second, a 2002 [Consumer Protection Bureau] press release contained an estimate that U.S. businesses and industries lose $200 billion a year in revenue and 750,000 jobs due to counterfeits of merchandise. However, a CBP official stated that these figures are of 'uncertain origin, have been discredited, and are no longer used by CBP.' "
Market research points an accusatory finger at legal download services like iTunes for a good chunk of this decline. In 2007, six years after its introduction and one year after the implosion of Tower Records, iTunes held only a 12 percent share of music sales in the United States. As of last year, the Apple service commanded 26.7 percent of the market, fueled in large part by the ease of piece-meal song purchases and the continued crash-and-burn of brick-and-mortar stores, which derive most of their profits from the sale of full-length albums. In 2010, the year CD sales dropped to barely 50 percent of revenues, digital download singles comprised nearly half that amount, at 20 percent.
In other subsets of the media industry, the issues are inherently the same. Gabe Newell, founder and CEO of Valve Corp., an electronic entertainment and distribution company, stated in an interview in November with online magazine The Escapist that piracy is a service problem, not a cut-and-dried matter of copyright infringement, which content creators must challenge head-on through innovation.
"We think there is a fundamental misconception about piracy. Piracy is almost always a service problem and not a pricing problem," Newell said. "If a pirate offers a product anywhere in the world, 24/7, purchasable from the convenience of your personal computer, and the legal provider says the product is region-locked, will come to your country three months after the U.S. release, and can only be purchased at a brick-and-mortar store, then the pirate's service is more valuable."
Newell went on to say that prior to launching his proprietary content delivery service, Steam, in Russia, he was told the move would prove a disaster due to the country's reputation for rampant software piracy.
And yet, "Russia is now about to become [Steam's] largest market in Europe," Newell said.
The implication, then, is that shifts in technology and the media industry's attempts to play catch-up have factored into the waning revenues of music companies as much as piracy. Even strong traditional content supporters such as Cooper acknowledge that "a bridge to new business models" is sorely needed in order to compete. But if that bridge is built with legislation that gives media corporations undue power and, in the process, stifles freedom on the Internet, the cost might be too high.
Google recently estimated that the percentage of so-called website "takedowns" by the Department of Homeland Security pursuant to the DMCA that are erroneous is just under 60 percent. Even without SOPA and PIPA, Homeland Security's chief Internet enforcement agency, Immigrations and Customs Enforcement, is responsible for the enforcing these takedowns, often without following the DMCA to the letter.
That ICE has jurisdiction over the Internet concerns Julie Samuels, who points to Schmitz's arrest and ICE's yearlong seizure of a hip-hop blog called Dajaz1.com without due process as disturbing signs that even without SOPA and PIPA, the government is doing what it wants anyway, whether or not it's in the best interests of content creators. Last week, Wired reported, U.S. authorities were able to shut down sports-wagering site Bodog.com — even though its domain name was registered with a Canadian company.
And, she warns, the fight isn't over.
"Let's be clear," she says. "SOPA and PIPA aren't dead. I would be shocked if they were retooled and brought out before the 2012 elections, but they are still very much in play. Sure, they won't have the same names of 'SOPA' and 'PIPA' when we see them again, but they'll come back. Bills like this always do."