GrayZone - Quarterly Digest - July 2006

Headline News

Swedish Police Shut Down The Pirate Bay

The international recording industry has scored a huge victory in its effort to crackdown on illegal file-sharing and Internet piracy.

On May 31, 2006, Swedish police shut down The Pirate Bay, which claimed to be the world’s largest BitTorrent search index and a huge source of Internet piracy globally. The site is a pirate “tracker” that directs people to pirated movies and music, making available over 157,000 illegal files including the hollywoods latest releases. The site met its end when 50 police officers raided 10 separate locations across Sweden, collecting evidence and detaining three individuals for questioning.

The Pirate Bay, available in 25 language versions, has been a large-scale engine of copyright theft of movies, music, audio books, televisions broadcasts, games and software. The site boasted one million visits a day, facilitating the downloading of a vast range of copyrighted material by users around the world and acting as a tracker for the world’s top 100 BitTorrent sites. For several years, the operators of the Pirate Bay have claimed immunity to copyright laws and have ridiculed copyright holders.

The International Federation of the Phonographic Industry (IFPI) Sweden Director-General Lars Gustafsson said: “The Pirate Bay has been facilitating illegal file-swapping of copyrighted material on a very large scale and with blatant disregard for both music creators and copyright laws. This is a very good development for the Swedish music industry and for the real innovators and entrepreneurs who are trying to build a legal online digital business.”

The Pirate Bay had consistently defied legal warnings by copyright holders over recent months, its Swedish operators posting their contempt for copyright laws. The site was a commercially-run operation, running banner advertising on its pages. The police actions followed the submission of several reports by IFPI, working alongside the Swedish Anti-Piracy Bureau and MPA. While the site has threatened to move to another country, its indexing capabilities have been crippled, as the police seized the sites entire server farm. The music industry is optimistic that the end of The Pirate Bay in Sweden will set the precedent for shutting down online piracy havens worldwide.

IFPI Chairman and CEO John Kennedy said: “This is a very important development for Sweden, a country with a fantastically rich music culture yet which has more recently acquired a reputation as a haven for copyright infringement. The Pirate Bay has damaged the legitimate music industry on an international scale and I am very pleased that the Swedish authorities have today taken such decisive action against it.”

IFPI press release, May 31, 2006

The Local, May 31, 2006 (James Savage)

Ipwalk.com, May 31, 2006

Artists’ Corner

Virgin Caught Pirating MADONNA ‘s “Hung Up”

On June 22, 2006, the commercial court of Paris ruled against music retailer VirginMega France for illegally obtaining a copy of MADONNA’s song “Hung Up” and redistributing it for sale on their website.

The court fined the French online retailer for illegally downloading the hit single for subsequent resale to the public on its own website, ignoring an exclusive distribution deal that had been reached between Warner Music, France Telecom and Orange restricting the sale of the track to mobile users for a seven day period prior to its general release.

According to the court, immediately after the track was made available to mobile users, the Virgin store downloaded, repackaged and then openly resold the song to customers on the VirginMega website. VirginMega was directed to pay 250,000 ($318,712) to each telecom firm and 100,000 ($127,484) to Warner Music France. In all, VirginMega’s blatant act of piracy resulted in more than 14 million ($17.8 million) in damages awarded to the plaintiffs.

WiredFire.org, June 29, 2006

LUDACRIS and KANYE WEST Cleared Of Copyright Infringement

KANYE WEST and LUDACRIS were both cleared of copyright infringement on June 1, 2006, after a federal jury rejected a rap group’s claim that the rappers stole the chorus for their collaborative 2003 hit “Stand Up.” The New Jersey-based rap group, I.O.F., filed suit against Ludacris, Kanye West and Universal Music for allegedly stealing the chorus for Ludacris’ “Stand Up” from their song on “Straight Like That.”

I.O.F., suing for $10 million in damages, cited in their suit that they gave Ludacris copies of the song between August 2002 and May 2003, before he released “Stand Up” on his album Chicken and Beer in October 2003. The lawsuit also cited that that the words “like that” were repeated more than 80 times in each song. The word “straight” proceeds “like that” in I.O.F.’s version, while the word “just” precedes it on Ludacris’ version.

The trial ended after 10 jurors deliberated for less than a day in U.S. District Court in Manhattan. After the verdict, Ludacris commented, “The only thoughts and ideas I borrow from are those of my own. I hope the plaintiffs enjoyed their 15 minutes of fame. This whole experience is proof to me of why I will always fight for what I believe in.”

SOHH.com, June 2, 2006 (Jolene “foxxylady” Petipas)

See GrayZone Digest First Quarter 2005

U.S. Busts

Be sure to peruse the Recording Industry Association of America’s (RIAA) monthly newsletter “RIAA Anti-Piracy Seizure Information,” which covers numerous bootleg, piracy and counterfeit raids across the United States.

FBI Breaks Up Major Movie Piracy Rings

On June 28, 2006, FBI agents carried out early morning raids and broke up two international movie-piracy rings that have allegedly cost the motion picture industry millions of dollars over the last year alone. Agents arrested 13 suspected members of the two large-scale rings in raids throughout the New York area, and seized recording equipment as well.

The two movie piracy rings specialized in sneaking digital camcorders into theaters and shooting hit films, then duplicating and distributing millions of bootlegs worldwide. Using computer file-sharing networks, the suspects distributed the counterfeit films to Pakistan, Singapore, Hong Kong, Malaysia and other countries, according to the Motion Picture Association of America (MPAA). The video shooters were paid several hundred dollars per film by manufacturers who would duplicate and package the fake DVDs in counterfeit labels for distribution to street peddlers, selling for up to $19 each. Some of the DVD knockoffs even included the FBI warning seen at the start of legitimate discs.

According to officials, one of the movies the suspects were conspiring to profit from was “Superman Returns,” which was released the same day of the arrests. The suspects could face five years in prison if convicted of conspiracy, copyright infringement and trafficking in counterfeit goods.

FindLaw.con, June 28, 2006 (Tom Hays)

Pre-Release Pirates Sentenced

On May 19, 2006, the Department of Justice announced sentences for three members of a pre-release music piracy group involved in the federal crackdown deemed Operation FastLink. According to the Department of Justice, one individual from Danville, Virginia, was sentenced to 15 months in prison. A second individual from Hillsboro, Oregon was sentenced to six months in prison and six months home confinement. The third individual living in Charlotte, North Carolina received a sentence of six months home confinement.

The Operation FastLink investigations target individuals and organizations, known as “warez” release groups, that specialize in the Internet distribution of pirated materials. Release groups are the first providers of the original source for most of the pirated works traded or distributed online. The repercussions of music pre-release piracy, in which an early version of an album is made available illegally over the Internet, are far-reaching. Pre-release piracy can interfere with the vision that the artist had for the music, as well as marketing strategies of the album and the significant commercial investment of everyone involved in creating, producing and distributing it.

RIAA press release, May 19, 2006

See GrayZone Digest Second Quarter 2006

Worldwide Update

Canada

Software Piracy Falls in Canada

According to a May 2006 report, the amount of software piracy dropped in Canada in 2005. Even so, the Canadian Alliance Against Software Theft (CAAST) and the Business Software Alliance report that one of three PC software copies used in the country during that year were illegal.

The organizations released the piracy study, which examined 97 countries and the proportion of legal software that was used. In Canada, the rate fell from 36 percent in 2004 to 33 percent in 2005. Internationally, the rate remained at 35 percent. Piracy cost to companies is estimated at $41 billion globally. Canada’s share was $943 million, which was $166 million less than 2004. This is an encouraging sign that brings Canada’s piracy rate in line with the lower rates in Germany, the UK and Australia.

CBC News, May 23, 2006

European Union

Piracy a Concern for new E.U. Nations

Romania and Bulgaria are close to entering into the European Union, though concerns remain over high levels of piracy. Both nations are notorious for their rampant trade of counterfeited CDs and DVDs, however, the European Commission has noted marked improvements over the past two years. For the entertainment industries, the issue is an important one, especially since both countries would comprise part of a new E.U. boundary.

Both Romania and Bulgaria have been urged to speed up reforms, and a review is expected in October 2006, before the anticipated January 1, 2007 induction into the Union. Both nations have also been urged to crack down on organized crime syndicates, which are a major driving force behind rampant piracy.

Digital Music News, June 2006 (Alexandra Osorio)

France

iTunes Compatibility Law Gets Approval in France

Legislators in France have approved a new copyright law that may force Apple Computer to make songs from its popular iTunes Music Store compatible with its rivals’ music players. This law, approved by the Senate and National Assembly, is scheduled to go into effect in the summer.

This decision concluded a six month debate that led to a broader discussion in Europe about government mandates regarding user access to digital material. French minister of culture Renaud Donnedieu de Vabres said of the new law, “This text affirms a new principle, interoperability, which makes France a pioneer country in Europe.” In Denmark, Sweden and Norway, consumer advocates asked Apple to explain why songs bought from iTunes cannot be played on non-Apple devices. They’ve given the software company until August 1 to respond. Switzerland and Poland lawmakers are also expected to consider the issue when updating their national copyright laws for this year.

New York Times, July 1, 2006 (Thomas Crampton)

See GrayZone Digest Second Quarter 2006

Germany

Germany Launches Largest Legal Action Against Illegal File-Sharing

The largest international action against unauthorized filesharing took place in Germany on May 23, 2006. A total of 3,500 individuals were subject to criminal prosecution because they uploaded a significant amount of copyright-protected material on P2P (peer-to-peer) networks.

German investigators were able to identify illicit music file-sharers using eDonkey, a P2P network, to upload 8,000 infringing music files to be accessed by other users on the internet. Under civil law, each person faces criminal penalties as well as compensation claims for their actions. Damage claims can potentially be as much as several thousand euros for unauthorized music distribution on these networks, allowing millions of users to download.

Authorities searched 130 premises for evidence to support their investigations, which have been ongoing for months. These legal actions were spearheaded by the Police Authority of Bergheim and the Public Prosecution Service of Cologne.

File-sharing P2P networks like eDonkey cause enormous damage to music investment and cost the recording industry billions of dollars every year in lost sales.

In Germany alone, legitimate physical sales of music has dropped by a third in the past five years, while just in 2005, there were 400 million music files illegally downloaded.

IFPI press release, May 23, 2006

Italy

Operation Secret Bay

Fiscal Police from Udine, assisted by the industry’s anti-piracy body FPM, executed several search orders in a nationwide operation against the online sales of pirate CDs and DVDs. During operation Secret Bay the police seized music and video compilations offered on eBay by illegal traders. Twenty individuals were indicted for copyright violation and face prison sentences of up to four years in addition to administrative sanctions for millions of Euros. Bank accounts and equipment including computers, burners and printers were also seized. According to Italian law, the consumers of pirate goods can face an administrative sanction of up to 10,000 ($12,736).

IFPI press release, May 11, 2006

Russia

Russian Piracy Doubles Despite Raids

After China, Russia is known to be the next worst when it comes to music and video piracy. Hollywood claims to have lost over $300 million a year as a result of piracy in Russia alone.

Despite a sharp increase in police raids across Russia with pressure from Washington on optical disc replication plants and warehouses, piracy is on the rise with double the number of production lines producing pirate discs this year compared with two years ago. However, one major problem the authorities face is that an estimated 90% of licensed factories with CD & DVD production lines produce pirated discs also. The 50 licensed production plans in Russia are capable of producing some 800 million discs per year.

Also of concern are online music download services that are hosted in Russia. Although these services stay within Russian law, they are breaking copyright laws worldwide.

CDFreaks.com, July 1, 2006 (Seá Byrne)

United Kingdom

AllofMP3.com to be Sued by BPI

On July 3, the British Phonographic Industry (BPI) was given the go-ahead to sue the Russian music download site, AllofMP3.com. The UK High Court granted BPI with the authority to commence proceedings against the popular Russian service, which offers their users downloads of full albums for less than U.S. $1.80 each.

Roz Groome, BPI General Counsel pointed out that AllofMP3.com was able to offer the downloads so cheaply because neither the record companies nor the artists are paid. He said, “We have maintained all along that this site is illegal and that the operator of the site is breaking UK law by making sound recordings available to UK-based customers without the permission of the copyright owners.”

Groome spoke at the British Parliamentary Digital, Culture, Media and Sport Select Committee on June 6, 2006, where he first announced BPI’s intention to sue AllofMP3.com.

AfterDawn.com, July 3, 2006 (Reuters)

Legal Beagle

Yahoo China to be Served with Lawsuit by Music Companies

It was announced on July 4 that several major music companies would be suing Yahoo China for copyright infringement. The internet company is accused of linking to sites that offer unauthorized music.

According to IFPI, Yahoo China provides links to websites that have illegal MP3 downloads of hundreds of titles. Alibaba.com, which is 40 percent owned by U.S. company Yahoo Inc. operates Yahoo China. Along with Baidu.com, Yahoo China is one of the country’s most frequently used search engines. It is expected that IFPI will file the lawsuit in the summer, on behalf of over 1,400 recording companies around the world that are spread out across 73 countries, including U.S. Asian and European labels. The organization has not revealed the amount in damages that they will seek.

IFPI’s John Kennedy explains that Yahoo China is “blatantly infringing” on their members’ legal rights, and that they are taking the first steps as required by Chinese law to file a lawsuit. IFPI also plans to ask for a court order to cease infringement on the site.

China is one of the largest sources in the world of unauthorized copies of software, movies and music. Foreign pressure has forced the Chinese government to strengthen its enforcement of anti-piracy laws. These efforts are also intended to try to protect the country’s own entertainment industry, which has suffered considerable losses from piracy.

Yahoo China has also had to defend itself against complaints by human rights groups for giving in to pressure by the communist government to censor the internet. The company has given the government information about email users allegedly used to charge political activists with subversion, which resulted in at least three convictions.

ABC News, July 4, 2006 (Joe McDonald)

IFPI press release, July 4, 2006

Trade Commission Launch Investigation Into Apple iPod Infringement

On June 14, 2006, the International Trade Commission launched a probe into whether Apple Computer Inc.’s popular iPod digital music player infringes on a Creative Technology Ltd. Patent.

The commission’s investigation follows a complaint that was filed by Creative Technologies Ltd. of Singapore and Creative Labs, Inc. of Milpitas, California on May 15, 2006. They allege violation of the Tariff Act of 1930, Section 337, saying that the iPods Apple imported into the U.S. and sold infringe upon the company’s “Zen” patent. This patent addresses the user interface in Creative’s Zen and Nomad portable digital media players.

Administrative Law Judge Paul Luckern now presides over this case and will hold hearings to determine if a violation, as alleged, was committed. Creative also requests that the International Trade Commission issues cease and desist orders and permanent exclusion against Apple. A ruling is expected by September 2007.

Creative.com press release, June 14, 2006

MSNBC News, June 14, 2006 (Reuters)

U.S. International Trade Commission, May 15, 2006

Publishers File Suit Against Digital Services

On May 16, 2006, a small group of independent music publishers filed a class-action lawsuit against major online music services for failing to secure licenses to sell downloads.

The copyright infringement suit, filed in Federal District Court in Los Angeles, names as defendants Apple Computer, AOL Music Now, Buy.com, Microsoft, Napster, RealNetworks Digital Music of California, Record Town, Sony Connect, Virgin Entertainment Group, Wal-Mart and Yahoo!.

The music publishers group are represented by attorneys Neville Johnson, Brian Rishwain, James Ryan and Nicholas Kurtz with the law firm of Johnson & Rishwain in Beverly Hills, California.

MusicFreedom.com, May 16, 2006 (Susan Butler)

U.S. to World: Knock it Off

An alarming increase in the number of lower-priced, lower-quality knock-offs of American products have U.S. lawmakers, government officials and businesses searching for a way to control the serious international counterfeit problem. All parties agree that stopping the theft of American brands abroad would save companies billions of dollars.

China is a major culprit, U.S. officials say, accounting for nearly 70% of all pirated products seized at the U.S. border last year – more than 10 times greater than any other American trading partner. China is thought to be responsible for about $9 billion of the $12 billion in estimated losses that that industry loses annually to counterfeit product. Russia is also a problem, with American business groups urging stronger pledges from Moscow to protect intellectual property before being allowed entry into the World Trade Organization (WTO).

American Businesses want lawmakers to take a harder line on enforcement of existing copyright protection laws. The U.S. government continues to threaten China and other notorious knock-off nations with punitive action in the World Trade Organization if progress is not seen. Meanwhile, rampant theft of copyrighted American products continues.

Ocala.com, July 2, 2006 (Foster Klug)

Quick Bits and Bytes

XP Pirate Checks Dropped

Microsoft has decided to modify some of its plans to track down pirated copies of Windows XP, removing elements of its Windows Genuine Advantage Notification (WGA) after they ignited a firestorm of controversy. The stealth application, introduced in April 2006, was designed to check in with Microsoft headquarters every time a user’s computer was booted to confirm that the operating system was genuine.

If the software was pirated it triggered a series of warnings. Now Microsoft has reacted to user anger and comparisons to spyware by switching off the boot-up check. The company has retained another tool, WGA Validation, which checks back periodically with Microsoft headquarters. The WGA program is part of a wider attempt by Microsoft to slowly but surely crack down on pirated operating systems and other software. Ultimately, even additional hardware may be locked out if a user’s operating system is proven to be pirated.

Australian IT, July 4, 2006 (Simon Hayes)

BSA Cracks Down on Pirated Software While Raising Awareness

When it comes to software, unsuspecting consumers are often tricked into purchasing pirated products online. In the big picture, the result is a substantial loss in revenue to the true developers of the software and can lead to consumers obtaining less desirable software than promised.

In 2005, an estimated 21% of software in the United States was unlicensed, resulting in nearly $7 billion in lost revenue. During the same year, the Business Software Alliance (BSA) shut down more than 16,000 online auctions, e.g. eBay, that were believed to be offering pirated and counterfeit products.

In an effort to combat the online sale of pirated software, the BSA has also gone one step further by launching an Internet fraud website. The purpose of the website is to raise awareness and to provide education regarding online fraud. It also seeks to have individuals provide their own accounts of how they were lured into purchasing pirated software online.

As part of its education efforts, the BSA offers ten points of advice for consumers that can help them to avoid being victims of online pirates. Some of these tips include “read the label,” “do your homework,” and “be careful when crossing the border” when dealing with software sellers in other countries.

While the BSA knows there is no complete cure to end the sale of pirated software online, it hopes that the educational tips, valuable links, and information gathering tools are a step in the right direction to educate the public about piracy.

FindLaw.com, June 20, 2006 (Eric Sinrod)

RIAA Identifies 12 Piracy “Hot Spot” Cities – Latin Music Hit Hardest

The copying and trafficking of pirated music has become an increasingly sophisticated illegal activity. These activities often involve multi-state criminal operations that distribute illegal product designed to resemble authentic CDs and replace legitimate sales.

The Recording Industry Association of America (RIAA) for the first time has identified 12 priority cities as part of its nationwide physical goods piracy assessment. These cities Atlanta, Austin, Chicago, Dallas, Houston, Los Angeles, Miami, New York, Philadelphia, Providence, San Diego, and San Francisco are all “hot spots” of music theft, with significant piracy problems from the manufacturer level all the way down to the point of retail sale. The RIAA has committed to step up law enforcement training and deploy additional investigative resources in all of these cities in the coming year.

According to the RIAA, Urban and Latin music genres are typically the hardest hit by physical goods piracy and accounted for nearly 95% of music seized last year. Urban music representing 54% of all pirate product seized is almost exclusively found in a lower-quality format burned to blank CD discs with packaging far less likely to be confused with legitimate products. A large portion of the urban piracy market consists of compilations of music from various artists and multiple albums. “Rampant piracy continues to take a disproportionate toll on the small yet thriving culture of Latin music,” said Rafael Fernandez, Jr., Vice President of Latin Music for the RIAA. “Latin artists with high, homegrown popularity often battle tremendous piracy right in their local communities. Our ability to invest in the next generation of Latin artists is directly linked to enforcement and a continued focus on the piracy plaguing this genre.”

RIAA press release, May 3, 2006