Foreign Stream Ripping Operation Loses Big in U.S. District Court

On February 11, the U.S. District Court for the Eastern District of Virginia entered an order in UMG Recordings, Inc. v. Kurbanov, awarding copyright holders nearly $83 million in statutory damages against two of the world's most high-trafficked websites offering stream-ripping services. Plaintiff copyright owners also received an award of costs and statutory attorney fees, as well as a preliminary injunction against the stream-ripping operation. The respondent in the case owns stream-ripping websites that unlawfully convert copyrighted sound recordings into stored electronic files and makes copies downloadable by users across the world, including about 1.5 million users in Virginia. The websites generate ad revenues targeted to its large user base. 

The District Court's order from February 11 followed an October 2021 default judgment order, as well as a March 2021 order on remand from the Fourth Circuit in which the District Court concluded that its exercise of jurisdiction over the foreign website owner satisfied constitutional due process concerns. My blog post from June 2020 analyzed the Fourth Circuit's opinion that recognized the District Court's specific personal jurisdiction in the case. 

It may be very difficult for the copyright owners in in UMG Recordings, Inc. v. Kurbanov to collect on their judgment against the owner of the stream-ripping websites. But as explained in my June 2020 blog, the Fourth Circuit's decision may serve as a precedent that will bolster the prospects for copyright owners in pursuing civil justice against online piracy in future cases. 

Free State Foundation President Randolph May and I wrote about the importance of efforts to combat online copyright infringement, including by stream-ripping websites, in our June 2021 Perspectives from FSF Scholars, "Fighting Online Piracy Will Boost American Economy and Jobs."

Congress Should Pass the "Protect Lawful Streaming Act"

Pandemic-related lockdowns have heightened the importance of copyright protections against online piracy. Yet copyright law has failed to keep pace with the precipitous rise of illicit video and music streaming services. Under existing law, piracy of online content that is streamed is only a misdemeanor, whereas other forms of piracy are felonies. Bipartisan legislation called the "Protecting Lawful Streaming Act of 2020," which has just been introduced, would reform the law by targeting illicit commercial streaming operations with tougher criminal penalties.

Online streaming services have overtaken downloads as the most popular way that consumers enjoy video and music content. Streaming also has become the predominant means for online piracy of copyrighted works. So-called "stream-ripping" websites and apps provide Internet users unauthorized access to copyrighted movies, TV shows, and sound recordings. Meanwhile, illegal Internet Protocol Television (IPTV) services offer paying subscribers unauthorized access to vast collections of copyrighted content, including live sports.

 

An August 2020 report by the Digital Citizens Alliance estimated that illegal IPTV services annually generate $1 billion in U.S. subscription revenues, with 9 million fixed broadband subscribers. Moreover, there is evidence that these online piracy streaming services have increased in popularity since the beginning of the 2020 lockdowns. For example, the piracy tracking firm Muso found a 43% surge in American visits to movie pirating sites during the last week of March 2020 compared to a month earlier.

 

Federal copyright law criminalizes intentional or willful infringement of protected works. Criminal prosecutions are not numerous, and they are directed against traffickers in pirated works, not individual Internet users. Such prosecutions are necessary to address bad actors who inflict harm on a mass scale on copyright owners and evade the civil justice system. 

 

But as Free State Foundation President Randolph May and I point out in our book, Modernizing Copyright Law – Constitutional Foundations for Reform, federal copyright law predates the precipitous rise of illicit video and music streaming services. Under existing law, criminals who operate illegal IPTV streaming services can only be charged with misdemeanor infringement, not felony infringement. As a result, operators of these illegal streaming services face less severe penalties than operators of online piracy sites for downloading copyrighted movies and music. There obviously is no reason for this disparity in the law. Also, prosecutors generally are reluctant to direct substantial resources towards misdemeanors. Streaming piracy deserves stronger sanctions, and stiffer penalties are needed to ensure future prosecutions against illegal streaming piracy. 

 

By increasing enforcement against sophisticated illicit streaming copyright criminals, the Protecting Lawful Streaming Act of 2020 will modernize the law. The legislation was introduced by Sen. Thom Tillis with bipartisan backing. The legislation provides that it is a felony for persons to "willfully, and for purposes of commercial advantage or private financial gain" offer digital transmission services to the public. It is narrowly targeted to digital transmission services that are primarily designed for unauthorized streaming (or public performances) of copyrighted works, have no commercially significant purpose other than unauthorized streaming of copyrighted works, or are intentionally marketed to promote their unauthorized streams. Notably, the terms of the Protecting Lawful Streaming Act are not directed toward individual Internet users or subscribers of IPTV services. 

 

As of this writing, the Protecting Lawful Streaming Act is attached to the omnibus spending bill being considered by Congress. Budgetary issues aside, the Protecting Lawful Streaming Act is strong on its own merits. In whatever legislative vehicle proves most practical, Congress should pass the bill and the President should sign it. 

Fourth Circuit Issues Important Decision in Stream-Ripping Case

On June 26, a panel of the U.S. Court of Appeals for the Fourth Circuit issued its decision in UMG Recordings, Inc. v. Kurbanov (2020), a case involving two of the world's most high-trafficked websites offering stream-ripping services. As Free State Foundation President Randolph May and I have explained in our book, Modernizing Copyright Law for the Digital Age – Constitutional Foundations for Reform, and also in a recent Perspectives from FSF Scholars paper, stream-ripping is the most prevalent method for mass online piracy of copyrighted sound recordings.

Mr. Kurbanov, a Russian national and the respondent in the case, generates revenues from ads targeted to the large numbers of users of his stream-ripping websites. As the Fourth Circuit explained, spaces on the websites are sold to ad brokers who resell spaces to advertisers. Apparently, a majority of streams ripped using those websites derive unlawfully from YouTube videos. The U.S. District Court had dismissed the case for lack of jurisdiction, prompting an appeal. 

Importantly, the Fourth Circuit held that Mr. Kurbanov's activities in connection with his stream-ripping websites satisfied the purposeful availment prong of the federal courts' standard for exercising specific personal jurisdiction. It concluded that the copyright claims of several plaintiff owners of sound recordings arose from activities connected to the state of Virginia. Rightly, the Fourth Circuit rejected the District Court's conclusion that user visits to those stream-ripping sites were non-commercial in nature and that there were no acts by the defendant in targeting Virginia:

Here, the visitors' acts of accessing the Websites (and downloading the generated files) are themselves commercial relationships because Kurbanov has made a calculated business choice not to directly charge visitors in order to lure them to his Websites. Kurbanov then requires visitors to agree to certain contractual terms, giving him the authority to collect, among other information, their IP addresses and country of origin. Far from being indifferent to geography, any advertising displayed on the Websites is directed towards specific jurisdictions like Virginia. Kurbanov ultimately profits from visitors by selling directed advertising space and data collected to third-party brokers, thus purposefully availing himself of the privilege of conducting business within Virginia. 

The case is now being remanded for a determination of whether the exercise of specific personal jurisdiction would be constitutionally reasonable. The Fourth Circuit's decision preserves access to justice for the copyright owners who are pressing their case against websites that they allege have facilitated massive online piracy. Perhaps the precedent established by the court also will bolster the prospects for copyright owners in pursuing civil justice against online piracy in future cases. 

U.S. Trade Representative Report Spotlights Rogue Piracy Websites and Devices

Online piracy deprives copyright owners of their exclusive rights to the proceeds of their creative works and causes billion-dollar damages to the U.S. economy each year. Identifying large-scale intellectual property piracy operations is an important part of combatting such harmful and unlawful activities. The U.S. Trade Representative's annual report on Notorious Markets focuses on online copyright piracy involving stream-ripping websites and illicit streaming devices. The report’s publication exerts pressure on foreign governments and private entities to curtail IP piracy in their vicinities. 

Released on January 10, the U.S. Trade Representative’s report for the year 2017 includes a “Notorious Markets List” intended to highlight “prominent and illustrative examples of online and physical marketplaces that reportedly engage in, facilitate, turn a blind eye to, or benefit from substantial [copyright] piracy and [trademark] counterfeiting.” According to the report’s press release: “Imports in counterfeit and pirated physical products is estimated at nearly half a trillion dollars.”Publication of the of Notorious Markets List is intended “to motivate appropriate action by owners, operators, and service providers in the private sector of these and similar markets, as well as governments, to reduce piracy and counterfeiting.” 

The Notorious Markets List identifies the stream-ripping websites that, without authorization, convert copyrighted music and video content from licensed streaming sites into files that are downloadable by Internet end users. The Notorious Markets List draws particular attention to online piracy sites funded by ad revenue. The report cites a whiteBULLET report of the top 5,000 IP-infringing website URLs in the U.S., European Union, and Australia, which found that “about 25-30% of advertising on websites posing an IP risk are from major brands.” The List specifically names piracy sites – or alleged piracy sites – operated by foreign entities and/or hosted in foreign nations, such as France, Russia, and Vietnam. 

Further, Internet end users seeking unauthorized access to copyrighted content can be harmed by online piracy. The report observed that online piracy sites “actively and surreptitiously install malware on users’ computers, commit advertisement fraud, and enable phishing scams that steal personal information, all to increase their unlawful profits.” And it cited a July 2016 Digital Citizens Alliance report that one-third of copyrighted content theft sites “expose consumers to malware and other risks.” 

The 2017 Notorious Markets Report also focused on the issue of illicit streaming devices (ISDs). Using piracy apps, ISDs stream or download pirated content from the Internet. According to the report, ISDs can be “fully loaded” at the time of sale with piracy-enabling capabilities or ISDs can be “combined with add-ons after purchase” to access pirated content. 

Under Section 106 of the Copyright Act, copyright owners of sound recordings, motion pictures, and other audiovisual works have exclusive rights over the distribution of their works. Copyright owners negotiate detailed licensing agreement for rights to stream or download copyrighted content to retail consumers. But ISD-enabled piracy violates the exclusive rights of copyright owners and also impairs their contract rights contained in licensing agreement terms of service. 

The 2017 Notorious Markets Report describes the economic consequences: “The growth of ISDs is a troubling threat to the pay TV and other content industries and undermines incentives for companies to improve services or offer a greater selection of content in more markets.” Citing findings published by Sandvine in November of 2017, the report states: “ISD piracy ecosystem, including unlawful device sellers and unlicensed video providers and video hosts, stands to bring in revenue of an estimated $840 million a year in North America alone, at a cost to the entertainment industry of roughly $4-5 billion a year.” Correctly, the report deems it “critical” for governments and private industries to fight threats from growing ISD piracy. 

On the good news side, the report explained why certain online piracy sites were removed from the prior year’s Notorious Markets List, thanks largely to civil and criminal enforcement efforts by cooperative foreign governments and industries. The U.S. Trade Representative rightly commended those overseas anti-piracy efforts. 

International engagement is essential to protecting the exclusive rights of U.S. copyright holders abroad. The U.S. Trade Representative performs a vital function in this regard. Hopefully, the 2017 Notorious Markets Report will prompt stronger enforcement efforts against copyright violations by stream-ripping sites, illicit streaming devices, and other piracy-enabling platforms in 2018.