S. Rept. 111-373 - 111th Congress (2009-2010)
December 17, 2010, As Reported by the Judiciary Committee

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Senate Report 111-373 - COMBATING ONLINE INFRINGEMENT AND COUNTERFEITS ACT

[Senate Report 111-373]
[From the U.S. Government Printing Office]


                                                       Calendar No. 648
111th Congress                                                   Report
                                 SENATE
 2d Session                                                     111-373

======================================================================



 
           COMBATING ONLINE INFRINGEMENT AND COUNTERFEITS ACT

                                _______
                                

               December 17, 2010.--Ordered to be printed

                                _______
                                

Mr. Leahy, from the Committee on the Judiciary, submitted the following

                              R E P O R T

                         [To accompany S. 3804]

    The Committee on the Judiciary, to which was referred the 
bill (S. 3804), to combat online infringement, and for other 
purposes, having considered the same, reports favorably 
thereon, with an amendment, and recommends that the bill, as 
amended, do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Combating Online Infringement and 
     Counterfeits Act.................................................1
 II. History of the Bill and Committee Consideration..................9
III. Section-by-Section Summary of the Bill..........................11
 IV. Congressional Budget Office Cost Estimate.......................13
  V. Regulatory Impact Evaluation....................................13
 VI. Conclusion......................................................13
VII. Changes to Existing Law Made by the Bill, as Reported...........13

  I. BACKGROUND AND PURPOSE OF THE COMBATING ONLINE INFRINGEMENT AND 
                            COUNTERFEITS ACT

A. Background

    Intellectual property is the engine of the American economy 
and critical for job growth. The Chamber of Commerce testified 
before the Committee that American intellectual property 
accounts for more than $5 trillion and IP-intensive industries 
employ more than 18 million workers.\1\ Protecting American 
intellectual property from theft is therefore critical to our 
Nation's prosperity and welfare.\2\
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    \1\Oversight of the Office of the Intellectual Property Enforcement 
Coordinator Before the U.S. Senate Committee on the Judiciary, S. Hrg. 
111th Cong. 2 (2010) (written statement of David Hirschmann, President 
and CEO, Global Intellectual Property Center, U.S. Chamber of Commerce) 
at 4; Oversight of the Office of the Intellectual Property Enforcement 
Coordinator Before the U.S. Senate Committee on the Judiciary, S. Hrg. 
111th Cong. 2 (2010) (written statement of Paul E. Almeida, President, 
Department for Professional Employees, AFL-CIO) at 2, 4.
    \2\``Strong intellectual property enforcement saves American jobs, 
it creates American jobs, it protects American ideas and it invigorates 
our economy.'' Oversight of the Office of the Intellectual Property 
Enforcement Coordinator Before the U.S. Senate Committee on the 
Judiciary, S. Hrg. 111th Cong. 2 (2010) (written statement of Victoria 
Espinel, Intellectual Property Enforcement Coordinator, Office of 
Management and Budget) at 2.
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    The theft of American intellectual property threatens that 
prosperity.\3\ While estimates of the harm caused to the 
American economy by counterfeit products and the theft of 
copyrighted material differ and are difficult to confirm, 
copyright piracy and the sale of counterfeit goods is reported 
to cost American creators and producers billions of dollars per 
year.\4\ Intellectual property theft also reportedly results in 
hundreds of thousands of lost jobs annually, and severely 
reduces the income of those who are employed.\5\ Simply put, 
this form of infringement impacts companies of all types and 
sizes and the people who work there.\6\
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    \3\``The revenue lost to American businesses from intellectual 
property theft carries with it lost funding for public services to 
compound the harm caused to our economy.'' Id. at 2.
    \4\See Press Release, FBI, The Federal Bureau of Investigation and 
the U.S. Customs Service today announced the National Intellectual 
Property Rights Coordination Center's first conference for members of 
Congress and the industry in Washington, (July 16, 2002), available at 
http://www.fbi.gov/news/pressrel/press-releases/the-federal-bureau-of-
investigation-and-the-u.s.-customs-service-today-announced-the-
national-intellectual-property-rights-coordination-centers-first-
conference-for-members-of-congress-and-industry-in-washington (``Losses 
to counterfeiting are estimated at $200-250 billion a year in U.S. 
business losses''); Press Release, U.S. Customs and Border Protection 
section of the Department of Homeland Security, U.S. Customs Announces 
International Counterfeit Case Involving Caterpillar Heavy Equipment 
(May 29, 2002) available at http://www.cbp.gov/xp/cgov/newsroom/
news_releases/archives/legacy/2002/52002/05292002.xml (``Customs 
estimates that businesses and industries lose about $200 billion a year 
in revenue . . . due to the counterfeiting of merchandise''); Stephen 
E. Siwek, ``The True Cost of Copyright Industry Piracy to the U.S. 
Economy,'' Institute for Policy Innovation, IPI Policy Report No. 189, 
October 3, 2007, at 1, available at http://www.ipi.org/ipi/
IPIPublications.nsf/PublicationLookupFullTextPDF/
02DA0B4B44F2AE9286257369005ACB57/$File/CopyrightPiracy.pdf?OpenElement 
(``[E]ach year, copyright piracy from motion pictures, sound 
recordings, business and entertainment software and video games costs 
the U.S. economy $58 billion in total output, cost American workers 
375,375 jobs and $16.3 billion in earnings, and costs federal, state, 
and local governments $2.6 billion in tax revenue''); MEMA Brand 
Protection Council, ``Stop Counterfeiting Automotive and Truck Parts,'' 
available at www.mema.org/cmspages/getAttch.php?id=50. For a view that 
online infringement is a significant problem, but estimates of harm are 
difficult to quantify, see United States Government Accountability 
Office Report to Congressional Committees on ``Intellectual Property, 
Observations on Efforts to Quantify the Economic Effects of Counterfeit 
and Pirated Goods'' (2010) (hereinafter referred to as ``Report on 
Economic Effects of Counterfeit and Pirated Goods''), at 18-19.
    \5\See Press Release, U.S. Customs and Border Protection section of 
the Department of Homeland Security, U.S. Customs Announces 
International Counterfeit Case Involving Caterpillar Heavy Equipment 
(May 29, 2002) available at http://www.cbp.gov/xp/cgov/newsroom/
news_releases/archives/legacy/2002/52002/05292002.xml (``Customs 
estimates that businesses and industries lose . . . 750,000 jobs due to 
the counterfeiting of merchandise''); Oversight of the Office of the 
Intellectual Property Enforcement Coordinator Before the U.S. Senate 
Committee on the Judiciary, S. Hrg. 111th Cong. 2 (2010) (written 
statement of Paul E. Almeida, President, Department for Professional 
Employees, AFL-CIO) at 4 (``The losses of income arise because 
entertainment professionals depend on compensation at two points: first 
when professionals do the work, and later when others use and reuse the 
intellectual property that the professionals created. . . . For AFTRA 
recording artists in 2008, 90 percent of income derived from sound 
recordings was directly linked to royalties from physical CD sales and 
paid digital downloads. SAG members working under the feature film and 
TV contract that same year derived 43 percent of their total 
compensation from residuals. Residuals derived from sales to secondary 
markets funded 65 percent of the IATSE [Motion Picture Industry] Health 
Plan and 36 percent of the SAG Health and Pension Plan'').
    \6\See ``Report on Economic Effects of Counterfeit and Pirated 
Goods,'' at 9-10.
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    The growth and success of the Internet as a medium for 
commerce has given businesses the opportunity to connect with 
consumers throughout the world in ways they never could before. 
Unfortunately, along with the success of legitimate commerce, 
the distribution and sale of counterfeit products and pirated 
content online has also increased dramatically. According to 
the Director of Immigration and Customs Enforcement, ``nearly 
100 million people shopped [online] on Cyber Monday last 
year,'' yet ``[c]ounterfeiters are prowling the back alleys of 
the Internet, masquerading, duping, and stealing: masquerading 
as legitimate retailers, duping shoppers, stealing from real 
businesses and their workers.''\7\
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    \7\John Morton, Director of Immigration and Customs Enforcement, 
U.S. Department of Homeland Security Prepared Remarks: Operation in Our 
Sites v. 2.0--Cyber Monday (November 29, 2010) available at http://
www.ice.gov/doclib/news/library/speeches/112910morton.pdf.
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    Copyright infringement in particular, in the form of peer-
to-peer networks, streaming sites, and one-click hosting 
services, has grown rampant on the Internet. Since digital 
products are not tangible, they can be reproduced at very low 
cost, and have the potential for immediate delivery through the 
Internet across virtually unlimited geographic markets. The GAO 
reports that ``sectors facing threats from digital piracy 
include the music, motion picture, television, publishing, and 
software industries,''\8\ but piracy impacts virtually any 
online industry with copyright protected work.
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    \8\See ``Report on Economic Effects of Counterfeit and Pirated 
Goods,'' at 8.
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    Similarly, sale of counterfeit goods via Internet sites 
that appear professional and quickly deliver items in 
sophisticated packaging is thriving on the Internet. In many 
cases, these Internet sites conceal the inauthentic nature and 
low quality of the product being purchased. The footwear, 
clothing, consumer electronics and pharmaceutical industries, 
among others, are frequent victims of counterfeiting.\9\ 
Preventing counterfeit sales is therefore not only important to 
our economy and job creation, but it protects unsuspecting 
consumers from inferior and often dangerous products.
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    \9\Id. at 7.
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    The online theft of American intellectual property is a 
growing criminal enterprise both because of the ease by which 
it can be done online and the ability of the sellers and 
distributors to remain anonymous, operate from overseas, and 
avoid traditional methods for protection.\10\ Operators of 
rogue Internet sites, which do nothing but traffic in 
infringing goods, can operate with impunity from abroad.\11\
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    \10\Id. at 8-9.
    \11\The Council of Europe Convention on Cybercrime, to which the 
United States is a signatory, requires signatories to have in place 
criminal copyright laws that apply to copyright infringement on the 
Internet. See Convention on Cybercrime, November 23, 2001, TIAS 13174, 
available at http://www.state.gov/documents/organization/131807.pdf. 
This Act provides an additional mechanism in the fight against online 
infringement occurring overseas.
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    The rogue Internet sites that operate as virtual stores for 
the infringing products are well designed and give the clear 
appearance of legitimacy.\12\ They are easily accessible by 
entering domain names that sound legitimate or through search 
results; they often accept payment through well respected 
credit card companies; and they often run advertisements from 
trusted companies. All of this presents an air of legitimacy to 
the virtual store, even though the products being sold are 
illegal, and in the case of counterfeits are often inferior or 
even dangerous. And, in many cases, American consumers may 
unwittingly be giving their credit card information to overseas 
organized crime syndicates when visiting rogue Internet 
sites.\13\
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    \12\For an example of the unfortunate ease with which operators of 
rogue Internet sites can clone legitimate Internet sites to trick 
consumers, see http://www.bbc.co.uk/news/business-11372689. The 
National Electrical Manufacturers Association has exposed similar 
examples. See, e.g., http://blog.nema.org/blogs/currents/archive/2008/
04/06/a-letter-from-the-counterfeit-wars.aspx (counterfeit hair irons).
    \13\Eric Holder, Attorney General of the United States, remarks at 
the Rio De Janeiro Prosecutor General's Office (February 14, 2010) 
(``Unfortunately, the success of this worldwide, digital marketplace 
has also attracted criminals who seek to exploit and misappropriate the 
intellectual property of others. The same technologies that have 
created unprecedented opportunities for growth in legitimate economies 
have also created global criminal organizations that are eager to steal 
the creativity and profits from our domestic industries and workers. . 
. . These groups, who do not respect international boundaries or 
borders, have developed sophisticated, efficient and diverse methods 
for committing almost every type of intellectual property offense 
imaginable, including: widespread online piracy of music, movies, video 
games, business software and other copyrighted works; well-funded 
corporate espionage; sales of counterfeit luxury goods, clothing and 
electronics, both on street corners and through Internet auction sites; 
and increased international trade in counterfeit pharmaceuticals and 
other goods that pose a substantial risk to the health and safety of 
our consumers''). See also Protecting Intellectual Property Rights In A 
Global Economy: Current Trends and Future Challenges Before the 
Subcomm. on Gov't Management, Organization, and Procurement of the H. 
Comm. on Oversight and Gov't Reform, 111th Cong. 1 (2010) (written 
statement of Jason M. Weinstein, Deputy Assistant Attorney General, 
Criminal Division, U.S. Department of Justice) at 5 (``Because 
intellectual property crime is perceived as a low-risk criminal 
enterprise with the potential for high profit margins, it is not 
surprising that the sale of counterfeit and pirated goods is also 
becoming an attractive revenue source for traditional organized crime 
groups''); General James L. Jones, National Security Advisor to the 
President of the United States, Remarks at the Sochi Security Council 
Gathering, Sochi Russia (October 5, 2010) available at http://
www.whitehouse.gov/the-press-office/2010/10/05/remarks-gen-james-l-
jones-national-security-advisor-sochi-security-counc (Criminal 
syndicates ``generate[  ] trillions of dollars annually from illicit 
activities such as money laundering, trafficking, counterfeiting, 
environmental crime, and financial fraud. . . . many of these criminal 
syndicates operate globally; they are comprised of loose networks that 
cooperate intermittently but maintain their independence; and they 
employ sophisticated technology and financial savvy'').
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    If these rogue Internet sites operated in the physical 
world, rather than online, the perpetrator would be the subject 
of civil lawsuits and criminal penalties.\14\ But because this 
theft is veiled by the complexities of the online world and 
many of the perpetrators are located overseas, the task of 
enforcing U.S. intellectual property laws on the Internet is a 
difficult one. Too often our Government, as well as the 
businesses and consumers who are harmed by online infringement, 
are forced to sit idly by while this theft continues 
undeterred.\15\
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    \14\See, e.g., 17 U.S.C. Sec. 506; 18 U.S.C. Sec. 2319; 18 U.S.C. 
Sec. 2320.
    \15\In her recent hearing before the Senate Committee on the 
Judiciary, Victoria Espinel, U.S. Intellectual Property Enforcement 
Coordinator, stated that ``legislative action may be required in order 
to fulfill our goals'' of effective intellectual property protection. 
Oversight of the Office of the Intellectual Property Enforcement 
Coordinator Before the U.S. Senate Committee on the Judiciary, 111th 
Cong. 2 (2010) (written statement of Victoria Espinel, Intellectual 
Property Enforcement Coordinator, Office of Management and Budget).
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    The Committee notes that protecting intellectual property 
in the form of copyrighted material is not only important to 
our economy and jobs, but is also important for advancing the 
goals of the First Amendment. The United States Supreme Court 
has long held that copyright protection advances the goals of 
the First Amendment by ``supply[ing] the economic incentive to 
create and disseminate ideas.''\16\ The ``clause [of the 
Constitution] empowering Congress to grant patents and 
copyrights is [based] in the conviction that encouragement of 
individual effort by personal gain is the best way to advance 
public welfare through the talents of authors and inventors in 
`Science and useful Arts.'''\17\
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    \16\See Harper & Row Publishers, Inc. v. Nation Enterprises, 471 
U.S. 539, 558 (1985); Sony Corp. of Amer. v. Universal City Studios, 
Inc., 464 U.S. 417 (``[T]he limited grant is a means by which an 
important public purpose may be achieved. It is intended to motivate 
the creativity of authors and inventors by the provision of a special 
reward, and to allow the public access to the products of their genius 
after the limited period of exclusive control has expired''); Herbert 
v. Shanley Co., 242 U.S. 591, 595 (1917) (``If music did not pay, it 
would be given up. If it pays, it pays out of the public's pocket. 
Whether it pays or not, the purpose of employing it is profit, and that 
is enough'').
    \17\See Mazer v. Stein, 347 U.S. 201, 219 (1954) (citation 
omitted).
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    As Justice O'Connor wrote, copyright law is the very 
``engine of free expression.''\18\ It exists not to prevent 
free speech, but to promote it. Justice O'Connor went on to 
recall that ``freedom of thought and expression includes both 
the right to speak freely and the right to refrain from 
speaking at all.'''\19\ As rogue Internet sites evade U.S. 
intellectual property laws, they not only cause economic harm, 
but they trample on these First Amendment values.\20\
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    \18\See Harper & Row Publishers, Inc., 471 U.S. at 558.
    \19\See id. at 559 (quoting Wooley v. Maynard, 430 U.S. 705 (1977) 
(Burger, C.J.)).
    \20\This right to be compensated for their work is not simply a 
creation of U.S. law, but it is endowed as an essential right. Our 
constitution provides for this in the Copyright Clause, U.S. Const. 
Art. I Sec. 8, and the United Nations' Universal Declaration of Human 
Rights, which has become a model for treaties and constitutions around 
the world, proclaimed this ``right of authors'' as inalienable. 
Universal Declaration of Human Rights, G.A. Res. 217 (III) A, U.N. Doc 
A/810 at Art. 27 para.2 (December 10, 1948).
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    In sum, the theft of intellectual property by rogue 
Internet sites is harmful in several ways. First, online 
infringement harms the content and trademark owners themselves 
in the form of lost sales, lost brand value, increased costs to 
protect their intellectual property, and decreased incentives 
to invest in research and development. Second, online 
infringement harms consumers who receive lower quality 
products, inauthentic products, or, in a worst case scenario, 
products that cause physical harm or health risks. Third, 
online infringement harms Federal and State Governments in the 
form of lost tax revenues, higher law enforcement costs, and 
the harm caused by the effects of the Government's own purchase 
of counterfeit products. Fourth, online infringement harms U.S. 
trade by lessening its ability to partner with countries that 
have weaker intellectual property enforcement regimes.\21\ 
Fifth, online infringement reduces the incentives to create and 
disseminate ideas which, as the United States Supreme Court has 
recognized, harms the free expression principles of the First 
Amendment. Finally, as Victoria Espinel, U.S. Intellectual 
Property Enforcement Coordinator (IPEC), noted in her recent 
hearing before the Senate Committee on the Judiciary, online 
infringement supports international criminal organized crime 
syndicates, which pose risks to our national security.\22\
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    \21\Id. at 9-10.
    \22\Oversight of the Office of the Intellectual Property 
Enforcement Coordinator Before the U.S. Senate Committee on the 
Judiciary, S. Hrg. 111th Cong. 2 (2010) (written statement of Victoria 
Espinel, Intellectual Property Enforcement Coordinator, Office of 
Management and Budget) at 2. See also supra, n. 13.
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B. Purpose of the legislation

    Today, law enforcement officials have limited effective 
remedies available to fight the purveyors of infringing goods 
on the Internet when they operate overseas and in hiding.\23\ 
Federal legislation is needed to provide law enforcement with a 
tailored procedure for targeting domain names, and a means for 
preventing the importation of infringing goods by rogue 
websites, particularly for sites that are registered overseas.
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    \23\The Department of Justice, in conjunction with Immigration and 
Customs Enforcement, recently used its forfeiture authority to seize 
domain names that were being used for criminal activity. See http://
www.justice.gov/criminal/cybercrime/OperationInOurSites.pdf. This 
innovative use of forfeiture authority would have a similar effect to 
subsection (d)(1) of the Act, which applies to domestically registered 
domain names.
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    The Committee bill, as reported, gives the Department of 
Justice an expedited process for cracking down on rogue 
Internet sites by targeting the domain names associated with 
those sites. By preventing a domain name from being used for 
illicit purposes and limiting the profitability of such 
Internet sites, the legislation will allow law enforcement to 
disrupt the criminal enterprises using domain names--and 
American infrastructure--to steal American intellectual 
property and profit off American consumers. The legislation 
will deter criminals from building up the success and 
visibility of rogue websites, because by doing so they will 
more likely become the target of law enforcement. The Committee 
bill, as reported, also addressed concerns raised by various 
parties since the legislation was introduced, but the Committee 
understands that there remain outstanding concerns.
    The Committee bill, as reported, authorizes the Justice 
Department to file an in rem civil action against a domain name 
used to access an Internet site or sites ``dedicated to 
infringing activities,'' and to seek a cease and desist order 
from the court.
    A domain name is the alphanumeric designation 
conventionally used to access a specific Internet address. The 
domain name typically comprises at least a top level domain and 
a second level domain. For instance, in the domain name 
senate.gov, ``.gov'' is the top level domain; ``senate'' is the 
second level domain. By typing ``senate.gov'' in a web browser, 
the Internet user's domain name server will find the Internet 
address associated with the domain name senate.gov. Each top 
level domain is operated by a domain name registry which, 
through registrars, allows registrants to register domain 
names.\24\ The legislation defines a domain name by cross-
referencing section 45 of the Lanham Act. Pursuant to that 
definition, a domain name is the combination of the top level 
domain and the second level domain, which is what domain name 
registries and registrars assign, and does not include third 
level domains of files or subfiles.
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    \24\The legislation defines a domain name by cross-referencing 
section 45 of the Lanham Act. Pursuant to that definition, a domain 
name is the combination of the top level domain and the second level 
domain, which is what domain name registries and registrars assign, and 
does not include third level domains of files or subfiles.
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    The definition of an Internet site ``dedicated to 
infringing activities'' in the legislation is narrowly tailored 
to implicate only the most egregious rogue websites that are 
trafficking in infringing goods. For an Internet site to fall 
within the definition, the legislation requires the Department 
of Justice to make one of two demonstrations to the court. 
Either that the Internet site satisfies the existing threshold 
for forfeiture under current law,\25\ or, alternatively, the 
Department must demonstrate that the Internet site's central 
activity is to offer goods or services in violation of title 17 
or that are counterfeit under the Lanham Act. Under this second 
prong, the Internet site must be primarily designed, have no 
commercially significant purpose other than, or be marketed for 
the infringing activities.\26\
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    \25\18 U.S.C. 2323.
    \26\The definition is modeled on the definition in 17 U.S.C. 
1201(a)(2)(A). The activities prohibited under this legislation must be 
central to the Internet sites accessed through the entire domain name 
to ensure that any action taken against the domain name is not 
overbroad. See Center For Democracy and Technology v. Pappert, 337 F. 
Supp. 2d 606 (E.D. Pa. 2004). The Committee recognizes that there may 
still be some minimal amount of lawful content accessed through the 
domain name. The Supreme Court has upheld similar ancillary restraints 
for content neutral regulations. See Arcara v. Cloud Books, Inc., 478 
U.S. 697 (1986).
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    Importantly, in targeting only the ``worst of the worst'' 
Internet sites, the definition maintains the protection of fair 
use. The Committee intends for the legislation to target only 
those Internet sites clearly profiting off stolen American 
intellectual property, and not to be used where there is fair 
use or where there is an objectively reasonable interpretation 
of an express license to use intellectual property.
    The Committee bill, as reported, authorizes the Justice 
Department to seek preliminary relief from a Federal district 
court in the form of a temporary restraining order, or a 
preliminary injunction, in accordance with rule 65 of the 
Federal Rules of Civil Procedure. The bill would require the 
Department to publish notice of the action promptly after 
filing.
    The Committee bill, as reported, enables the Justice 
Department to bring an action against any domain name accessed 
in the United States, regardless of where it is registered. In 
cases in which the domain name has a U.S.-based registry or 
registrar, the bill authorizes the Department to bring an in 
rem action in the judicial district where the registry or 
registrar is located or doing business. This process is modeled 
on the Anticybersquatting Consumer Protection Act.\27\ Once the 
court issues an order against the domain name, the bill 
authorizes law enforcement officers to serve the domain name's 
U.S. based registry or registrar with that order, where 
applicable. The recipient registry or registrar is then 
required, by statute, to suspend the operation of, and may 
lock, the domain name at issue.
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    \27\The Anticybersquatting Consumer Protection Act (``ACPA''), 15 
U.S.C. 1125(d), authorizes a trademark owner to file an in rem action 
against a domain name. See Caesars World, Inc. v. Caesars-Palace.com, 
112 F.Supp.2d 502, 504 (E.D. Va. 2000) (``There is no prohibition on a 
legislative body making something property. Even if a domain name is no 
more than data, Congress can make data property and assign its place of 
registration as its situs'') (emphasis added). See also Heathmount A.E. 
Corp. v. Technodome.com, 2000 WL 33666935, at *3-4 (E.D. Va. 2000) 
(unpublished). Further, the federal government's recent domain name 
seizures, discussed supra at n.23, recognizes domain names as property.
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    Where the domain name does not have a U.S.-based registry 
or registrar, the Committee bill, as reported, authorizes the 
Department to bring an action in the District of Columbia to 
prevent and restrain the importation into the U.S. of goods and 
services offered by the infringing Internet site, provided that 
the Internet site is used within the United States, conducts 
business directed to residents of the United States, and harms 
holders of United States intellectual property rights.\28\ The 
legislation then authorizes law enforcement officers to serve 
the court order on other specified third parties, including 
Internet service providers, payment processors, and online ad 
network providers. These parties monetize the Internet site by 
enabling U.S. consumers to access the infringing website, to 
purchase content and products off the website, and to view 
advertisements on the website. Without partnering with these 
entities, the financial incentive to run an infringing Internet 
site is greatly diminished. The bill requires these third 
parties to take appropriate action to, respectively, prevent a 
domain name from resolving to its Internet address, prevent 
payment processing for purchases on the underlying Internet 
site, or prevent its network from providing advertisements to 
the underlying Internet site.
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    \28\These factors are derived from the World Intellectual Property 
Organization recommendations for determining whether the ``use of a 
sign on the Internet has a commercial effect in a Member State.'' See 
Joint Recommendation Concerning Provisions on the Protection of Marks, 
and Other Industrial Property Rights In Signs On The Internet, adopted 
by the Assembly of the Paris Union for the Protection of Industrial 
Property and the General Assembly of the World Intellectual Property 
Organization, October 3, 2001, available at http://www.wipo.int/about-
ip/en/development_iplaw/pub845-04.htm#P134_6837.
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    The Committee bill, as reported, contains protections for 
these third parties to ensure that any party acting pursuant to 
an order is held harmless for having taken the appropriate 
action. It also encourages voluntary action by registrars, 
registries, payment processors, and online ad network 
providers, by providing a safe harbor if these third parties 
voluntarily take action authorized by the legislation relating 
to an Internet site that it reasonably believes is dedicated to 
infringing activities. The bill also authorizes the Justice 
Department to bring an action to compel compliance from any 
third party required to take action under this section that 
knowingly and willfully fails to comply.
    The Committee understands that whether a domain name is 
suspended by a registry or registrar, or blocked by an Internet 
service provider, the Internet site is still accessible to a 
user who takes certain affirmative steps. For example, in the 
case that the Internet site's domain name is suspended, a user 
can access the infringing Internet site via its numeric 
Internet Protocol address. Additionally, where the Internet 
site is blocked by the Internet service provider, a user can 
access the Internet site by changing the Domain Name Server to 
which the Internet service provider communicates to an 
alternative Domain Name Server. In the Committee's view, 
however, a substantial portion of users are not intending to 
commit or facilitate an intellectual property-related crime. 
Rather, many consumers are being lured to the illegal Internet 
sites as discussed above. These consumers will be protected as 
a result of the remedies outlined in the Act and will instead 
visit Internet sites offering legitimate content or products.
    The Committee bill, as reported, includes safeguards to 
allow the domain name owner or Internet site operator to 
petition the court to modify, suspend or vacate the order where 
the Internet site operator takes effective steps to exclude 
pirate or counterfeiting activity from the site, or where the 
interests of justice require. Similarly, as Internet site 
operators subject to the order transition their Internet sites 
to new domain names, the bill authorizes the Justice Department 
to seek modifications to the order to cover these additional 
domain names that are being used for similar illegal purposes, 
so long as those domain names access Internet sites that are 
both dedicated to infringing activities and jointly controlled, 
owned, operated or affiliated with the domain name subject to 
the original order.
    The Committee bill, as reported, is specific that it may 
not be construed to limit or expand the remedies available 
under any other Federal or State laws. Further, the legislation 
specifies that it shall not be construed to enlarge or diminish 
vicarious or contributory liability for any cause of action 
under title 17, including any limitation on liability under 
section 512 of title 17.
    Finally, the Committee bill, as reported, requires the 
Attorney General to publish certain procedures, provide certain 
guidance, and establish certain standards for implementation of 
this Act. The bill also requires the Secretary of Commerce to 
report to the Committees on the Judiciary in both the Senate 
and House on the ability to deploy Domain Name Security 
Extensions.

          II. HISTORY OF THE BILL AND COMMITTEE CONSIDERATION

    On June 23, 2010, the Senate Committee on the Judiciary 
held a hearing on ``Oversight of the Office of the Intellectual 
Property Enforcement Coordinator.'' This hearing was attended 
by Chairman Leahy, Senator Coburn, Senator Franken, Senator 
Grassley, Senator Hatch, Senator Klobuchar, and Senator 
Whitehouse. Testifying on Panel I was the Honorable Victoria A. 
Espinel, Intellectual Property Enforcement Coordinator, Office 
of Management and Budget. Testifying on Panel II were Barry M. 
Meyer, Chairman and CEO, Warner Bros. Entertainment Inc.; Paul 
E. Almeida, President, Department for Professional Employees, 
AFL-CIO; David Hirschmann, President and CEO, Global 
Intellectual Property Center, U.S. Chamber of Commerce; and 
Caroline Bienstock, President and CEO, Carlin America. The 
following materials were submitted for the record: Letter from 
the Copyright Alliance to Chairman Leahy dated June 23, 2010, 
with attachments; statement of James M. Yates; prepared 
statement of Victoria A. Espinel; prepared statement of Barry 
M. Meyer; prepared statement of Paul E. Almeida; prepared 
statement of David Hirschmann; and prepared statement of 
Caroline Bienstock.
    On September 20, 2010, Senator Leahy introduced the 
Combating Online Infringement and Counterfeits Act, S. 3804, 
along with Senator Hatch. Senator Bayh, Senator Durbin, Senator 
Feinstein, Senator Klobuchar, Senator Kohl, Senator Schumer, 
Senator Voinovich, and Senator Whitehouse were original 
cosponsors of the bill. Senator Alexander, Senator Cardin, 
Senator Coburn, Senator Gillibrand, Senator Graham, Senator 
Grassley, Senator Inhofe, Senator McCaskill, and Senator 
Menendez joined as cosponsors. This bill was referred to the 
Senate Committee on the Judiciary.
    The following persons or groups submitted letters or 
releases of support for the Combating Online Infringement and 
Counterfeits Act: Co-Chairs of the National Association of 
Attorneys General Intellectual Property Committee, A.G. Jim 
Hood of Mississippi and A.G. Rob McKenna of Washington; The 
United States Chamber of Commerce; The Vermont Chamber of 
Commerce; The International Brotherhood of Teamsters; The 
American Federation of Television and Radio Artists; The 
Directors Guild of America; The International Alliance of 
Theatrical Stage Employees, Moving Picture Technicians, 
Artists, and Allied Crafts of the United States, Its 
Territories, and Canada; The Screen Actors Guild; The 
California Teamsters Union; The Writers Guild of America, West; 
The Romance Writers of America; The International Brotherhood 
of Electrical Workers; The Bakery, Confectionery, Tobacco 
Workers, and Grain Millers International Union; Building and 
Construction Trades Department, AFL-CIO; The International 
Brotherhood of Boilermakers, Iron Ship Builders, Blacksmiths, 
Forgers, and Helpers, AFL-CIO; Communication Workers of 
America; International Association of Fire Fighters; 
International Union of Painters and Allied Trades; The American 
Federation of Musicians; Commercial Photographers International 
/ Society of Sports and Event Photographers; Professional 
Photographers of America / Student Photographic Society; The 
Motion Picture Association of America; The Recording Industry 
Association of America; The National Music Publishers 
Association; The Entertainment Software Association; The 
American Society of Composers, Authors, and Publishers; 
Broadcast Music, Inc.; SESAC; The Songwriters Guild of America; 
The Gospel Music Association; The American Association of 
Independent Music; Association of Magazine Media; Newspaper 
Association of America; The American Federation of Musicians; 
Association of American Publishers; National Association of 
Theatre Owners, Inc.; The Independent Film and Television 
Alliance; The International Trademark Association; The 
Coalition Against Counterfeiting and Piracy; The International 
Anticounterfeiting Coalition; The Coalition Against Domain Name 
Abuse; The Software & Information Industry Association; The 
Property Rights Alliance; Viacom; Sony Pictures; Cengage 
Learning; HarperCollins Publishers LLC; Macmillan; Pearson 
Education, Inc.; Penguin Group (USA), Inc.; RR Donnelley; 
CALinnovates.org; Chanel; Fortune Brands; Imaging Supplies 
Coalition; Moet Hennessy Louis Vuitton; Major League Baseball; 
National Basketball Association; National Football League; NBC 
Universal; The Recording Academy; Oakley; OpSec Security; True 
Religion Apparel, Inc.; 1-800-PetMeds; Activision; Acushnet 
Golf; Cable and Satellite Broadcasting Association of Asia; 
Church Music Publishers' Association; Copyright Alliance; 
Disney; EMI; Entertainment Software Association; Fashion 
Business Inc.; Guru Denim, Inc.; Johnson and Johnson; Merck; 
NagraStar; Nagravision; Nervous Tattoo Inc., dba Ed Hardy; 
Newscorp; Nike; Premier League; Sony Music Entertainment; 
Sports Rights Owners Coalition; STOP Streaming Group; Tiffany 
and Co.; Time Warner; Ultimate Fighting Championship; 
Underwriters Laboratory; Universal Music Group; Warner Music 
Group; Xerox; Zondervan; Association of Test Publishers; and 
the Creative Coalition Campaign.
    The bill was on the agenda for the September 23, 2010 
business meeting, but was held over. On November 18, 2010, the 
Committee on the Judiciary considered S. 3804. Senator Leahy 
offered a substitute amendment, which was adopted by unanimous 
consent. That was the only amendment considered during this 
debate. Senator Coburn submitted a statement for the record 
that indicated certain Internet service providers, search 
engines, Federal agencies in charge of intellectual property 
enforcement, and other interested parties had outstanding 
concerns over some provisions in the legislation, and noted the 
need for further discussion of those issues in the form of a 
hearing prior to the final passage of the legislation.
    The Committee then voted to report the Combating Online 
Infringement and Counterfeits Act, with an amendment in the 
nature of a substitute, favorably to the Senate. The Committee 
proceeded by roll call vote as follows:
    Tally: 19 Yeas, 0 Nays.
    Yeas (19): Leahy (D-VT), Kohl (D-WI), Feinstein (D-CA), 
Feingold (D-WI), Specter (D-PA), Schumer (D-NY), Durbin (D-IL), 
Cardin (D-MD), Whitehouse (D-RI), Klobuchar (D-MN), Franken (D-
MN), Coons (D-DE), Sessions (R-AL), Hatch (R-UT), Grassley (R-
IA), Kyl (R-AZ), Graham (R-SC), Cornyn (R-TX), Coburn (R-OK).
    Nays (0).

              III. SECTION-BY-SECTION SUMMARY OF THE BILL

Section 1. Short title

    This section provides that the legislation may be cited as 
the ``Combating Online Infringement and Counterfeits Act''.

Section 2. Internet sites dedicated to infringing activities

    Subsection (a). This subsection provides the definition for 
an Internet site that is ``dedicated to infringing 
activities''. Under this definition, an Internet site is 
``dedicated to infringing activities'' if it falls into one of 
two categories. The first category is an Internet site that 
would otherwise satisfy the criteria for criminal infringement 
because it constitutes property that is subject to forfeiture 
under section 2323 of title 18 (subsection (a)(1)(A)). The 
second category is an Internet site that is primarily designed, 
has no demonstrable commercially significant purpose, or is 
marketed by its operator to offer infringing goods and 
services, or counterfeit products (subsection (a)(1)(B)(i)), 
and those activities are the central activities of the Internet 
site accessed through the domain name that is the subject of 
the action (subsection (a)(1)(B)(ii)). A domain name is defined 
under section 45 of the Lanham Act, as the ``alphanumeric 
designation which is registered with or assigned by any domain 
name registrar, domain name registry, or other domain name 
registration authority as part of an electronic address on the 
Internet.''
    Subsection (b). This subsection provides the Attorney 
General with the authority to seek a temporary restraining 
order, preliminary injunction, or injunction against a domain 
name property that is determined to be ``dedicated to 
infringing activities'' in an action commenced under subsection 
(c).
    Subsection (c). This subsection provides the Attorney 
General with the authority to commence an in rem action against 
a domain name used by an Internet site that is ``dedicated to 
infringing activities.'' This subsection specifies that the 
action must be brought in the judicial district where the 
domain name registrar or registry is located, or alternatively 
in the District of Columbia if neither the registrar nor the 
registry are located in the United States.
    Subsection (d)(1). This subsection outlines criteria to be 
used to determine a domain name's situs in an in rem action 
where either the registrar or registry is located or doing 
business in a judicial district within the United States, or 
where documents sufficient to establish control and authority 
regarding the disposition of registration are located in a 
judicial district within the United States.
    Subsection (d)(2). This subsection provides grounds under 
which the Department of Justice may bring an action in the 
District of Columbia to prevent and restrain importation into 
the United States of infringing good and services, even if the 
registry and registrar for the domain name are not located in 
the United States. Such an action requires that the domain name 
be used by users within the U.S. to access the Internet site, 
that the Internet site conducts business directed to residents 
of the U.S., and that the Internet site harms holders of U.S. 
intellectual property rights.
    Subsection (e). This subsection authorizes a Federal law 
enforcement officer to deliver a copy of the court order to a 
domain name registrar or registry (subsection (e)(1)), an 
Internet services provider (subsection (e)(2)(B)(i)), a 
financial transaction provider (subsection (e)(2)(B)(ii)), and 
an Internet advertising network service (subsection 
(e)(2)(B)(iii)). The subsection prescribes the action that the 
respective party must take upon receipt of the order. This 
subsection further provides the entity taking action under this 
subsection with immunity from any related causes of action 
(subsection (e)(5)).
    Subsection (f). This subsection requires the Attorney 
General to inform the IPEC and other law enforcement agencies 
of any order issued under this section, and requires the IPEC 
to post the domain name against which an order has been issued, 
along with other relevant information, on a publicly available 
Internet site.
    Subsection (g). This subsection provides the Attorney 
General with the authority to bring an action against a party 
that knowingly and willfully fails to comply with an order 
delivered under subsection (e). This subsection further 
provides that a showing by the defending party that it does not 
have the technical means to comply with an issuance of the 
order serves as a defense to an action brought under this 
subsection to the extent that it causes the inability to 
comply.
    Subsection (h)(1). This subsection authorizes the Attorney 
General to seek a modification of the court order to include an 
additional domain name(s) where an Internet site that is 
``dedicated to infringing activities'' is able to be accessed 
by that different domain name(s). This subsection addresses the 
problem of an Internet site that is ``dedicated to infringing 
activities'' otherwise reemerging under a different domain name 
to avoid the implications of an order that is issued against 
it.
    Subsection (h)(2). This subsection authorizes the defendant 
or owner or operator of the domain name to seek a modification, 
suspension or vacation of the court order where the Internet 
site associated with the domain name is no longer dedicated to 
infringing activities, or where the interests of justice 
require.
    Subsection (h)(3). This subsection authorizes a party to 
move for dismissal of the court order where the domain name has 
been deleted following expiration of its registration, and has 
been re-registered by a different party.
    Subsection (i). This subsection is a savings clause to 
ensure that this Act is not construed to limit or expand other 
civil or criminal remedies available under current Federal or 
State law, or to enlarge or diminish vicarious or contributory 
liability under title 17, United States Code.

Section 3. Required actions by the attorney general

    This section requires the Attorney General to publish 
procedures and provide guidance to carry out the activities of 
this section in coordination with those harmed by the illegal 
activity, as well as other law enforcement agencies.

Section 4. Report

    This section requires the Secretary of Commerce to study 
and report to Congress on this legislation's impact on the 
ability of an entity described in section 2(e) to effectively 
use Domain Name System Security Extensions.

             IV. CONGRESSIONAL BUDGET OFFICE COST ESTIMATE

    The cost estimate provided by the Congressional Budget 
Office pursuant to section 402 of the Congressional Budget Act 
of 1974 was not available for inclusion in this report. The 
estimate will be printed in either a supplemental report or the 
Congressional Record when it is available.

                    V. REGULATORY IMPACT EVALUATION

    In compliance with rule XXVI of the Standing Rules of the 
Senate, the Committee finds that no significant regulatory 
impact will result from the enactment of S. 3804.

                             VI. CONCLUSION

    The Combating Online Infringement and Counterfeits Act will 
provide the Justice Department with an important new mechanism 
for combating online piracy and the sale of counterfeit goods.

       VII. CHANGES TO EXISTING LAW MADE BY THE BILL, AS REPORTED

    Pursuant to paragraph 12 of rule XXVI of the Standing Rules 
of the Senate, the Committee finds no changes in existing law 
made by S. 3804, as ordered reported.