S. Rept. 112-39 - 112th Congress (2011-2012)
July 22, 2011, As Reported by the Judiciary Committee

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Senate Report 112-39 - PREVENTING REAL ONLINE THREATS TO ECONOMIC CREATIVITY AND THEFT OF INTELLECTUAL PROPERTY ACT OF 2011




[Senate Report 112-39]
[From the U.S. Government Printing Office]


                                                        Calendar No. 70
112th Congress                                                   Report
                                 SENATE
 1st Session                                                     112-39

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



 
  PREVENTING REAL ONLINE THREATS TO ECONOMIC CREATIVITY AND THEFT OF 
                   INTELLECTUAL PROPERTY ACT OF 2011

                                _______
                                

                  July 22, 2011.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 968]

    The Committee on the Judiciary, to which was referred the 
bill (S. 968), to prevent online threats to economic creativity 
and theft of intellectual property, and for other purposes, 
having considered the same, reports favorably thereon, with an 
amendment in the nature of a substitute, and recommends that 
the bill, as amended, do pass.

                                CONTENTS

                                                                   Page
  I. Background and Purpose of the Preventing Real Online Threats to 
     Economic Creativity and Theft of Intellectual Property Act of 2011
 II. History of the Bill and Committee Consideration.................11
III. Section-by-Section Summary of the Bill..........................16
 IV. Congressional Budget Office Cost Estimate.......................21
  V. Regulatory Impact Evaluation....................................21
 VI. Conclusion......................................................21
VII. Changes to Existing Law Made by the Bill, as Reported...........22

  I. BACKGROUND AND PURPOSE OF THE PREVENTING REAL ONLINE THREATS TO 
   ECONOMIC CREATIVITY AND THEFT OF INTELLECTUAL PROPERTY ACT OF 2011

                             A. BACKGROUND

    Intellectual property is the engine of the American economy 
and critical for job growth. According to independent studies, 
IP-reliant companies account in America for more than $7.7 
trillion and employ more than 19 million workers.\1\ Protecting 
American intellectual property from theft is therefore critical 
to our Nation's prosperity, welfare, and job creation.\2\
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    \1\Nam D. Pham, ``Employment and Gross Output of Intellectual 
Property Companies in the United States,'' NDP Consulting Research 
Paper, January 2011, at 2, available at http://
www.theglobalipcenter.com/sites/default/files/reports/documents/
employment__gross_output_of_ip_companies_in_the_us_-
_jan_2011_low_res.pdf; see also 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; Targeting Websites 
Dedicated To Stealing American Intellectual Property Before the U.S. 
Senate Committee on the Judiciary, S. Hrg. 112th Cong. 1 (2011) 
(written statement of Tom Adams, CEO, Rosetta Stone Inc.) at 1 
(``Intellectual property industries are a cornerstone of the U.S. 
economy, employing more than 19 million people and accounting for 60 
percent of our exports''); 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 works 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 Targeting Websites Dedicated To Stealing American 
Intellectual Property Before the U.S. Senate Committee on the 
Judiciary, S. Hrg. 112th Cong. 1 (2011) (written statement of Tom 
Adams, CEO, Rosetta Stone Inc.) at 2 (``The global sales of counterfeit 
goods via the Internet from illegitimate retailers reached $135 billion 
in 2010. As a consequence of global and U.S.-based piracy of copyright 
products, the U.S. economy lost $58.0 billion in total output in 
2007''); 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, cyber lockers, 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 that relies on copyright 
protection.
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    \8\See ``Report on Economic Effects of Counterfeit and Pirated 
Goods,'' at 8.
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    Similarly, the sale of counterfeit goods via Internet sites 
that appear professional and can quickly deliver items in 
sophisticated packaging is thriving on the Internet. In many 
cases, these Internet sites are able to 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 act 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 
appearance of legitimacy.\12\ They are easily accessible by 
entering domain names that sound legitimate into the users' 
Internet browser or typing common search terms into Internet 
search engines; they often accept payment through well 
respected credit card companies; and they often run 
advertisements from trusted companies. All of this presents an 
appearance 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 
Subcommittee on Gov't Management, Organization, and Procurement of the 
H. Committee on Oversight and Gov't Reform, 111th Cong. 1 (2009) 
(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).
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    Further, Justice O'Connor wrote that 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.)). Additionally, in a recent letter to members of the 
U.S. Senate Committee on the Judiciary, First Amendment practitioner 
Floyd Abrams wrote: ``Copyright violations are not protected by the 
First Amendment. Entities `dedicated to infringing activities' are not 
engaged in speech that any civilized, let alone freedom-oriented nation 
protects. That these infringing activities occur on the Internet makes 
them not less, but more harmful.'' Letter from Floyd Abrams, Senior 
Partner, Cahill, Gordon, and Reindel LLP, to Senator Patrick Leahy, 
Chairman of the Senate Judiciary Committee, Senator Chuck Grassley, 
Ranking Member of the Senate Judiciary Committee, Senator Orrin Hatch, 
United States Senate (May 24, 2011) (on file with the U.S. Senate 
Committee on the Judiciary's Majority staff.)
    \20\This right to be compensated for their work is not simply a 
creation of U.S. law. 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 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 a hearing 
before the Senate Committee on the Judiciary, online 
infringement supports international 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 and rights holders 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 a 
tailored mechanism for combating rogue Internet sites.
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    \23\The Department of Justice, in conjunction with Immigration and 
Customs Enforcement, has recently used its forfeiture authority to 
seize domestic domain names that were being used for criminal activity. 
See http://www.ice.gov/news/releases/1105/110525washingtondc.htm; see 
also Promoting Investment and Protecting Commerce Online: Legitimate 
Sites v. Parasites, Part II Before the H. Committee on the Judiciary, 
H. Hrg. 112th Cong. 1 (2011) (written statement of John Morton, 
Director, U.S. Immigration and Customs Enforcement, Department of 
Homeland Security) at 9-11. This authority cannot be used to combat 
foreign-based websites accessed by foreign-registered domain names.
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    The Committee bill, as reported, gives the Department of 
Justice and rights holders an expedited process for cracking 
down on rogue Internet sites by targeting the domain names 
associated with those sites through injunctive relief. By 
making it more difficult for a domain name to be used for 
illicit purposes, and limiting the profitability of the 
underlying Internet site, 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 similar legislation was introduced in the 111th 
Congress, but the Committee understands that there remain 
outstanding concerns.

1. Department of Justice actions

    The Committee bill, as reported, authorizes the Justice 
Department to file a civil action against the registrant or 
owner of a foreign registered domain name that accesses an 
Internet site that is ``dedicated to infringing activities,'' 
or the foreign-registered domain name itself, and to seek a 
cease and desist order from the court. The Justice Department 
should bring the action against the owner or registrant of any 
foreign-registered domain name where practicable. However, in 
cases in which the Department is unable to find the owner or 
registrant, or that person has no address within the United 
States, the bill authorizes the Department to bring an in rem 
action against the non-domestic domain name itself. This 
process is modeled on the Anticybersquatting Consumer 
Protection Act.\24\
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    \24\The Anticybersquatting Consumer Protection Act (``ACPA''), 15 
USC Sec. 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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    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.\25\
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    \25\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 Committee bill, as reported, authorizes the Justice 
Department to seek relief from a Federal district court in the 
form of a temporary restraining order, a preliminary 
injunction, or an injunction, in accordance with rule 65 of the 
Federal Rules of Civil Procedure. For an order to issue against 
the owner, registrant, or domain name itself, the Justice 
Department must demonstrate to the court that the Internet site 
accessed by the domain name is ``dedicated to infringing 
activities.'' In addition, the Internet site must be used 
within the United States, conduct business directed to 
residents of the United States, and harm holders of United 
States intellectual property rights.\26\
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    \26\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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    If the court issues an order against the domain name or its 
registrant, owner, or operator, the legislation authorizes law 
enforcement officers to serve the court order on specified 
third parties, including operators of nonauthoritative domain 
name system servers (``DNS operators''),\27\ search engines, 
payment processors, and online advertising network 
providers.\28\ 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 protocol 
address,\29\ prevent a search result from linking to an 
Internet site, 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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    \27\Most Internet service providers operate a DNS server that they 
offer to their subscribers, but subscribers can use DNS services that 
are not affiliated with their Internet service provider. The Committee 
bill applies to all DNS operators.
    \28\The Act includes a requirement that a plaintiff serve this 
order on ``similarly situated'' third parties. This provision is 
intended to avoid any competitive disparity that could result from 
selectively imposing burdens on some entities within a given class, but 
not others.
    \29\The actions required of an operator of a domain name system 
server is limited by the Act to those designed to prevent the domain 
name from resolving. The Act defines a domain name by reference to the 
Lanham Act, see supra note 25, and therefore orders issued pursuant to 
this Act would not require such operators to block particular 
subdomains or subdirectories.
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    The Committee bill, as reported, affords due process to 
both defendants and third parties compelled to action by the 
legislation. The Justice Department must send notice of the 
alleged violation and intent to proceed under the legislation 
to the registrant of the domain name that is the subject of the 
action. Additionally, the Justice Department must provide 
notice to any third party that might be required to take action 
as the result of a resulting court order.
    The Committee bill, as reported, includes safeguards to 
allow the domain name or Internet site owner, operator, 
registrant, registry or registrar to petition the court to 
modify, suspend or vacate the order where the Internet site 
operator takes effective steps to exclude infringing or 
counterfeiting activity from the site, or where the interests 
of justice require. The bill also authorizes any third party 
receiving an order to petition the court. Similarly, as 
Internet site operators subject to the order transition their 
Internet sites to new domain names, the bill authorizes a 
plaintiff to bring a related action against the additional 
domain name in the same judicial district.

2. Qualifying plaintiff actions

    The Committee bill, as reported, similarly authorizes a 
``qualifying plaintiff,'' defined as either the Attorney 
General or a rights holder, to file an action for civil 
injunctive relief against the registrant or owner of any domain 
name that accesses an Internet site that is ``dedicated to 
infringing activities''--or the domain name itself--and to seek 
a cease and desist order from the court. That action can be 
brought regardless of whether the domain name at issue is 
registered in the United States or abroad. Such an action is 
subject to the same due process and notice requirements 
described in Part I.B.1.
    The mechanism is identical to that reserved for the Justice 
Department in non-domestic actions; however the resulting 
remedies are more limited. A qualifying plaintiff may only seek 
the court's permission to serve a court order resulting from an 
action brought under this provision on a payment processor or 
online advertising network. Neither a DNS operator nor a search 
engine can be required to take action as the result of an order 
issued under this provision.

3. Internet site ``Dedicated to Infringing Activities''

    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 a party 
bringing an action, whether against a domestic or non-domestic 
domain name, to make one of two showings. The plaintiff can 
show that the Internet site has no significant use other than 
engaging in, enabling, or facilitating the (1) reproduction, 
distribution, or public performance of copyrighted works in 
violation of title 17, (2) violation of section 1201 of title 
17, or (3) sale, distribution, or promotion of counterfeits 
under the Lanham Act. Alternatively, the plaintiff can show 
that the Internet site is designed, operated, or marketed 
primarily as a means for engaging in, enabling, or facilitating 
the (1) reproduction, distribution, or public performance of 
copyrighted works in violation of title 17, (2) violation of 
section 1201 of title 17, or (3) sale, distribution, or 
promotion of counterfeits under the Lanham Act.\30\
---------------------------------------------------------------------------
    \30\The Combating Online Infringement and Counterfeits Act 
(``COICA''), S.3804, introduced and reported by the Committee on the 
Judiciary in the 111th Congress, used a far broader definition of an 
Internet site dedicated to infringing activities. COICA's definition 
included sites that satisfy the criteria for forfeiture under section 
2323 of title 18. The Committee heard concerns that this definition had 
the potential to include Internet sites with a significant amount of 
protected speech. The Committee responded to those concerns in the 
Committee bill by crafting a narrower definition, although the 
Committee recognizes that it means there will be rogue Internet sites 
whose operators may be violating criminal law that are nonetheless 
beyond the scope of this legislation. The Committee also recognizes 
that even with the new, narrower definition, 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).
---------------------------------------------------------------------------
    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 from 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.

4. Protections for third parties

    The Committee bill, as reported, contains protections for 
those third parties required to take action under the Act, to 
ensure that any party acting pursuant to an order is held 
harmless for having taken the appropriate action. This immunity 
extends to any acts reasonably designed to comply with an order 
or reasonably arising from an order. Additionally, no third 
party is required to take action to comply with an order beyond 
what is technically feasible and reasonable. It is also not the 
Committee's intent that compliance with an order issued under 
this legislation create an ongoing duty on the part of a third 
party to affirmatively monitor its systems to ensure that it 
does not allow access to an Internet site or transact with an 
underlying merchant that is the subject of an order, where the 
site or merchant has reconstituted under an alias.
    The Committee bill, as reported, also encourages voluntary 
action by payment processors and online advertising 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.\31\ Further, the bill encourages 
voluntary action by domain name registries, registrars, search 
engines, financial transaction providers, and online 
advertising network providers against Internet sites that 
endanger the public health, either where the site is 
``dedicated to infringing activities'' relating to controlled 
or non-controlled prescription medicines, or has no significant 
use other than, or is used primarily as a means for, the 
distribution of prescription medicines without a valid 
prescription, or the distribution of misbranded or adulterated 
medicines.
---------------------------------------------------------------------------
    \31\This safe harbor should not be construed to imply that there is 
liability for other entities that undertake voluntary action to combat 
online infringement and counterfeiting, or for payment processors or 
online advertising networks undertaking other actions against rogue 
websites, outside of those prescribed in this section.
---------------------------------------------------------------------------
    The Committee bill, as reported, authorizes the plaintiff 
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 with a court order. The Committee 
anticipates that these actions will be used only in those 
situations where a third party does not fulfill its legal 
obligation under the Act. These provisions do not open the door 
to fishing expeditions in the form of frivolous litigation 
brought simply to initiate broad discovery. A third party would 
not be monetarily liable for any action or inaction under this 
Act.

5. Impact of the legislation

    The Committee understands that when access to an Internet 
site is blocked by a DNS operator or a search engine, the 
Internet site is still accessible to a user who takes certain 
affirmative steps. For example, where the Internet site is 
blocked by the DNS operator, 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.
    Similarly, the Committee understands that when a payment 
processor or advertising network suspends a particular merchant 
account in compliance with the Act, that website may in fact 
find a way to process payments through another alias. The Act 
requires payment processors and advertising networks to make 
reasonable efforts to stop payment transactions from merchants 
associated with the Internet site at issue, and the Committee 
believes that this will substantially diminish the financial 
viability of that site.
    The Committee does not intend the Act to deter voluntary 
action otherwise taken by third parties against rogue websites, 
nor does the Committee intend the Act to serve as a substitute 
for such voluntary action. Voluntary, cooperative action taken 
by private parties to prevent infringement and the sale of 
counterfeits over the Internet can be an effective approach to 
combat online infringement.

6. Savings clauses

    The Committee bill, as reported, may not be construed to 
limit or expand the civil or criminal remedies available under 
any other Federal or State laws for infringing activities on 
the Internet. The legislation does not enlarge or diminish 
vicarious or contributory liability for any cause of action 
under the Lanham Act or title 17, including any limitation on 
liability under section 512 of title 17. Finally, nothing in 
this legislation shall serve as a basis for determining the 
application of section 512 of title 17 to any party.

7. Guidelines and reports

    The Committee bill, as reported, requires the Attorney 
General to publish certain procedures for implementation of 
this Act. The bill also requires the Attorney General to 
develop a deconfliction process with other law enforcement 
agencies, including U.S. Immigration and Customs Enforcement, 
for implementation of this Act.
    The Committee bill, as reported, also requires the 
Secretary of Commerce, the Register of Copyrights, the Attorney 
General, and the Comptroller General to issue reports. The 
Secretary of Commerce is required to report to the Committees 
on the Judiciary in both the Senate and House on the ability to 
deploy Domain Name Security Extensions. The Register of 
Copyrights is required to report to the Committees on the 
Judiciary in both the Senate and House on the effectiveness and 
burden of carrying out this legislation. The Attorney General 
is required to report to the Committees on the Judiciary in 
both the Senate and House on actions brought under this 
legislation. The Comptroller General is required to report to 
the Committees on the Judiciary in both the Senate and House on 
actions brought by a rights holder under this legislation.

8. Importation of counterfeit products and infringing devices

    The Committee bill, as reported, provides that Customs and 
Border Protection (``CBP'') may identify and prevent 
counterfeit products from being imported into the United States 
by clarifying that, notwithstanding the Trade Secrets Act, the 
Secretary of Homeland Security is authorized to share samples 
or photos of suspected counterfeit products and their packaging 
or labels with the relevant rights holders to determine whether 
the shipment should be seized at the border. Similarly, it 
ensures that the Secretary of Homeland Security can share 
information and samples relating to anti-circumvention devices 
that have been seized with affected parties. These provisions 
are intended as clarifying in nature and do not imply that 
anything in the Trade Secrets Act currently prohibits the 
sharing of such information and should not limit or affect what 
specific information CBP may be required to or prevented from 
disclosing through subsequent legislation or rulemaking.

          II. HISTORY OF THE BILL AND COMMITTEE CONSIDERATION

                      A. INTRODUCTION OF THE BILL

    On September 20, 2010, in the 111th Congress, Chairman 
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 later joined as cosponsors. 
This bill was referred to the Senate Committee on the 
Judiciary.
    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. Chairman 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 by a roll call 
vote of 19-0.
    On May 12, 2011, Chairman Leahy introduced the Preventing 
Real Online Threats to Economic Creativity and Theft of 
Intellectual Property Act, S. 968, along with Senator Hatch and 
Senator Grassley. Senator Blumenthal, Senator Coons, Senator 
Feinstein, Senator Franken, Senator Graham, Senator Klobuchar, 
Senator Kohl, Senator Schumer, and Senator Whitehouse were 
original cosponsors. Senator Alexander, Senator Ayotte, Senator 
Blunt, Senator Boozman, Senator Cochran, Senator Corker, 
Senator Durbin, Senator Gillibrand, Senator Hagan, Senator 
Lieberman, Senator Rubio, Senator Shaheen, and Senator Tom 
Udall joined as cosponsors. The bill was referred to the Senate 
Committee on the Judiciary.

                              B. HEARINGS

    On June 23, 2010, in the 111th Congress, 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 February 16, 2011, in the 112th Congress, the Senate 
Committee on the Judiciary held a hearing on ``Targeting 
Websites Dedicated to Stealing American Intellectual 
Property.'' This hearing was attended by Chairman Leahy, 
Senator Grassley, Senator Blumenthal, Senator Coburn, Senator 
Coons, Senator Franken, Senator Klobuchar, Senator Kyl, and 
Senator Whitehouse. Testifying at this hearing were Tom Adams, 
President and CEO of Rosetta Stone, Inc.; Scott Turow, 
President of the Authors Guild; Christine N. Jones, Executive 
Vice President, General Counsel, and Corporate Secretary of the 
Go Daddy Group, Inc.; Thomas M. Dailey, Vice President and 
Deputy General Counsel for Verizon; and Denise Yee, Senior 
Trademark Counsel for Visa, Inc.\32\ The following materials 
were submitted for the record: Letter from William Samuel, 
Director of Government Affairs for the AFL-CIO, dated February 
15, 2011; letter from AT&T to Victoria Espinel, U.S. 
Intellectual Property Enforcement Coordinator, dated March 24, 
2010; letter from Brian Keane, CEO of Blue Sky, to Senator 
Blumenthal, dated February 15, 2011; statement of the Computer 
and Communications Industry Association; statement of the 
Consumer Electronics Association; statement of the Center for 
Democracy and Technology; letter from Floyd Abrams to Chairman 
Leahy, Senator Grassley, and Senator Hatch, dated February 11, 
2011; letter from Sascha Meinrath, Aparna Sridhar, M. Chris 
Riley, Open Technology Initiative, New America Foundation, and 
Free Press Action Fund to Chairman Leahy, dated February 15, 
2011; statement of Daniel Castro, Senior Analyst, Information 
Technology and Innovation Foundation; statement of the Motion 
Picture Association of America, Inc.; statement of the 
NetCoaltion, with attachments; Op-Ed by Scott Turow, Paul 
Aiken, and James Shapiro from the February 14, 2011 edition of 
the New York Times; statement of Public Knowledge; letter from 
Nora Roberts to Chairman Leahy and Members of the Senate 
Judiciary Committee, dated February 13, 2011; letter from 
multiple companies and associations to Members of the United 
States Congress, dated February 15, 2011; statement of the 
United States Chamber of Commerce; prepared statement of Tom 
Adams; prepared statement of Scott Turow; prepared statement of 
Christine N. Jones; prepared statement of Thomas M. Dailey; and 
prepared statement of Denise Yee.
---------------------------------------------------------------------------
    \32\Google Inc. was asked by the Committee to testify as a hearing 
witness, but declined.
---------------------------------------------------------------------------
    On June 22, 2011, in the 112th Congress, the Senate 
Committee on the Judiciary held a hearing on ``Oversight of 
Intellectual Property Law Enforcement Efforts.'' This hearing 
was attended by Chairman Leahy, Senator Grassley, Senator 
Blumenthal, Senator Coburn, Senator Coons, Senator Franken, 
Senator Klobuchar, Senator Kohl, and Senator Whitehouse. 
Testifying at this hearing were Victoria Espinel, United States 
Intellectual Property Enforcement Coordinator; Jason Weinstein, 
Deputy Assistant Attorney General for the Criminal Division, 
United States Department of Justice; Gordon M. Snow, Assistant 
Director for the Cyber Division, Federal Bureau of 
Investigation; Allen Gina, Assistant Commissioner, Office of 
International Trade, United States Customs and Border 
Protection; and Erik Barnett, Assistant Deputy Director, United 
States Immigration and Customs Enforcement. The following 
materials were submitted for the record: Letter from the 
American Federation of Musicians, 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 International 
Brotherhood of Teamsters, and the Screen Actors Guild, dated 
June 20, 2011, to Chairman Leahy and Senator Grassley; letter 
from Paul Williams, President and Chairman of the Board of the 
American Society of Composers, Authors, and Publishers, dated 
June 20, 2011, to Chairman Leahy and Senator Grassley; letter 
from Tom Giovanetti, President of the Institute for Policy 
Innovation, dated June 20, 2011, to Chairman Leahy and Senator 
Grassley; letter from Mitch Bainwol, Chairman and CEO of the 
Recording Industry Association of America, Inc., dated June 21, 
2011, to Chairman Leahy; letter from the Motion Picture 
Association of America, Inc., and member studios, dated June 
22, 2011, to Chairman Leahy and Senator Grassley; statement of 
Colleen M. Kelley, National President of the National Treasury 
Employees Union; statement of the United States Chamber of 
Commerce; prepared statement of Victoria Espinel; prepared 
statement of Jason Weinstein; prepared statement of Gordon M. 
Snow; prepared statement of Allen Gina; and prepared statement 
of Erik Barnett.

                         C. LEGISLATIVE HISTORY

    The bill was on the agenda for the May 19, 2011 business 
meeting, but it was held over. On May 26, 2011, the Committee 
on the Judiciary considered S. 968. Chairman Leahy offered a 
substitute amendment, which was adopted by unanimous consent. 
Chairman Leahy and Senator Grassley offered an additional 
amendment to clarify that when Customs and Border Protection 
suspects a product that is being imported or exported of being 
counterfeit, it is not prohibited by the Trade Secrets Act to 
share samples of packaging or labels of suspected counterfeits 
with the purported rights owner. This amendment was adopted by 
voice vote. No other amendments were considered during this 
debate.
    The Committee then voted to report S. 968, with amendments, 
favorably to the Senate. The Committee reported this bill by 
voice vote.
    The following companies or groups submitted letters in 
support of S. 968: United States Chamber of Commerce; AFL-CIO; 
Business Software Alliance; National Cable and 
Telecommunications Association; National Association of 
Broadcasters; National Association of Manufacturers; Comcast/
NBC Universal; Copyright Alliance; American Federation of 
Musicians; American Federation of Television and Radio Artists; 
Directors Guild of America; International Alliance of 
Theatrical Stage Employees, Moving Picture Technicians, Artists 
and Allied Crafts of the United States, Its Territories, and 
Canada; Screen Actors Guild; International Brotherhood of 
Teamsters; National Music Publishers' Association; Institute 
for Policy Innovation; Software and Information Industry 
Association; Writers Guild of America, West; Viacom; 
Independent Film & Television Alliance; Motion Picture 
Association of America; National Association of Theatre Owners; 
Paramount Pictures Corporation; Association for Safe Online 
Pharmacies; Small Business & Entrepreneurship Council; 
Songwriters Guild of America; Sony Pictures Entertainment Inc.; 
Twentieth Century Fox Film Corporation; Universal City Studios 
LLC; Walt Disney Studios Motion Pictures; Warner Bros. 
Entertainment Inc.; Deluxe Entertainment Services Group; 1-800 
Contacts, Inc.; 1-800-PetMeds; ABRO Industries, Inc.; Acushnet 
Company; Adidas America; Advanced Medical Technology 
Association (AdvaMed); Alliance of Automobile Manufacturers; 
Alliance of Visual Artists (AVA); American Association of 
Independent Music (A2IM); American Board of Internal Medicine; 
American Made Alliance; American Society of Composers, Authors 
and Publishers (ASCAP); American Society of Media 
Photographers; Anti-Counterfeiting and Piracy Initiative 
(ACAPI); Arts+Labs; Association of American Publishers (AAP); 
Association of Equipment Manufacturers; Association of 
Independent Music Publishers (AIMP); Association of Test 
Publishers; Autodesk, Inc.; Automotive Aftermarket Industry 
Association; Beachbody, LLC; Beam Global Spirits & Wine; Blue 
Sky Studios, Inc.; Bose Corporation; Brigid Collins Family 
Support Center; Broadcast Music, Inc. (BMI); Burberry; Cascade 
Designs Incorporated; CBS Corporation; Cengage Learning; CFA 
Institute; Chanel USA; Church Music Publishers Association; 
Coalition Against Counterfeiting and Piracy (CACP); The 
Collegiate Licensing Company/IMG College; Commercial 
Photographers International; Copyright Clearance Center (CCC); 
Coty Inc.; Country Music Association; Dayco Products, LLC; 
Deckers Outdoor Corporation; Dolce & Gabbana; Dollar General 
Corporation; Electronic Components Industry Association (ECIA); 
Eli Lilly and Company; Entertainment Software Association 
(ESA); ERAI, Inc.; The Estee Lauder Companies; Evidence 
Photographers International Council; Ex Officio; Exxel 
Outdoors; Far Bank Enterprises; Fashion Business Incorporated; 
Federation of State Boards of Physical Therapy; Ford Motor 
Company; Fortune Brands, Inc.; Gemvision Corporation; Gospel 
Music Association; Governors America Corp.; Graduate Management 
Admission Council; Greeting Card Association (GCA); Guru Denim; 
HarperCollins Publishers; Harry Fox Agency; Hastings 
Entertainment, Inc.; ICM Distributing Company, Inc.; IDS 
Publishing; IEC Electronics Corp.; Imaging Supplies Coalition 
(ISC); Independent Distributors of Electronics Association 
(IDEA); Innate-gear; Intellectual Property Owners Association; 
International AntiCounterfeiting Coalition (IACC); 
International Trademark Association (INTA); John Wiley & Sons, 
Inc.; Johnson & Johnson; Kekepana International Services; 
Leatherman Tool Group, Inc.; Lexmark International, Inc.; 
L'Oreal USA; LVMH Moet Hennessy Louis Vuitton; Macmillan; Major 
League Baseball; Marmot; The McGraw-Hill Companies; Merck & 
Co., Inc.; Messy Face Designs, Inc.; MicroRam Electronics, 
Inc.; Microsoft; Monster Cable Products, Inc.; Music Managers 
Forum-U.S.; Nashville Songwriters Association International; 
National Association of Recording Merchandisers (NARM); 
National Basketball Association (NBA); The National Collegiate 
Athletic Association (NCAA); National Electrical Manufacturers 
Association (NEMA); National Football League (NFL); Nervous 
Tattoo Inc., dba Ed Hardy; Netflix; New Era Cap Co Inc.; News 
Corporation; Nike, Inc.; Nintendo of America Inc.; Oakley, 
Inc.; OpSec Security, Inc.; Outdoor Industry Association; 
Outdoor Power Equipment Institute (OPEI); Outdoor Research, 
Inc; Pacific Component Xchange, Inc.; Perry Ellis 
International; Personal Care Products Council; Petzl America; 
Pfizer Inc.; Picture Archive Council of America (PACA); PING; 
Premier League; Production Music Association (PMA); 
Professional Photographers of America; Quality Float Works, 
Inc.; The Recording Academy (National Academy of Recording Arts 
and Sciences); Recording Industry Association of America 
(RIAA); Reebok International Ltd.; Reed Elsevier Inc.; Revlon; 
Romance Writers of America (RWA); Rosetta Stone Inc.; Schneider 
Electric; SESAC, Inc.; SG Industries, Inc.; SMT Corp.; Society 
of Sport & Event Photographers; Sony Music Entertainment; 
SoundExchange; Specialty Equipment Market Association (SEMA); 
Sports Rights Owners Coalition; Spyder Active Sports, Inc; 
Stock Artist Alliance; Stuart Weitzman Holdings, LLC; Student 
Photographic Society; SunRise Solar Inc.; Taylor Made Golf 
Company, Inc.; Tednologies, Inc.; Tiffany & Co.; The Timberland 
Company; Time Warner Inc.; Toshiba America Business Solutions, 
Inc.; Ultimate Fighting Championship; Underwriters Laboratories 
Inc.; Universal Music Group; Uniweld Products Inc.; Vibram USA, 
Inc; W.R. Case & Sons Cutlery Co.; Wal-Mart; The Walt Disney 
Company; Warner Music Group; Winestem Company; Xerox 
Corporation; Zippo Manufacturing Company.

              III. SECTION-BY-SECTION SUMMARY OF THE BILL

Section 1. Short title

    This section provides that the legislation may be cited as 
the ``Preventing Real Online Threats to Economic Creativity and 
Theft of Intellectual Property Act''.

Section 2. Definitions

    This section provides definitions referenced in the Act, 
including the definition of an ``Internet site dedicated to 
infringing activities.'' Under this definition, provided in 
paragraph (7), an ``Internet site dedicated to infringing 
activities'' means an Internet site that falls into one of two 
categories. The first category is an Internet site that has no 
other significant use other than engaging in, enabling, or 
facilitating the infringement of substantially complete 
copyrighted material (paragraph (7)(A)(i)); the circumvention 
of copyright protection systems (paragraph (7)(A)(ii)); or the 
sale of goods, services or materials bearing a counterfeit mark 
(paragraph (7)(A)(iii)). The second category is an Internet 
site that is designed, operated, or marketed by its operator, 
primarily as a means for engaging in, enabling or facilitating 
the infringement of substantially complete copyrighted 
material; the circumvention of copyright protection systems; or 
the sale of goods, services or materials bearing a counterfeit 
mark.

Section 3. Enhancing enforcement against rogue websites operated and 
        registered overseas

    Subsection (a). This subsection authorizes the Attorney 
General to commence either an in personam action against a 
registrant or owner of a nondomestic domain name dedicated to 
infringing activities (subsection (a)(1)), or an in rem action 
against a nondomestic domain name dedicated to infringement 
(subsection (a)(2)). An in rem action is only authorized where, 
after due diligence, the defendant owner or registrant cannot 
be found. The Attorney General is required to identify any 
third parties that may be required to take action under 
subsection (d) (subsection (a)(3)).
    Subsection (b)(1). This subsection provides the court with 
the authority to issue a temporary restraining order, a 
preliminary injunction or an injunction, in accordance with 
rule 65 of the Federal Rules of Civil Procedure, against an 
infringing nondomestic domain name, registrant, or owner or 
operator of such a site. The injunction directs the site to 
cease and desist from further infringing activity, provided 
that the domain name is being used within the United States to 
access an infringing site, conducts business directed at 
residents of the United States, and harms intellectual property 
rights holders in the United States.
    Subsection (b)(2). This subsection provides factors the 
court may consider, among other indicia, to determine if a site 
is conducting business directed at residents of the United 
States. These factors include whether a site is providing 
infringing goods or services to users in the United States 
(subsection (b)(2)(A)); whether there is evidence that the site 
is not intended to provide such goods to users in the United 
States, or access or delivery of such goods to users in the 
United States (subsection (b)(2)(B)); whether the site has 
reasonable measures in place to prevent such goods and services 
from being accessed from or delivered to the United States 
(subsection (b)(2)(C)); whether the site offers services 
obtained in the United States (subsection (b)(2)(D)); and 
whether the site offers goods and services for sale in U.S. 
Dollars (subsection (b)(2)(E)).
    Subsection (c). This subsection directs the Attorney 
General to send notice of an alleged violation and intent to 
proceed under the Act to the registrant of the domain name of 
the Internet site. This notice can be sent to the best 
available postal or email address, or in any other form the 
court finds necessary, including in the manner provided to 
serve individuals in foreign countries under Rule 4(f) of the 
Federal Rules of Civil Procedure. The Attorney General is also 
required to notify any third parties that may be required to 
take action under subsection (d).
    Subsection (d)(1). This subsection requires Federal law 
enforcement to serve a copy of a court order issued pursuant to 
this section on any third party which has been identified 
either in the complaint or any amendments thereto.
    Subsection (d)(2). This subsection details the reasonable 
measures that identified third parties must take after being 
served with an order. There are four classes of third parties 
described in this subsection: Operators of nonauthoritative 
domain name system servers (subsection (d)(2)(A)), financial 
transaction providers (subsection (d)(2)(B)), Internet 
advertising services (subsection (d)(2)(C)), and information 
location tools (subsection (d)(2)(D)). Operators of 
nonauthoritative domain name system servers shall take the 
least burdensome technically feasible and reasonable measures 
to prevent the domain name described in the order from 
resolving. Safeguards prevent the operator from having to 
modify its network, software, systems, or facilities in order 
to comply with this subsection. Financial transaction providers 
must take reasonable measures to prevent, prohibit or suspend 
their service from completing payment transactions associated 
with the site involving U.S. customers. Internet advertising 
services must take technically feasible and reasonable measures 
to prevent their service from providing advertisements to the 
infringing site, and cease making available any advertisements 
for that site, or any paid or sponsored links that provide 
access to the site. Information location tools must take 
technically feasible and reasonable measures to remove or 
disable access to the infringing site and not serve a hypertext 
link to such a site.
    Subsection (d)(3). This subsection gives third parties 
discretion to determine if and how they will communicate 
actions taken under this subsection to their users.
    Subsection (d)(4). This subsection is a rule of 
construction that ensures that the obligations of a third party 
relating to an action commenced under this section are limited 
to those described in the section.
    Subsection (d)(5). This subsection provides immunity to 
third parties for actions taken to reasonably comply with an 
order issued under this subsection (subsection (d)(5)(A)). In 
addition, actions taken by customers or users of a third party 
to circumvent any good faith effort to restrict access to an 
infringing site pursuant to this subsection shall not incur 
liability for that third party (subsection (d)(5)(B)).
    Subsection (e). This subsection authorizes the Attorney 
General to bring an action for injunctive relief against any 
party that receives an order under this section and willfully 
fails to comply with the order. This is the sole legal remedy 
to enforce the obligations under this section for any third 
party described in it. A defendant in this action may establish 
an affirmative defense by showing that it does not have the 
technical means to comply with the subsection without incurring 
unreasonable economic burden, or that the order is inconsistent 
with the Act.
    Subsection (f). This subsection provides the manner in 
which an order under subsection (b) can be modified, suspended, 
or vacated. After the issuance of such an order, a motion to 
modify, suspend, or vacate the order may be filed at any time 
by: Any person, owner or operator of property bound by the 
order (subsection (f)(1)(A)); any registrant of the domain name 
or the owner or operator of the site subject to the order 
(subsection (f)(1)(B)); any domain name registrar or registry 
that has registered or assigned the domain name of the site 
(subsection (f)(1)(C)); or any third party required to take 
action under subsection (d) (subsection (f)(1)(D)). Relief can 
be granted if the court finds that the site associated with the 
domain name is no longer or never was dedicated to infringing 
activities, or the interests of justice require that the order 
be modified, suspended or vacated (subsection (f)(2)). The 
court can also consider whether the domain name has expired or 
been registered to a different party (subsection (f)(3)). 
Additionally, third parties can intervene at any time in an 
action commenced under subsection (a), or in any action to 
suspend, modify, or vacate an order (subsection (f)(4).
    Subsection (g). This subsection authorizes the Attorney 
General, if alleging that the underlying Internet site at issue 
was previously determined to be an ``Internet site dedicated to 
infringing activities'' in a prior action, to commence a 
related action against the domain name owner, registrant or 
site itself, in the same judicial district as the previous 
action.

Section 4. Eliminating the financial incentive to steal intellectual 
        property online

    Subsection (a). This subsection authorizes a qualifying 
plaintiff, which is defined as the Attorney General or a U.S. 
intellectual property rights holder, to commence either an in 
personam action against a registrant, owner, or operator of a 
domain name used by a site dedicated to infringing activities 
(subsection (a)(1)), or an in rem action against a domain name 
used by a site dedicated to infringing activities, if after due 
diligence such persons cannot be found (subsection (a)(2)). The 
qualifying plaintiff is required to name any third parties that 
may be required to take action under subsection (d) (subsection 
(a)(3)).
    Subsection (b)(1). This subsection provides the court with 
the authority to issue a temporary restraining order, a 
preliminary injunction or an injunction, in accordance with 
rule 65 of the Federal Rules of Civil Procedure, against an 
infringing domain name, registrant, or owner or operator of 
such a site. The injunction directs the site to cease and 
desist from further infringing activity, provided that the 
domain name is registered or assigned by a domain name registry 
located or doing business in the U.S., the domain name is used 
within the U.S. to access such an infringing site, and the site 
conducts business related to the residents of the U.S. and 
harms U.S. intellectual property rights holders.
    Subsection (b)(2). This subsection provides factors the 
court may consider, among other indicia, to determine if a site 
is conducting business directed at residents of the U.S. These 
factors include whether a site is providing infringing goods or 
services to users in the U.S. (subsection (b)(2)(A)); whether 
there is evidence that the site is not intended to provide such 
goods to users in the U.S., or access or delivery of such goods 
to users in the U.S. (subsection (b)(2)(B)); whether the site 
has reasonable measures in place to prevent such goods and 
services from being accessed from or delivered to the U.S. 
(subsection (b)(2)(C)); whether the site offers services 
obtained in the U.S. (subsection (b)(2)(D)); and whether the 
site offers goods and services for sale in U.S. Dollars 
(subsection (b)(2)(E)).
    Subsection (c). This subsection directs the qualifying 
plaintiff to send notice of an alleged violation and intent to 
proceed under the Act to the registrant of the domain name of 
the Internet site. This notice can be sent to the best 
available postal or email address, or in any other form the 
court finds necessary, including in the manner provided to 
serve individuals in foreign countries under Rule 4(f) of the 
Federal Rules of Civil Procedure. The qualifying plaintiff is 
also required to notify any third parties that may be required 
to take action under subsection (d).
    Subsection (d)(1). This subsection requires a qualifying 
plaintiff to serve a copy of a court order issued pursuant to 
this section on any third party which has been identified 
either in the complaint or any amendments thereto.
    Subsection (d)(2). This subsection details the reasonable 
measures that identified third parties must take after being 
served with an order. There are two classes of third parties 
described in this subsection: Financial transaction providers 
(subsection (d)(2)(A)) and Internet advertising services 
(subsection (d)(2)(B)). Financial transaction providers must 
take reasonable measures to prevent, prohibit or suspend their 
service from completing payment transactions associated with 
the site involving U.S. customers. Internet advertising 
services must take technically feasible and reasonable measures 
to prevent their service from providing advertisements to the 
infringing site, and cease making available any advertisements 
for that site, or any paid or sponsored links that provide 
access to the site.
    Subsection (d)(3). This subsection gives third parties 
discretion to determine if and how they will communicate 
actions taken under this subsection to their users.
    Subsection (d)(4). This subsection is a rule of 
construction that ensures that the obligations of a third party 
relating to an action commenced under this section are limited 
to those described in the section.
    Subsection (d)(5). This subsection provides immunity to 
third parties for actions taken to reasonably comply with an 
order issued under this subsection (subsection (d)(5)(A)). In 
addition, actions taken by customers or users of a third party 
to circumvent any good faith effort to restrict access to an 
infringing site pursuant to this subsection shall not incur 
liability for that third party (subsection (d)(5)(B)).
    Subsection (e). This subsection authorizes the Attorney 
General to bring an action for injunctive relief against any 
party that receives an order under this section and willfully 
fails to comply with the order. This is the sole legal remedy 
to enforce the obligations under this section for any third 
party described in it. A defendant in this action may establish 
an affirmative defense by showing that it does not have the 
technical means to comply with the subsection without incurring 
unreasonable economic burden, or that the order is inconsistent 
with the Act.
    Subsection (f). This subsection provides the manner in 
which an order under subsection (b) can be modified, suspended, 
or vacated. After the issuance of such an order, a motion to 
modify, suspend, or vacate the order may be filed at any time 
by: Any person, owner or operator of property bound by the 
order (subsection (f)(1)(A)); any registrant of the domain name 
or the owner or operator of the site subject to the order 
(subsection (f)(1)(B)); any domain name registrar or registry 
that has registered or assigned the domain name of the site 
(subsection (f)(1)(C)); or any third party required to take 
action under subsection (d) (subsection (f)(1)(D)). Relief can 
be granted if the court finds that the site associated with the 
domain name is no longer or never was dedicated to infringing 
activities, or the interests of justice require that the order 
be modified, suspended or vacated (subsection (f)(2)). The 
court can also consider whether the domain name has expired or 
been registered to a different party (subsection (f)(3)). 
Additionally, third parties can intervene at any time in any 
action commenced under subsection (a), or in any action to 
suspend, modify, or vacate an order (subsection (f)(4)).
    Subsection (g). This subsection authorizes the qualifying 
plaintiff, if alleging that the underlying Internet site at 
issue was previously determined to be an ``Internet site 
dedicated to infringing activities'' in a prior action, to 
commence a related action against the domain name owner, 
registrant or site itself, in the same judicial district as the 
previous action.

Section 5. Voluntary actions against websites stealing American 
        intellectual property

    This section provides a safe harbor from liability to 
financial transaction providers and Internet advertising 
services that voluntarily take actions described under sections 
3(d) or 4(d) with regard to an Internet site if those entities 
act in good faith and based on credible evidence that the site 
is dedicated to infringing activities (subsection (a)). This 
section also protects domain name registries, registrars, 
financial transaction providers, information location tools, or 
Internet advertisers from liability if they voluntarily stop 
providing or refuse to provide service to sites that endanger 
the public health by selling counterfeit, misbranded, or 
adulterated pharmaceuticals, or regularly sell pharmaceuticals 
without a valid prescription, so long as the third party's 
action is taken in good faith and based on credible evidence 
(subsection (b)).

Section 6. Savings clauses

    These savings clauses ensure that nothing in the Act will 
be construed to limit or expand civil or criminal remedies 
available to any person for infringing activities on the 
Internet pursuant to other Federal or State laws (subsection 
(a)); enlarge or diminish liability for any cause of action 
under either the Lanham Act or the Copyright Act, nor create an 
obligation to take action pursuant to section 5 of the Act 
(subsection (b)); or serve as a basis to determine the 
application of section 512 of the Copyright Act, providing 
limitations on liability relating to material online 
(subsection (c)).

Section 7. Guidelines and studies

    Subsection (a). This subsection requires the Attorney 
General, in consultation with other relevant law enforcement 
agencies, to publish procedures to receive information from the 
public about Internet sites dedicated to infringing activities, 
and to develop a deconfliction process with relevant law 
enforcement agencies to coordinate the enforcement activities 
brought under the Act.
    Subsection (b). This subsection requires a series of 
reports designed to review the effectiveness of the Act and 
related oversight. The Secretary of Commerce, the Register of 
Copyrights, the Attorney General, and the Government 
Accountability Office are required to produce reports under 
this subsection.

Section 8. Preventing the importation of counterfeit products and 
        infringing devices

    This section clarifies that when Customs and Border 
Protection suspects a product that is being imported or 
exported of being counterfeit, the Secretary of Homeland 
Security is not prohibited by the Trade Secrets Act from 
sharing samples of packaging or labels of suspected 
counterfeits with the purported rights owner. Similarly, it 
ensures that the Secretary of Homeland Security can share 
information and samples relating to anti-circumvention devices 
that have been seized with affected parties.

             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. 968.

                             VI. CONCLUSION

    The Preventing Real Online Threats to Economic Creativity 
and Theft of Intellectual Property Act will provide the Justice 
Department and rights holders with an important new mechanism 
for combating online copyright infringement 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. 968, as ordered reported.