Civil Asset Forfeiture and Intellectual Property

In both his memo for the Republican Study Committee and his opening essay for Cato Unbound, Derek Khanna points to several areas where commonsense reforms could make our copyright system more consistent with the Constitution’s requirement that copyright protections promote “the progress of science and the useful arts.” Reducing copyright terms is, as Milton Friedman put it, a “no-brainer.” I’ve also previously written about the anticompetitive effects of the Digital Millennium Copyright Act’s anti-circumvention rules. And we desperately need a solution to the orphan works problem.

I’d like to add another reform to the list: limiting the use of asset seizures to shut down websites in copyright cases. Libertarians have long opposed the use of civil asset forfeiture to enforce drug laws. Unfortunately, Congress expanded the use of this tactic in copyright cases in the 2008 PRO-IP Act. Since 2010, the government has used asset seizures to shutter hundreds of websites allegedly being used for copyright or trademark infringement. The owners of these sites have not gotten a chance to answer the government’s charges in court before they were shut down.

The government’s conduct since the passage of the PRO-IP Act confirms what any libertarian could have predicted: giving the government the power to seize private property without due process is an invitation to abuse.

Under the flimsy legal fiction that the property, rather than its owner, is on trial, civil asset forfeiture allows the government to take property without convicting, or even necessarily accusing, its owner of any crime. The practice raises many of the same due process issues in copyright cases as it does in drug cases—and some unique ones as well. Consider the case of dajaz1.com, a hip hop blog seized by the federal government in December 2010. The federal government claimed that the site hosted pirated music. But the site’s proprietor, Andrew Nasib, told the New York Times that “artists and record companies had sent him the songs for promotional purposes.”

After negotiations with the government proved fruitless, Nasib retained a lawyer and sued for the return of his domain name. The government dragged its feet for months as it sought more information from the recording industry. Eventually, the government returned the domains without explanation or apology in December 2011. Nasib himself was never charged with copyright infringement.

Unlike the property typically seized from accused drug dealers, websites are platforms for speech, and the courts have held that under the First Amendment, the government must afford a speaker due process before limiting his speech.

But the government failed to respect this principle in the Dajaz1 case. Nasib wasn’t given an opportunity to make his case to a judge before his website was shut down. The government deprived him of the ability to communicate with his readers for a full year without ever proving he had committed a crime. It’s hard to see how that is consistent with the First Amendment.

The pre-conviction seizure of domain names is inconsistent with Supreme Court precedents in another respect as well. In 1993, the Supreme Court ruled that the government must “afford notice and a meaningful opportunity to be heard before seizing real property subject to civil forfeiture.” Most drug war seizures are justified under an exception for “exigent circumstances.” For example, the Supreme Court has held that the government can seize a yacht suspected of being used for criminal activity, because otherwise its owner might sail the boat into international waters. But the Supreme Court has said that when the government wants to seize immobile property such as land or buildings, it must afford the owner due process before the seizure.

A domain name is simply an entry in a database. And for the domains the government has been seizing—mostly .com and .org domains—the relevant databases are operated by companies under U.S. jurisdiction. There is no danger that the owner of a domain will move, conceal, or destroy it, as he might with a yacht or a stash of cocaine. Therefore, the same logic suggests that the government has an obligation to afford website owners “notice and a meaningful opportunity to be heard” before taking their domain names. In recent years, it hasn’t done that.

The case of New Zealand resident Kim Dotcom, founder of the once-popular file sharing site Megaupload, is another example of the government abusing its power to seize assets. The site was shut down in a coordinated January 2012 raid involving law enforcement agencies from the United States, New Zealand, and other nations.

Before the raid, Megaupload was one of the world’s most popular websites. And there’s little doubt that many people used it to distribute infringing copies of copyrighted content. But Kim Dotcom argues that he qualifies for the “safe harbor” the Digital Millennium Copyright Act offers to online intermediaries such as YouTube. And in any event, Dotcom has a right to be presumed innocent until the government has proven its charges to a jury.

Yet the government’s mere accusation of copyright infringement was sufficient in effect to destroy Megaupload. The firm’s domain was seized, its servers were shut down, and its assets were frozen. Even if the courts eventually find Dotcom not guilty, it will likely be impossible to rebuild the company after a year or more offline.

Not only is that unfair to Dotcom and inconsistent with the rule of law, it’s bad for innovation as well. Many new media technologies have faced lawsuits from copyright holders. Some of these firms, such as the original Napster file-sharing service, were found liable for copyright infringement. Others, including the creators of the first VCRs, the first MP3 players, and YouTube, have been vindicated by the courts and went on to revolutionize the entertainment industry.

Crucially, all of these firms had the opportunity to make their legal arguments in court before their businesses were shut down. YouTube was allowed to continue operating its website while it fought a legal battle with Viacom. Its servers were not shut down, its assets were not frozen, and its founders were not arrested.

Personally, I think Megaupload was more likely to be the next Napster than the next YouTube. But that’s a call to be made by the courts after hearing arguments from both sides. It’s not a decision that should be made unilaterally by the U.S. government.

The risk of Dajaz1-style seizures and Megaupload-style raids will cause would-be entrepreneurs to give a wide berth to businesses that could be construed as infringing. Maybe that’s not such a bad thing if it means there are fewer Napsters in the future. But it’s a serious problem if it discourages someone from creating the next YouTube.

If Hollywood or the recording industry wants to shut down an online intermediary that facilitates infringement by Internet users, they should do it the old fashioned way: with a civil lawsuit. Civil litigation affords the defendant an opportunity to make its case to a judge before its business is shut down. The approach taken since 2010, in which the federal government unilaterally shutters websites before their owners have gotten a day in court, is inconsistent with the rule of law, unfair to website owners, and discourages online innovation.

I discuss the abuse of asset forfeiture and the broader problem of criminal copyright enforcement in greater detail in chapter 4 of Copyright Unbalanced: From Incentive to Excess, a collection of copyright essays edited by Jerry Brito and published by the Mercatus Center.

Also from This Issue

Lead Essay

  • The Way Forward on Copyright Reform by Derek Khanna

    Derek Khanna argues that copyright was never intended to stand in perpetuity, yet that is in effect what we have for a large number of works today. Copyright’s original purpose was not to compensate content creators, but to promote the arts and sciences, as explained in the Constitution. Returning to that aim should entail shorter copyright terms, which permit future reuses of creative content. Khanna outlines several upcoming opportunities to move in this direction.

Response Essays

  • A Balanced Approach to Copyright by Ryan Radia

    Ryan Radia argues for a middle path on intellectual property. He reminds those who treat copyright as a privilege or a subsidy how similar copyright is to traditional property protections. He further reminds those who favor the current system that in practice, even property rights in land are subject to abridgement in the name of efficiency.

  • Copyright Reform through Private Ordering by Mark Schultz

    Mark Schultz argues that labeling copyright a regulation rather than a property right will perversely result in more regulation and less freedom. Copyright is a flexible system that allows private bargaining and a wide array of mutually satisfactory transactions. Indeed, the creative use of copyright has already substantially mitigated many of the perceived dangers of Digital Rights Management. Considered as such, the private ordering system known as copyright is worth defending.

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