—Corbin K. Barthold, WLF Senior Litigation Counsel
(Washington, DC)—On August 4, the Seventh Circuit affirmed two district court decisions that read section 1 of the Federal Arbitration Act, known as the “transportation worker exemption,” in line with its text and context. WLF filed an amicus brief urging this affirmance. The case is Wallace v. Grubhub, Nos. 19-1564, 19-2156.
The FAA establishes a federal policy favoring arbitration. It requires, in section 2, that most people comply with their arbitration agreements. It contains a discrete exception, in section 1, for “seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” The district courts ruled that drivers who deliver meals locally for Grubhub fall outside this exemption. The Seventh Circuit agreed, writing: “To show that they fall within th[e] exception, the plaintiffs had to demonstrate that the interstate movement of goods is a central part of the job description of the class of workers to which they belong. They did not even try to do that.”
In its brief, WLF explained that section 1 is not the product of a legislative intent to excuse a few transportation workers—and, for some peculiar reason, them alone—from honoring arbitration agreements. Section 1 exists, rather, because Congress expected shipping-industry workers to engage in arbitration governed by other federal laws. And because section 1 fulfills this one focused purpose, there is no principled way to stretch its application. Although some judge-made tests purport to expand the exception beyond national and international transportation of goods, these contrived standards defy statutory text and context, produce inconsistent results, and serve no end set forth by Congress.
Celebrating its 43rd year as America’s premier public-interest law firm and policy center, WLF advocates for free-market principles, limited government, individual liberty, and the rule of law.
The post Seventh Circuit Reads FAA § 1 Exemption In Line With Statutory Text And Context appeared first on Washington Legal Foundation.
U.S. Sen. Roger Wicker, R-Miss., chairman of the Committee on Commerce, Science, and Transportation, will convene a hearing titled, “Oversight of the Federal Trade Commission,” at 10:00 a.m. on Wednesday, August 5, 2020. The hearing will provide members an opportunity to examine policy issues before the Federal Trade Commission (FTC) and review the agency’s ongoing activities and proceedings.
- The Honorable Joe Simons, Chairman, Federal Trade Commission
- The Honorable Noah Phillips, Commissioner, Federal Trade Commission
- The Honorable Rohit Chopra, Commissioner, Federal Trade Commission
- The Honorable Rebecca Slaughter, Commissioner, Federal Trade Commission
- The Honorable Christine Wilson, Commissioner, Federal Trade Commission
*Witness list subject to change
Wednesday, August 5, 2020
Full Committee Hearing
This hearing will take place in the Russell Senate Office Building 253. Witness testimony, opening statements, and a live video of the hearing will be available on www.commerce.senate.gov.
In order to maintain physical distancing as advised by the Office of the Attending Physician, seating for credentialed press will be limited throughout the course of the hearing. Due to current limited access to the Capitol complex, the general public is encouraged to view this hearing via the live stream.
*Note: All witnesses will participate remotely.
At FTC Oversight Hearing, Ranking Member Cantwell Previews Legislation to Crack Down on COVID-19 Price Gouging and Fake Goods
WASHINGTON, D.C. – Today, U.S. Senator Maria Cantwell (D-WA), Ranking Member of the Senate Committee on Commerce, Science, and Transportation, announced plans to introduce legislation to make it a federal crime to gouge consumers during emergencies like the ongoing COVID-19 pandemic. Cantwell's legislation would also crack down on sellers of fake goods, making clear that it is illegal to peddle items like defective masks or fake COVID-19 cures.
“My view of the FTC is simple: you should be doing everything in your power to help Americans during this time of crisis,” Ranking Member Cantwell said. “Our nation continues to reel from one of the worst health emergencies and one of the biggest economic crises we've ever faced. The COVID-19 pandemic has attracted bad actors and scam artists, including those who take advantage of people's fear and dire circumstances. While many of the attorneys general have gone after these profiteers, I believe the FTC is holding back. You could be doing more. We must move beyond warnings and threats in response to these unconscionable scams. We must see the FTC exercising real enforcement with real consequences to protect consumers and families when they are most vulnerable.”
COVID-19 has brought price gouging and its long-term impacts to the forefront for consumers. In March, the Seattle Times reported that Internet sellers and second-hand markets were selling $7 hand sanitizers for as much as $150. Around the world, N95 masks have been resold at extremely high prices as well. The fact that all 50 states have price gouging hotlines and ready-made report forms shows how prevalent this issue is across the nation. Extreme weather and other disasters can also lead to price gouging. For example, in the past week Florida expanded its price gouging hotlines to cover storm necessities as Hurricane Isaias approached.
Ranking Member Cantwell said, “I plan to introduce, in the coming days, federal legislation to do two things: to move both on a price gouging definition to make sure the law is clear that consumers can be protected in this area, and to enforce civil penalties for deceptive COVID scams. It is time for us to act on these important pieces of legislation. It is time for us to protect our consumers from these very important issues during the time of crisis. People need help and support. They don't need deception and schemes, and we need an FTC that will be more aggressive.”
FTC Chairman Simons agreed, saying, “Senator, we agree that price gouging is a very serious problem, especially for PPE and the like. We would vigorously support and enforce legislation if Congress passed a law on price gouging.”
Commissioner Slaughter also concurred, saying, “We would really benefit from clear [price gouging] legislation from Congress, but very much share your view that this is a high priority and something that we can see the real life effects of for American people every day.”
Senator Cantwell has been a long-time advocate for exposing fraud and manipulation that is hurting American consumers. She took a leading role in the congressional investigations that exposed the role Enron played in jacking up West Coast energy prices. Using the lessons learned from those manipulative schemes, Cantwell authored legislation that made it a crime to manipulate electricity or natural gas markets, which was enacted into law as part of the 2005 Energy Bill. That legislation also contained a Cantwell provision to prevent a bankruptcy court from forcing Snohomish Public Utility District (PUD) and its customers to fork over another $122 million to Enron.
Cantwell additionally authored legislation making it illegal to manipulate wholesale oil markets, which was included in the 2007 Energy Bill. Unfortunately, additional Cantwell provisions prohibiting price gouging were dropped in the final conference negotiations even though the measure had passed the Senate with bipartisan support. In June 2008, Cantwell chaired a Senate Commerce Committee hearing investigating whether market manipulation is behind today’s skyrocketing oil and gas prices. In 2009, Cantwell fought to ensure that the Dodd-Frank financial reform law included her language allowing the Commodity Futures Trading Commission (CFTC) to more effectively prosecute and deter Enron-style manipulation of the commodity futures and derivatives market prices.
Committee Leaders Urge Commerce & FTC to Work with European Regulators Following Privacy Shield Decision
WASHINGTON – The four bipartisan leaders of the U.S. Senate Commerce, Science, and Transportation Committee and the House Energy and Commerce Committee wrote to U.S. Department of Commerce Secretary Wilbur Ross and Federal Trade Commission (FTC) Chairman Joseph Simons today urging them to work with their European counterparts to issue interim guidance to protect consumers and help businesses following the recent decision by the European Court of Justice (ECJ) that overturned the European Union (EU)-U.S. Privacy Shield Framework.
The letter was signed by Sens. Roger Wicker, R-Miss., and Maria Cantwell, D-Wash., chairman and ranking member of the Senate Committee on Commerce, Science, and Transportation, and Reps. Frank Pallone, D-N.J., and Greg Walden, R-Ore., chairman and ranking member of the House Energy and Commerce Committee.
On July 16, the ECJ invalidated the Privacy Shield, which has allowed the transfer of data from the EU to the U.S. in compliance with EU law since 2016.
“In the wake of this decision, thousands of American businesses that rely on Privacy Shield are left with few options for the processing of data from the EU,” the four committee leaders wrote. “This decision may significantly disrupt their operations and the consumers who rely upon their services.”
The four committee leaders wrote that the Privacy Shield is particularly important for small and medium-sized businesses who need a framework for protecting consumer data while engaging with customers in the EU.
“Avoiding unnecessary disruptions to the businesses affected by the ECJ decision and the consumers they serve is critical,” Wicker, Cantwell, Pallone, and Walden continued in their letter to Ross and Simons. “Accordingly, we encourage you to work closely and expeditiously with your European counterparts to issue interim guidance to make sure that consumer and business services are not unduly disrupted, and personal data is protected.”
Click here to read the letter to the Department of Commerce and FTC.
Government Harassment Won’t Generate Competition, Creativity in Tech Industry, WLF Attorney Writes at Truth on the Market
Will antitrust investigations or legislative hearings inspire creativity and competition in the tech industry? The opposite outcome is far more likely, argues WLF Senior Litigation Counsel Corbin K. Barthold at Truth on the Market.
House Judiciary subcommittee Chairman David Cicilline has said that the federal government’s antitrust action against Microsoft created “space” for “additional innovation and competition.” At a hearing before his subcommittee last Wednesday, that attitude was on full display. As Corbin explains, it’s an easy attitude to hold in hindsight. But the more logical outcome of harassment is lost opportunity. He elaborates:
“If distraction is an end in itself, last week’s Big Tech hearing before Cicilline and his subcommittee was a smashing success. Presumably Jeff Bezos, Tim Cook, Sundar Pichai, and Mark Zuckerberg would like to spend the balance of their time developing the next big innovations and staying ahead of smart, capable, ruthless competitors, starting with each other and including foreign firms such as ByteDance and Huawei. Last week they had to put their aspirations aside to prepare for and attend five hours of political theater.”
Instead of exploring some legitimate concerns, the committee members appeared more interested in “concocting sick burns” that would attract social-media attention. True, Corbin points out, the members’ contrived grievances would “attract clicks on the very platforms built, facilitated, and delivered” by the very tech companies whose CEOs appeared at the hearing. But that does not make the hearing a good use of anyone’s time. Quite the contrary.
Read the whole piece here.
California Court’s Preemption Ruling Clashes with EPA No-Cancer-Warning Determination for Roundup® Labeling
Lawrence S. Ebner is Senior Vice President & General Counsel of the Atlantic Legal Foundation and founder of Capital Appellate Advocacy PLLC, a Washington, D.C.-based, nationwide, appellate litigation boutique. Mr. Ebner has participated in development of the jurisprudence on federal preemption of state-law product liability claims for more than 30 years.
In the WLF Legal Pulse post EPA Finally Flexes Some Preemption Muscle, I explained that last year, the U.S. Environmental Protection Agency (EPA) repudiated California’s attempt, under the State’s Proposition 65 right-to-know law, to require manufacturers of glyphosate weed-control products (e.g., Roundup®) to include a cancer-warning on their nationally uniform, EPA-regulated, pesticide product labeling. EPA announced, based on its “comprehensive evaluation of glyphosate,” that it will not “approve product labels claiming glyphosate is known to cause cancer—a false claim that does not meet the labeling requirements” of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) (emphasis added).
FIFRA, the nation’s principal pesticide law, vests EPA with the sole and exclusive authority to regulate the content of pesticide labeling, and in § 24(b), expressly preempts a State from imposing “any requirements for labeling” that are “in addition to or different from” EPA’s requirements. See 7 U.S.C. § 136v(b).
But on July 20, 2020 a three-judge California Court of Appeal panel issued an opinion in a Roundup personal-injury suit, Johnson v. Monsanto Co. The Court held in part that FIFRA does not preempt California state-court juries from awarding damages on the theory that Monsanto, Roundup’s manufacturer, failed to provide a cancer warning. This unpublished preemption ruling not only is wrong as a matter of law, but also will encourage the national plaintiffs’ contingency-fee bar to continue using misleading TV commercials and other media to troll for so-called “victims” of federally approved or highly regulated products.
Like other courts, the California Court of Appeal misconstrued Bates v. Dow AgroSciences LLC, 544 U.S. 431 (2005). In Bates, an agricultural crop-damage case, the Supreme Court held that FIFRA’s preemption provision, § 24(b), “reaches beyond positive enactments, such as statutes and regulations, to embrace common-law duties.” Id. at 443. The Court indicated that to fall within §24(b)’s express preemptive reach, a state-law, pesticide-related tort claim must satisfy two statutory conditions:
First, a claim must be premised on state common-law rules that qualify as “requirements for labeling.” The Court held that failure-to-warn claims meet this requirement because they “set a standard” that a pesticide’s labeling “is alleged to have violated by containing . . . inadequate warnings.” Id. at 446.
Second, such a requirement for labeling must be “in addition to or different from”—not “equivalent” or “parallel” to—EPA’s labeling requirements. Id. at 447. In particular, the Court indicated that § 24(b) would not apply to “a state-law labeling requirement if it is equivalent to, and fully consistent with, FIFRA’s misbranding provision,” which defines a “misbranded” pesticide product to include labeling that does not contain adequate health or environmental warnings. Id. If a pesticide product is not misbranded under FIFRA, however, a state-law failure-to-warn claim necessarily would impose requirements for labeling that are in addition to or different from, and not equivalent to, EPA’s labeling requirements, and thus, would be expressly preempted by § 24(b). See id. at 454.
The California Court of Appeal’s cursory express preemption discussion in Johnson v. Monsanto is premised on the unsurprising generality that “California’s requirement that products contain adequate warnings is wholly consistent with FIFRA’s requirements that labels include necessary warnings and precautionary statements.” Op. at 44. This superficial and facile “analysis,” like other courts’ post-Bates reflexive rejection of express preemption based on the supposed “equivalency” of state and federal warning requirements, fails to consider the way that EPA actually regulates pesticides and their labeling under FIFRA—comprehensive, product-by-product regulation based on continual, in-depth scientific reviews of each FIFRA-registered pesticide’s potential human health and environmental risks. As Justice Breyer explained in his Bates concurrence, 544 U.S. at 554, state-law warning requirements must “be measured against” the way that EPA “give[s] content” to FIFRA’s broad misbranding standards.
Contrary to the Court of Appeal’s assertion, the Bates opinion does instruct that the type of a pesticide failure-to-warn claims at issue in Johnson are expressly preempted by FIFRA § 24(b). EPA has unequivocally determined, based on extensive review of scientific data, that Roundup’s labeling would be false and misleading, i.e., misbranded, if it did include a cancer warning. Under Bates, in the case of Roundup, a state-law failure-to-warn claim premised on the lack of a cancer warning would impose requirements for labeling that are not parallel or equivalent to, or consistent with, FIFRA’s specific misbranding requirements for glyphosate, but instead, are in addition to or different from those requirements. The Court of Appeal, therefore, should have held that FIFRA § 24(b) does have “the force of law,” Op. at 45, and expressly preempts the plaintiff’s Roundup-related failure-to-warn claims.
The Court of Appeal also erred by holding that the plaintiff’s failure-to-warn claims are not impliedly preempted under the well-established doctrine of impossibility preemption. Under this doctrine, a state-law claim is impliedly preempted where it would be impossible for the defendant to comply with both federal and state law—for example, where, as in Johnson, a pesticide manufacturer would have to provide a cancer warning on its product labeling in order to avoid state-law liability for failure to warn even though EPA has determined that providing a cancer warning would be false and misleading, and thus, would violate FIFRA’s prohibition against misbranded labeling. See, e.g., Mutual Pharm. Co. v. Bartlett, 570 U.S. 472 (2013) (state-law claim impliedly preempted where “it was impossible for [manufacturer] to comply with both its state-law duty to strengthen the warnings on [a drug’s] label and its federal-law duty not to alter [the drug’s] label”).
In other words, EPA’s determination that a cancer warning on Roundup labeling would be false drives the implied preemption analysis as well as the express preemption analysis.
Importantly, the Court of Appeal agreed in Johnson that under the Supreme Court’s reasoning in Wyeth v. Levine, 555 U.S. 555 (2009), a prescription-drug implied preemption case, a pesticide-manufacturer defendant “may establish a preemption defense to a state failure-to-warn claim by providing clear evidence that the EPA would not have approved a label change.” Op. at 48 (citing Wyeth, 555 U.S. at 571). Further, the Court of Appeal acknowledged that under Merck Sharp & Dohme Corp. v. Albrecht, 139 S. Ct. 1668 (2019), “the question of whether a federal agency would not have approved a label change (thus preempting a state-law failure-to-warn claim) is for a judge, not a jury.” Op. at 48-49.
According to the Court of Appeal: “Although Monsanto does not point to any federal regulation that a cancer warning would violate, it has pointed to evidence that arguably would support an impossibility defense.” Id. at 49. But “Monsanto has not, on the record before us, established that FIFRA preempts Johnson’s failure-to-warn claims. . . . despite the supplemental information provided by Monsanto, it has established no more than a possibility of impossibility.” Id. at 49-50. The Court of Appeal further contended that EPA’s “position that glyphosate is not harmful to humans and that a cancer warning on glyphosate is unnecessary . . . is not binding on this court.” Id. at 51.
The Court of Appeal is wrong again. EPA’s carefully considered scientific determination that glyphosate does not cause cancer, its repeated approval or Roundup and other glyphosate products’ labels without cancer warnings, and its unequivocal determination that including a California Proposition 65 cancer warning on such labeling would be false and misleading, provide the clearest possible evidence that Monsanto could not have provided the cancer warning required by California tort law without violating FIFRA—specifically, FIFRA’s statutory and regulatory prohibitions against distributing a pesticide with a warning that EPA has determined would be false and misleading, and thus, misbranded. See 7 U.S.C. §§ 136(q)(1)(a), 136j(a)(1)(E) & 136v(b); 40 C.F.R. § 156.10(a)(5).
A holding that “impossibility preemption,” like express preemption, bars the plaintiff’s failure-to-warn claims in Johnson neither conflicts with Bates, nor with the California Supreme Court’s pre-Bates FIFRA preemption decision in Etcheverry v. Tri-Ag Service, 22 Cal.4th 316, 321 (Cal. 2000).
- Although FIFRA § 24(a), 7 U.S.C. § 136v(a), gives a State leeway to disagree with EPA’s risk determinations and restrict or prohibit the use of an EPA-registered pesticide, FIFRA § 24(b) provides that only EPA can regulate the content of a pesticide’s labeling, such as by determining what human health warnings to include, or not to include. Bates establishes that EPA’s labeling determinations are just as binding on courts as they are on state regulatory agencies. At most, a court can impose liability on a pesticide manufacturer for failing to distribute a product with a label warning which, unlike a Roundup cancer warning, EPA has determined must be provided in order to avoid misbranding.
- The Court of Appeal’s refusal to accept EPA’s emphatic pronouncements—directed specifically to California—that a cancer warning on glyphosate labeling would be false and misleading, and in violation of FIFRA’s misbranding provisions, as “clear evidence” that EPA would reject inclusion of such a label warning defies common sense. Indeed, the Court of Appeal’s waffling on this point seems disingenuous. At the very least, the Court of Appeal should have remanded the case to the trial judge for an Albrecht-type hearing on whether there is clear evidence that EPA, having been fully informed by Monsanto, would have rejected a request to add a cancer warning on Roundup’s labeling.
The California Court of Appeal’s FIFRA preemption ruling in Johnson v. Monsanto Co. is fundamentally flawed as to both express and implied preemption. If Monsanto seeks further appellate review, there are compelling reasons as to why the plaintiff’s failure-to-warn claims are both expressly and impliedly preempted by federal law.
To read more about the items below, click the link above for a PDF of the newsletter.
WLF NEW FILINGS
- WLF asks the Seventh Circuit to reverse judgments imposing injury- and causation-free tort liability. (Burton v. Armstrong Containers Inc.)
- WLF urges the Delaware Supreme Court not to use the implied covenant of good faith and fair dealing to rewrite contracts. (Glaxo Group Ltd. v. DRIT LP)
- WLF supports a citizen petition that calls on the FDA to stop suppressing truthful scientific speech by clinical laboratories. (In re Access to Pharmacogenomics Information)
WLF CASES DECIDED
- The Ninth Circuit holds that a pharmaceutical trade group lacks standing to seek to enjoin a controversial new California law that imposes liability on drug makers for settling patent litigation. (Ass’n for Accessible Medicine v. Becerra)
- The Supreme Court of Pennsylvania affirms a lower court decision holding that trial courts need not act as “gatekeepers” to ensure the reliability of expert evidence. (Walsh v. BASF Corp.)
- The First Circuit decides that local Amazon delivery drivers cannot be contractually compelled to arbitrate disputes under the Federal Arbitration Act. (Waithaka v. Amazon.com)
- The Supreme Court grants review of a Ninth Circuit ruling that misreads an FTC Act remedy provision. (AMG Capital Management, LLC v. FTC)
- The Supreme Court agrees to review a Ninth Circuit decision that would allow activists to seek to impose liability on U.S. companies for allegedly aiding and abetting human rights violations overseas. (Nestlé USA, Inc. v. Doe)
U.S. Sens. Roger Wicker, R-Miss., chairman of the Senate Committee on Commerce, Science, and Transportation, and Tim Scott, R-S.C., today introduced the Connecting Minority Communities Act to codify the existing Minority Broadband Initiative at the National Telecommunications and Information Administration (NTIA) in a new Office of Minority Broadband Initiatives (MBI). The legislation would also create a pilot program to provide grants to Historically Black Colleges and Universities (HBCUs), Tribal Colleges and Universities (TCUs), and Hispanic-Serving Institutions (HSIs) to expand access to broadband and digital opportunity in their communities.
“Closing the digital divide remains a top priority for the Commerce Committee, but too many minority communities remain unconnected,” said Wicker. “The new Office of Minority Broadband Initiatives would focus federal efforts to address this challenge. Partnering with Historically Black Colleges and Universities, Tribal Colleges and Universities, and Hispanic Serving Institutions would help further economic development where it is needed most. I look forward to seeing this important measure advance.”
“Connectivity has been an issue for so many South Carolinians – and Americans – in underserved and rural areas for decades, and the current pandemic has highlighted this disadvantage,” said Scott. “Under this bill, we are leveling the playing field for those in underserved neighborhoods to access the same opportunities. I am thankful for the support from Chairman Wicker on this issue and am hopeful that my Senate colleagues will pass this legislation to help our nation’s most vulnerable communities.”
The Connecting Minority Communities Act would:
- Codify the Minority Broadband Initiative by establishing the Office of Minority Broadband Initiatives at NTIA;
- Task MBI with working with Federal agencies to determine how to expand access to broadband and other digital opportunities in communities surrounding HBCUs/TCUs/HSIs; and work with HBCUs/TCUs/HSIs, state and local governments, the public, and stakeholders to expand broadband access and digital literacy in these communities;
- Establish a task force comprised of stakeholders from HBCU/TCU/HSI communities, state and local governments, and industry to advise the MBI;
- Create the Connected Minority Communities Pilot Program, which would provide $100 million in grants to HBCUs, TCUs, and HSIs to purchase broadband service, broadband equipment (wi-fi hot spots, connected devices, routers, and modems), or compensate information technology personnel, to facilitate online learning or to operate a small business or non-profit;
- Impose accountability measures for the Connected Minority Communities Pilot Program, such as audits and interagency coordination.
Click here to read the bill.
WICKER: Congress Needs to Ensure that the Internet Remains a Forum for a “True Diversity of Political Discourse”
WASHINGTON – U.S. Sen. Roger Wicker, R-Miss., chairman of the Senate Committee on Commerce, Science, and Transportation, today spoke on the Senate floor about the need for Congress to revisit Section 230 of the Communications Decency Act. Section 230 gives broad liability protections to “interactive computer services,” such as Facebook, Twitter, Google, and other social media platforms. The provision protects online platforms from being held liable for content posted by users.
Click here to watch Chairman Wicker’s floor speech.
Excerpt from Chairman Wicker’s remarks, as delivered, below:
. . .
Section 230 of the Communications Decency Act allows online platforms to censor content that they (the platforms) consider obscene, lewd, harassing, along with several other categories including the term “otherwise objectionable.”
Mr. President, I am concerned that this term “otherwise objectionable” is too broad and ends up protecting online platforms when they remove content that they simply disagree with, or dislike, or find distasteful personally.
I fear Section 230 has enabled big tech companies to censor conservative views and voices. And I am joined by a lot of Americans in that view.
As such, this provision has become a loophole for censoring free speech and it risks negating the values at the very heart of our First Amendment.
In the last few years, reports of online censorship of conservative viewpoints have grown more frequent. In early 2018, for example, an undercover report exposed Twitter for systematically “shadow banning” conservative profiles – meaning users were blocked from the platform without being notified.
More recently, Google threatened to demonetize the conservative news site The Federalist for not removing offensive content in their comment section.
Now based upon information I received, the comments were indeed derogatory and unacceptable. What is noteworthy, is that Google’s threat toward The Federalist was hyper-selective and a bit hypocritical.
Google held The Federalist accountable for comments made by the Federalist readers, but Google does not want to be held responsible for the posts or comments by users on Google’s platforms, including YouTube. A double standard imposed by Google itself.
This selective scrutiny reveals what most Americans already believe: that tech companies are politically biased.
Streaming via broadband and wireless networks is now the primary delivery method for video, audio, and other content. Copyright pirates have followed suit, deploying new hardware and websites that circumvent streaming services’ paywalls. Content creators have found some success asserting their copyrights through civil lawsuits, but a key ally in opposing large-scale, professional piracy—federal prosecutors—has been largely missing from that fight. Why? An unintended loophole in the Copyright Act imposes a lesser criminal punishment on infringement through streaming than on unlawful copying and distribution of digital downloads. It’s time to close that “streaming loophole.”
Rise and Impact of Unlawful Streaming
An October 2019 report noted that 46% of U.S. households subscribe to at least one streaming service. Covid-19 lockdowns have undoubtedly increased subscriptions. Data isn’t available for all services, but Netflix alone added nearly 16 million new subscribers in three months. Meanwhile, Hamilton hype helped fuel a rise in Disney+ sign-ups. It’s no surprise that subscription-service offerings dominate the recently announced 2020 Emmy nominations.
Content piracy has undergone a parallel evolution. “Kodi boxes,” slickly designed websites touting access to thousands of TV channels, and “subredits” full of hyperlinks for pirated streams are replacing torrent sites and other means of sharing illegal downloads. Streaming piracy shifted into overdrive during Covid-19 lockdowns, with illegal film viewing up 41% in the U.S., 63% in India, and 43% in the U.K.
Streaming piracy requires little financial investment and can generate huge profits. Before European police shut it down last year, one pirate service based in Spain yielded over €15 million in profits. As we noted in a 2018 post, infringement-device manufacturer Dragon Box claims to have sold over 250,000 units in a six-year period.
These criminal enterprises enjoy their profits on the backs of countless workers in the movie, television, music, and other content-creating industries. A June 2019 Global Innovation Policy Center report estimated streaming piracy caused TV and film studios over $29 billion in revenue and 230,000 lost jobs. Music industry revenues have continued their long slide, due in part to widespread “stream ripping,” the systematic conversion of lawfully streamed files to permanent digital files.
Multiple Tools Needed to Fight Streaming Piracy
Content providers have been moderately successful in Copyright Act litigation against streaming pirates. Alliance for Creativity and Entertainment (ACE), an industry coalition, settled lawsuits filed against the two makers of Kodi boxes, Dragon Box and TickBox, for $14.5 million and $25 million, respectively. The companies also agreed to disable the software that allowed device users to access pirated content online
But much like the mythical hydra (and, for that matter, the Hydra organization made famous in Marvel movies), content creators have found that if you cut off one unlawful streamer, two (or many) more will take its place. For example, a Yahoo! Sports story notes that after the U.S. government seized 16 domain names of pirate sites, four belonging to First Row Sports appeared the following day at a new domain where the pirating continues..
For over a decade, U.S.-based content creators have sought a more potent threat of criminal prosecution to assist in their fight against streaming piracy. Government officials from multiple presidential administrations have also urged Congress to plug the Copyright Act’s streaming loophole. Those urging action include the current Register of Copyrights and the Justice Department’s Criminal Division and a Commerce Department task force during the Obama Administration.
The loophole is a product of a minor technological distinction and congressional inaction. Under the Act, when someone willfully downloads copyrighted content and permanently stores or shares the file, those actions constitute “reproduction or distribution” and can be prosecuted as a felony. Streaming, a process that involves accessing and viewing digital content over a period of time (but not downloading it), is considered an act of “public performance.” Infringement of a copyrighted public performance is a misdemeanor offense subject to much lower jail time and fines.
Since its passage in 1790, Congress has been updating the Copyright Act in reaction to new technology. Congress’s most recent amendments, completed in 1997, aimed at protecting digitized content that pirates were unlawfully downloading and distributing online. Slow internet-access speeds made streaming content nearly impossible, so streaming piracy wasn’t a problem in the 1990s. As a Regulatory Transparency Project analysis explains, “Congress expressed no intent to omit streaming from felony provisions. It is simply an omission based on historical happenstance.”
The conditions in America are ripe for continued expansion of entertainment-content streaming. Internet access will become even faster, and, at least for the foreseeable future, people will feel safer viewing entertainment from home than in theaters or stadiums. Universal Studios’ direct-to-streaming release of Trolls World Tour (which grossed $100 million in rentals), as well as Disney’s decision to put the Hamilton film on Disney+ are a sign of the times. So is AMC Theater’s agreement with Universal to allow that studios’ movies to start streaming a mere 17 days after theatrical release.
More streaming will mean more piracy. A Copyright Act amendment targeting large-scale streaming infringement won’t be a panacea in the fight against piracy, but penalties equal to those for illegal downloading could offer a very powerful deterrent.
Also published by Forbes.com on WLF’s contributor page.
The post Statutory Loophole Hampers Fight Against Large-Scale Streaming Piracy appeared first on Washington Legal Foundation.
U.S. Sen. Dan Sullivan, R-Alaska, chairman of the Subcommittee on Security, will convene a hearing titled, “The China Challenge: Realignment of U.S. Economic Policies to Build Resiliency and Competitiveness,” at 10:00 a.m. on Thursday, July 30, 2020. The hearing will examine topics related to the Chinese Communist Party's unfair trade practices, intellectual property theft, and market manipulation and their harmful impact on U.S. global economic competitiveness.
Witness Panel 1:
- Dr. Rush Doshi, Director of the Chinese Strategy Initiative, The Brookings Institution
- Mr. Michael Wessel, Commissioner, U.S. - China Economic and Security Review Commission
Witness Panel 2:
- The Honorable Keith Krach, Under Secretary for Economic Growth, Energy, and the Environment, U.S. Department of State
- The Honorable Nazak Nikakhtar, Assistant Secretary for Industry and Analysis, International Trade Administration, U.S. Department of Commerce
*Witness list subject to change
Thursday, July 30, 2020
Subcommittee on Security
This hearing will take place in the Russell Senate Office Building 253. Witness testimony, opening statements, and a live video of the hearing will be available on www.commerce.senate.gov.
*In order to maintain physical distancing as advised by the Office of the Attending Physician, seating for credentialed press will be limited throughout the course of the hearing. Due to current limited access to the Capitol complex, the general public is encouraged to view this hearing via the live stream.
**Witness list updated 7/28/2020