Some call them “rogue websites.” They market counterfeit drugs, fake Gucci handbags and other falsely branded items. Or they stream TV shows without paying any royalties, let users swap copyright music or offer free downloads of the latest Hollywood blockbusters.

Such websites operate in many different ways and are headquartered in many different countries, but they have one common element: They are all dedicated to infringing IP rights.

And they produce infringement on a massive scale, assert some experts. Rogue websites see more than 53 billion visits each year, according to the U.S. Chamber of Commerce. The resulting infringements undermine the health of America’s IP-dependent industries, which produce more than $7.7 trillion of the nation’s GDP and 60 percent of its exports, the Chamber asserts.

That’s why the Chamber, the film industry and the music recording industry are strongly supporting two bills in Congress that would give the government and IP owners powerful new ways to drive rogue websites out of business.

“There’s no reason these sites should be allowed to remain on the Internet,” says Steven Tepp, the Chamber’s chief IP counsel. “They wouldn’t be allowed if they were corner shops on Main Street. We shouldn’t allow them to have unfettered access to the U.S. market just because they are on the Internet.”

But many civil rights groups, academics and IT companies fiercely oppose the legislation. They assert the bills would impose huge costs on online companies, scare investors away from the Internet, put many legitimate websites out of business and seriously damage one of the strongest-performing areas of the U.S. economy. “The ramifications would be catastrophic,” says Matthew Schruers, vice president of Law & Policy at the Computer & Communications Industry Association.

Consider COICA

Congress has targeted rogue websites before. In September 2010, the chair of the Senate Judiciary Committee, Patrick Leahy, proposed the Combating Online Infringement and Counterfeits Act (COICA). COICA would have empowered the federal government to use civil forfeiture laws to seize the domain names of rogue websites and to block U.S. residents from accessing foreign rogue sites with overseas domain names that could not be seized (see “COICA cracks down on rogue websites”).

COICA sailed through the Senate Judiciary Committee but never came to a floor vote because Senator Ron Wyden put a hold on the legislation. That didn’t discourage Leahy.

In May 2011, Leahy introduced the PROTECT IP Act. This bill would give the federal government the same power to go after rogue websites as COICA did, and it would create an additional private right of action. IP owners could sue rogue website operators and obtain injunctions forbidding the sites from continued operations.
If a rogue website operator is outside the U.S. and, thus, beyond the in personam jurisdiction of the U.S. courts, the PROTECT IP Act authorizes an IP owner to bring an in rem action against the site’s domain name. The IP owner can serve copies of the resulting court order against companies that provide online financial transactions for the website or provide Internet advertising services for the site, and such companies must cease doing business with the website “as expeditiously as reasonable.”

This is a powerful remedy. Cutting off online payments and Internet ad revenue can be the death knell for a website. Just ask WikiLeaks.

House’s SOPA

The Senate bill applies to websites that have “no significant use” other than committing or facilitating copyright infringement or trademark counterfeiting. It also covers sites that are “primarily” used for such infringing acts, if the sites are designed or marketed for users to commit infringements.

The House bill, the Stop Online Piracy Act (SOPA), goes further. Introduced in October 2011 by Lamar Smith, chair of the House Judiciary Committee, SOPA targets the same websites as the Senate bill, plus any U.S.-directed website with operators that take “deliberate actions to avoid confirming a high probability” that the site is used “to carry out” copyright infringement. This additional language seems to impose a new requirement on all websites that have user-generated content. In order to avoid liability under SOPA, these websites must actively police the material posted by their users and remove infringing items, according to many experts. “In order to stay in business, legitimate companies like Twitter, YouTube, eBay, Amazon and cloud computing companies will start doing a lot more filtering and monitoring,” says a Washington, D.C.-based IP expert who prefers to remain anonymous because he represents both online companies and content owners.

Many online businesses would be unable to satisfy SOPA’s requirement to police against infringement because it would be too costly, according to some experts. “The vast majority of the industry won’t be able to keep up with the required compliance,” Schruers says.

Legitimate Threat

Even the milder Senate bill would cause problems for legitimate Internet companies, according to many venture capitalists and Internet entrepreneurs. They worry IP owners would sue legitimate businesses just to pressure them to police their users’ activities—and that many online companies, especially smaller ones, couldn’t afford to vindicate their rights in court.

They fear, too, that suits against rogue sites will produce collateral damage to legitimate online businesses. A wide variety of such companies—including ISPs, search engines, online bulletin boards, Internet ad services, Facebook and Twitter—may be ordered to sever their connections to rogue sites, and doing so may be costly and technically difficult.

The risk of these extra costs would drive investments away from online companies and damage the growth of the Internet, some say. And it would do little to stop the true rogue websites, which would stay in business by moving their operations outside the U.S. and changing their domain names as needed, according to critics. “It is a Whac-A-Mole situation. People can move their sites around at the touch of a button,” says Professor David Post of Temple Law School.

But the bills’ supporters insist that something must be done about rogue websites. “The Internet can’t be maintained as the Wild West. It must have rules, and there must be sanctions against those who steal,” says Jonathan Hudis, a partner at Oblon, Spivak, McClelland, Maier & Neustadt.

Many on Capitol Hill agree. The legislation is “a high priority” for the House and Senate Judiciary Committees, notes Hudis. “Both bills come with bipartisan support. That’s rare in Congress these days,” he adds.