New Report Highlights Danger Cyberlockers Present to Intellectual Property

Michi Iljazi

September 23, 2014

Intellectual Property (IP) is an important debate in today’s global economy, and the Taxpayers Protection Alliance (TPA) continues highlight the value of IP in an evolving economic landscape. There are new pieces of data and information that can be obtained on a regular basis in terms of the kind of value IP has to economic growth and expanding innovation, and a new report released last week shows yet again just how the abuse of IP is still rampant and profitable, and in dire need of improvement.

A report from the Digital Citizens Alliance (DCA) entitled “Behind the Cyberlocker Door: A Report on How Shadowy Cyberlocker Businesses Use Credit Card Companies to Make Millions” showcases the seedy nature of some businesses that are blatantly ignoring IP, and making a great deal of money through content that they neither created or have a right to profit off of.

First, understanding what cyberlockers are and how they operate is the first step in defining the problem.  A cyberlocker stores infringed (copyrighted and not permitted) content in a cloud; then, distributes to any user who wants to obtain the material without being identified by simply agreeing to a subscription. This allows users to violate copyright, spend little money, and have unlimited access to content that (for the most part) wasn’t permitted to be distributed in the first place. These services have a business model that allows them to operate at a very low level of cost, and so they can charge a flat subscription rate and in many cases afford to pay individuals to upload content onto their site. This also gives them some form of plausible deniability to say “we didn’t steal the content, someone else did and put it onto our site.” There are many issues here that leave owners of content vulnerable to having their IP rights violated as their own material is illegally distributed all throughout the Internet as another company profits.

The report put out by DCA looks at the top “direct download” cyberlockers & the top “streaming” cyberlockers. The data details just how bad cyberlockers are abusing IP are, how much it is costing in terms of an economic factor, and some of the problems that contribute to keeping cyberlockers in business:

  • Overall, total annual revenue across the thirty cyberlockers equated to $96.2 million or $3.2 million per site.
  • The overwhelming use of cyberlockers is for content theft. Analysis of a sampling of the files on the thirty cyberlocker sites found that the vast majority of files were clearly infringing. At least 78.6 percent of files on direct download cyberlockers and 83.7 percent of files on streaming cyberlockers infringed copyright.
  • A deeper look at the revenues and profits shows how profitable content theft is for cyberlockers: The 15 largest direct download cyberlockers combined to make $63.1 million in annual revenue, which breaks down to $4.2 million per site in annual revenue.

The high profit margins, and ability to have their product utilize the payment processors without much of any issue in terms of what is being distributed presents a major challenge. The cost of business amounts to having an Internet infrastructure in place, some kind incentive to get content uploaded by others who have stolen it, processing, minimal employee costs. That being the case, it is no wonder that profit margins are through the roof and you see willingness for payment processors to turn a blind eye to the IP infringement clearly dominating this industry.

DCA vests some responsibility and (optimism) with the payment processors and their role as of now and looking to the future:

There are commercially reasonable, technologically feasible steps can be taken by payment providers such as MasterCard and Visa. Specifically, MasterCard and Visa should follow PayPal’s lead and adopt policies for their networks against doing business with these rogue operators.

If they take such an approach, it would drive customers to less trustworthy forms of payment. For example, a customer seeking free content may not feel comfortable turning over his or her credit card (knowing the limits of their liability), but may be reluctant to give a cyberlocker their bank routing information or using Bitcoin to make a purchase.

So why should MasterCard and Visa take such a step? It’s about the company you keep, and payment processors have shown a willingness to disassociate with other bad actors, such as, online pharmacies selling controlled substances without a prescription. MasterCard and Visa deserve credit for their efforts to curtail those sales.

TPA encourages anyone who cares about the integrity of IP and copyright to read this report and note the detail with which DCA put together the information regarding the problem cyberlockers present to IP and content creators. There is likely to be more garnered about these bad actors and how to deal with them because of the findings in this report, and hopefully more solutions will follow.