Approaching Payment Processors To Fight Counterfeiters Online

The major credit card companies ' Visa, MasterCard, American Express, Discover Card and PayPal ' all have procedures in place by which they will cut off, or at least attempt to get their local branches to cut off, counterfeiters. In June of 2011, an agreement was entered into by these payment processors in which they established best practices designed to withdraw payment processing services from websites selling counterfeited or pirated goods.

Last fall, Senator Patrick Leahy (D-VT), who at the time was the chair of the Senate Judiciary Committee, wrote a letter to Visa and MasterCard asking them to double down on their efforts to curtail counterfeiting when it comes to cyberlockers, which have been hosting infringers. See, “Judiciary Chair Leahy Urges Visa, MasterCard To Recommit Their Efforts To Address Illegal Activity Online.” During previous congressional hearings, a MasterCard executive testified that “we prohibit and deplore the use of our systems for all of the illegal activity, including copyright infringement.”

Battling Infringement

Using payment-processor, anti-counterfeiting systems ultimately can be the most effective way of preventing infringing products. Sometimes a cease-and-desist letter sent to the right place will evoke an appropriate response; that is usually the situation when dealing with entities that are counterfeiting on an inadvertent basis. Most hard-core counterfeiters, on the other hand, ignore cease-and-desist letters, provide some lame excuses, or make up some unbelievable denial and continue their activities either blatantly or surreptitiously (by using another website or name). DMCA take-down letters to ISPs are effective in the United States; however, they are not universally recognized and are voluntary in most countries.

When you identify an online infringement and go to the WHOIS database to try and ascertain who the owner of a website is in order to contact them, more likely than not you will be stymied because the website operations are using privacy companies that shield the actual owners' identities on WHOIS.

After getting the runaround and when all else fails, look to the payment processors for help. When you review their procedures, they make it clear that they want to be the avenue of last resort, not the first approach in the battle against counterfeiters. In their anti-counterfeiting programs, they generally ask for proof that you have done everything you possibly can to get the infringement to stop, such as previously sending out cease-and-desist letters, DMCA letters and other efforts. They are the final roadblock against counterfeiters, not the initial barrier.

Payment Processors Can Help

The payment processors' policies and practices differ, but they are similar, too. Visa describes its policy as follows:

Visa voluntarily provides assistance to IP Owners to address e-commerce transactions involving IP infringing products. Upon receiving complete information and credible evidence directly from the IP Owner establishing that a merchant (“Merchant”) is engaged in transactions involving the sale of infringing goods on the Internet using Visa-branded payment cards, Visa will attempt to identify and notify the Merchant's Acquiring Bank (“Acquirer”). The Acquirer will be asked to investigate the allegations of infringement and take any appropriate action, which may include, but is not limited to, directing the Merchant to cease selling infringing goods identified by the IP Owner or terminating the merchant account.

After providing all the required information, proof of ownership and the infringing activities, Visa will identify the alleged counterfeiter's bank, forward the IP owner's submission to it and instruct the bank to initiate an investigation into the merchant. If the merchant does not agree to stop selling the goods, or if the merchant does not provide evidence that supports a genuine issue regarding the lawfulness of the merchant's sale of the goods at issue, the bank will be expected to terminate processing Visa payments for the merchant.

If the alleged counterfeiter provides evidence that supports a genuine issue regarding the lawfulness of the sale of the goods, written evidence will be provided to the IP owner. If Visa determines that there is a genuine dispute between the owner and the merchant regarding the lawfulness of the sale, Visa will instruct the owner to directly address its concerns to the merchant and its bank.

PayPal is a particularly good venue to use for blocking counterfeiters because it may be the sole processor for all the various credit cards. Rather than having to send different notices to each different credit card company, just contact PayPal. Shutting down the counterfeiter's access to PayPal may effectively shut down its access to all credit card companies at once, making it much easier and more effective for someone attempting to turn off the cash flow spigot of an infringer than separately contacting each credit card company.

Counterfeiters simply cannot exist without having access to payment processing companies. Knowing how to use payment processors' anti-counterfeiter procedures is an excellent tool to hone in the never-ending whack-a-mole battle against infringers.

Joshua Kaufman is a partner at Venable and chair of its copyright and licensing group. Based in Washington, DC, he specializes in technology/online matters, anti-counterfeiting, art, media, publishing, entertainment, copyright, licensing and trademark law. He assists clients in the United States, Europe and Asia with transactions as well as litigation, and is an adjunct professor at American University Law School. He can be reached at [email protected].

There are lots of knock-offs of entertainment industry goods that flood the marketplace. You can find them on the street, but more and more shoppers buy them online. And the online purveyors of counterfeit goods can be particularly difficult to thwart. Cease-and-desist letters are fine, Digital Millennium Copyright Act (DMCA) take-down letters are helpful, but if you really want to cause counterfeiters pain and stop them from infringing on intellectual property rights, you need to cut off their lifeline: cash flow.

Most counterfeiters who operate online hide their identities through a variety of privacy services, anonymous sites, false information in WHOIS, changed locations and different aliases. But what they cannot do is provide false information or out-of date-information to their banks, credit card companies or online payment services like PayPal. Failure to provide up-to-date and accurate bank and contact information to the payment providers will prevent the counterfeiters from getting paid and curtail their customers being able to use credit cards and PayPal on their websites, thereby cutting off their income stream.

In short, if they want to be paid, they have to be honest with their payment provider companies.

The major credit card companies ' Visa, MasterCard, American Express, Discover Card and PayPal ' all have procedures in place by which they will cut off, or at least attempt to get their local branches to cut off, counterfeiters. In June of 2011, an agreement was entered into by these payment processors in which they established best practices designed to withdraw payment processing services from websites selling counterfeited or pirated goods.

Last fall, Senator Patrick Leahy (D-VT), who at the time was the chair of the Senate Judiciary Committee, wrote a letter to Visa and MasterCard asking them to double down on their efforts to curtail counterfeiting when it comes to cyberlockers, which have been hosting infringers. See, “Judiciary Chair Leahy Urges Visa, MasterCard To Recommit Their Efforts To Address Illegal Activity Online.” During previous congressional hearings, a MasterCard executive testified that “we prohibit and deplore the use of our systems for all of the illegal activity, including copyright infringement.”

Battling Infringement

Using payment-processor, anti-counterfeiting systems ultimately can be the most effective way of preventing infringing products. Sometimes a cease-and-desist letter sent to the right place will evoke an appropriate response; that is usually the situation when dealing with entities that are counterfeiting on an inadvertent basis. Most hard-core counterfeiters, on the other hand, ignore cease-and-desist letters, provide some lame excuses, or make up some unbelievable denial and continue their activities either blatantly or surreptitiously (by using another website or name). DMCA take-down letters to ISPs are effective in the United States; however, they are not universally recognized and are voluntary in most countries.

When you identify an online infringement and go to the WHOIS database to try and ascertain who the owner of a website is in order to contact them, more likely than not you will be stymied because the website operations are using privacy companies that shield the actual owners' identities on WHOIS.

After getting the runaround and when all else fails, look to the payment processors for help. When you review their procedures, they make it clear that they want to be the avenue of last resort, not the first approach in the battle against counterfeiters. In their anti-counterfeiting programs, they generally ask for proof that you have done everything you possibly can to get the infringement to stop, such as previously sending out cease-and-desist letters, DMCA letters and other efforts. They are the final roadblock against counterfeiters, not the initial barrier.

Payment Processors Can Help

The payment processors' policies and practices differ, but they are similar, too. Visa describes its policy as follows:

Visa voluntarily provides assistance to IP Owners to address e-commerce transactions involving IP infringing products. Upon receiving complete information and credible evidence directly from the IP Owner establishing that a merchant (“Merchant”) is engaged in transactions involving the sale of infringing goods on the Internet using Visa-branded payment cards, Visa will attempt to identify and notify the Merchant's Acquiring Bank (“Acquirer”). The Acquirer will be asked to investigate the allegations of infringement and take any appropriate action, which may include, but is not limited to, directing the Merchant to cease selling infringing goods identified by the IP Owner or terminating the merchant account.

After providing all the required information, proof of ownership and the infringing activities, Visa will identify the alleged counterfeiter's bank, forward the IP owner's submission to it and instruct the bank to initiate an investigation into the merchant. If the merchant does not agree to stop selling the goods, or if the merchant does not provide evidence that supports a genuine issue regarding the lawfulness of the merchant's sale of the goods at issue, the bank will be expected to terminate processing Visa payments for the merchant.

If the alleged counterfeiter provides evidence that supports a genuine issue regarding the lawfulness of the sale of the goods, written evidence will be provided to the IP owner. If Visa determines that there is a genuine dispute between the owner and the merchant regarding the lawfulness of the sale, Visa will instruct the owner to directly address its concerns to the merchant and its bank.

PayPal is a particularly good venue to use for blocking counterfeiters because it may be the sole processor for all the various credit cards. Rather than having to send different notices to each different credit card company, just contact PayPal. Shutting down the counterfeiter's access to PayPal may effectively shut down its access to all credit card companies at once, making it much easier and more effective for someone attempting to turn off the cash flow spigot of an infringer than separately contacting each credit card company.

Counterfeiters simply cannot exist without having access to payment processing companies. Knowing how to use payment processors' anti-counterfeiter procedures is an excellent tool to hone in the never-ending whack-a-mole battle against infringers.

Joshua Kaufman is a partner at Venable and chair of its copyright and licensing group. Based in Washington, DC, he specializes in technology/online matters, anti-counterfeiting, art, media, publishing, entertainment, copyright, licensing and trademark law. He assists clients in the United States, Europe and Asia with transactions as well as litigation, and is an adjunct professor at American University Law School. He can be reached at [email protected].