What the FTC Should Know About Brand Sponsored Piracy and Google’s “Pinto Problem”
A Picture Speaks 1000 Words
The Los Angeles Times published yesterday a story about the USC-Annenberg Innovation Lab first monthly report on brand sponsored piracy–the purchase by major brands of advertising inventory located on pirate websites. This is one of the ways, for example, that Megavideo became such a megamoney enterprise. Page 8 paragraph 18 of the Megavideo indictment tells us: “Originally, the Mega Conspiracy had contracted with companies such as AdBrite, Inc., Google AdSense, and PartyGaming plc for advertising. Currently, the Conspiracy’s own advertising website, Megaclick.com, is used to set up advertising campaigns on all the Mega Sites.”
The study highlights the fundamental problem with the brand sponsored piracy–if you follow the money, big brands buy advertising that is served to users of pirate sites by a variety of means. How the ad comes to be there is important, but following the money in this case is a lot easier than some in the chain–Google for example–would have you believe. It starts with the brand and it ends with the pirate. We have pictures. Many pictures.
Follow the Money in Two Easy Steps
“Following the money” is a two step process, best illustrated by the screen captures readily available around the Internet. Step one: It starts with the brand; Step two: it ends with the pirate. What happens in between is something that can be known by observation and process of elimination, but the people who are best positioned to find out are the brands. It is, after all, their money. It is not Google’s money, it is not Yahoo!’s money, or anyone else’s money. It is the brand’s money. And the brand is entitled to know where it went.
For example–I expect that at some point, someone is going to ask to see Megavideo’s 1099s for all the users it paid for pirate films stored in cyberlockers. Why? Because a large portion of those users were in the U.S., and the U.S. would require that income to be declared. You don’t suppose…gasp…dum dum dum…the users failed to declare that income on their tax returns do you? You don’t suppose that Megavideo failed to report those payments–millions and millions of dollars of those payments over years and years by the look of it.
Which would you rather have? A criminal copyright infringement case or a criminal tax evasion case from the IRS or Inland Revenue?
If you are a Kim Dot Com with a business located in Hong Kong, that may be jump ball. But if you are a company like Levi’s, getting caught up in a tax evasion conspiracy case–that may well include money laundering charges, violations of the Patriot Act, Sarbanes Oxley disclosure and a host of other problems–a garden variety copyright infringement case may look like a port in a storm. You know, a safe harbor.
Because once that ball starts rolling down hill, it may gather itself into the thing that brought down Michael Milken and Drexel–the Racketeer Influenced and Corrupt Organizations Act, or “RICO”.
Levi’s Gets the Memo
This may explain why the Times reports that Levi’s took quick action:
Jeans maker Levi’s took swift action when Taplin presented evidence that the clothing company’s ads had appeared on file-sharing sites.
“When our ads were running unbeknownst to us on these pirate sites, we had a serious problem with that,” said Gareth Hornberger, senior manager of global digital marketing for Levi’s. “We reached out to our global ad agency of record, OMD, and immediately had them remove them…. We made a point, moving forward, that we really need to take steps to avoid having these problems again.”
Note the difference between the Levi’s response and the Google response. Levi’s went on the record, direct quote with source. Levi’s didn’t call Google. They called their ad agency. As hard as it may be for the company or the tech press to believe, when it comes to brand sponsored piracy, what Google or any other ad network wants really doesn’t matter to the brand. Why?
Because Google will sputter around trying to say that somehow they didn’t have any control over the operation of the Doubleclick ad serving technology (yet apparently can disable users of it). They will start talking about what they knew and when they knew it, whether they profited from the knowledge, and so on. That’s what usually happens.
For example, Google’s statement to the Times was telling:
“To the extent [the study] suggests that Google ads are a major source of funds for major pirate sites, we believe it is mistaken,” a Google spokesperson said. “Over the past several years, we’ve taken a leadership role in this fight. The complexity of online advertising has led some to conclude, incorrectly, that the mere presence of any Google code on a site means financial support from Google.”
Who said this? Ah, yes. the well-known “Google spokesperson.” The Google spokesperson sure is everywhere these days. This is a company that is so secretive, that reporters tell me they have to press hard to even get a name to go with a quote, particularly when it’s bad news. (See Jane Hamsher’s story in Firedoglake.com “Google Pulls Utoopi Paid Sex App Marketed to Students From Google Play”.)
But more importantly perhaps, what did they really say? That they have no control over their technology? That it has a design defect of such magnitude that it permits the offshore money flow–the apparently largely undeclared offshore money flow of income in the hundreds of millions–from unsuspecting brands to operators of pirate sites?
According to Wikipedia:
In September 1971 the Ford Motor Company launched the Pinto [model]…. Through early production of this model it emerged that design flaws could result in fuel tank explosions when the vehicle was subject to a rear-end collision. Some sources even allege this safety data was available to Ford prior to production, but was ignored for economic reasons.
Either way, a major scandal followed with the leaking to San Francisco magazine Mother Jones of the notorious “Ford Pinto Memo”, an internal Ford cost-benefit analysis showing that the cost of implementing design changes to the subcompact’s fuel system was greater than the economic cost of the burn injuries and deaths that could be prevented by doing so. Subsequently some have played down the importance of this case, as Pinto explosion fatality estimates range widely from 27 to 900, with the lowest figures being allegedly in line with comparable fatality statistics for other car models.
Does this mean that ad networks have a Pinto Problem? That their customers have no responsibility for any improper payments because of the “complexity of online advertising”? As a wise man once said, beware of complexity because it usually means fraud is not far away.
As The Trichordist pointed out, Google’s statement is kind of silly–the qualifying use of the word “major” for example is actually quite hilarious if you like gallows humor (“To the extent [the study] suggests that Google ads are a major source of funds for major pirate sites, we believe it is mistaken,” a Google spokesperson said.”). As The Trichodist correctly pointed out, does this mean Google is a major source of income but only for minor pirate sites?
Google’s use of qualifiers is silly, but it is also a rather chilling nondenial denial. What does this mean in practice? I’m trying to script the conversation between the Google sales rep and the brands’ ad agencies: “We have this great network you should pay us money to be included in because LOL we have no control over any of it!!!” And did an ad agency account rep respond with “OMG, that’s awesome LOLROFLMAOPUG!!! We’re so in!!”
Probably not–but only “probably,” because if you read the news stories about how Google sold the drug ads to the law enforcement sting that led to Google’s $500,000,000 fine and plea bargain for violations of the Controlled Substances Act, it’s actually quite believable that such a conversation took place. Eric Schmidt, after all, refused to answer factual questions from Senator Cornyn concerning the contents of Google’s drugs plea agreement (a public document)–on the advice of counsel.
The Ad Industry’s Pinto Memo
So what was said between Google and its ad agency clients about where the ads were showing up and the degree of control Google had over its network? What was said between ad agencies and other ad serving networks, exchanges, or real time barter operators? And those conversations with ad agencies, I would submit, would be the where the “Pinto memo” lies that is no doubt being “obfuscated” as you read this. (Obfuscation with lime seems to be a favorite over there.)
What kind of arrogance would lead a company to think that it could get away with this kind of blatant vileness? The same kind that would lead it to think it could get away with marketing an escort app, selling drug advertising illegally and trying to twist 3 million takedown notices a week into a problem created by Congress? Market dominance, perhaps?
It is important to note that Google is not the only network on the Innovation Lab’s list–just the only one that is the subject of multiple investigations for antitrust violations on several continents, not to mention several states.
It’s About the Brands
Fortunately, the USC-Annenberg report does not seek to assign liability for any of this, just to stimulate conversations because they followed the money from the brand to the pirate. And that call from Levi’s to its ad agency was probably plenty stimulating. What happened after that at the ad agency is anyone’s guess.
It’s very simple–do brands want their ads served to users on sites that offer unlicensed content and make no royalty payments? If they do, the public has a right to know that they do. And so does the IRS.
If they don’t, it’s their money and they can spend it how they like. But don’t be surprised if the issue comes up the next time they want something from those who are harmed by their decision.
And those people would be the songwriters, artists, film makers, directors, actors, engineers, set designers and other creators who are watching their life’s work be stolen with brand supported sponsorship.
However, is that really necessary? The Trichordist’s “Principles for an Ethical Internet” suggests we all enjoy “COMMON GOALS, BEST PRACTICES AND SOLUTIONS”–we had these relations with brands long before the Internet and certainly long before there were online ad networks. I think we can figure this out.