The Digital Citizens Alliance recently released a report that is troubling if somewhat unsurprising. The report documents that intellectual property piracy continues, that it is big business and that cyberlockers play a substantial role in enabling the criminal activity.

Not to be confused with cloud computing, cyberlockers are “online services that are intentionally architected to support the massive distribution of files among strangers on a worldwide and unrestricted scale, while carefully limiting their own knowledge of which files are being distributed.” But the inducement to criminal behavior goes well beyond simply building a tool that facilitates such activity. As the report explains, the typical cyberlocker business model includes receiving funds from multiple sources. One stream of income is derived from people who want to view stolen movies and pay a fee to access a cyberlocker site to do so. But to attract those subscription fees the cyberlocker needs content and so “people who post popular files are often paid by the cyberlocker through affiliate programs that reward users when their uploaded content is accessed.”

One could easily imagine a similar business model where the content was owned by the person posting it, perhaps seeking to gain a greater audience for that artist’s music, movies or photography. But in the case of the typical cyberlocker there is no such good intent. In fact, it’s just the opposite. With business models built to skirt the laws, the site owners try to ignore that rampant illegal behavior is taking place on their platform.

Another factor sets cyberlockers apart from cloud computing as the report states, “Personal storage and access are not the purpose: indeed, files not accessed for a period of time are deleted by most cyberlockers, and individual file synchronization among a user’s devices is not offered.” Cloud computing companies seek customers who will store their files online, and in fact the consumer understands they are paying precisely to have storage for their files. The transient nature of cyberlocker “storage” adds to the concern that in fact such business models are not at all for file storage, but rather are intended for file churning, quick use and removal of stolen material.

Most cyberlockers also demonstrate their apparent true nature in their resistance to following their own rules regarding repeat rights holder infringement on their sites. Such willful ignorance makes it hard to discern how the site is acting in good faith and as a responsible part of the Internet ecosystem. The point is further driven home as the report reveals that “the overwhelming bulk of files found on cyberlockers are infringing. Searches by NetNames for infringing materials stored on legitimate cloud services found negligible amounts of content.”

Cyberlockers, like many Internet sites, also make money by selling advertising. However, most does not appear on the Web site itself but rather is served up on a file download or during the streaming of videos. So cyberlockers generate revenue when their users download or use stolen property. In fact, they receive more than half of their revenue from advertising served up from a small number of advertising networks. The profit generated by these ads is quite substantial, in part driven by the household name brands that end up being advertised on these sites. Given the minimal start up and operating costs, and that the content the sites are “selling” is stolen from artists and creators, any income results in abundant profit.

Cyberlockers, as they attract, are designed, and then by willful ignorance, condone theft are little more than a planned attack on the Internet ecosystem. The entire ecosystem needs to respond. Success in the digital world is achievable when all parties understand that they cannot stand on their own, that in fact an economically thriving digital ecosystem requires good faith cooperation, within the bounds of the law, and with an eye towards what is best for the broader ecosystem. In other words, the distributed nature of the Internet is a fundamental part of its design, and no one entity, whether private sector or government, can control it so stakeholder cooperation is imperative for the success of all.

Pirates, mere thieves of artists and creators inventions, have at the moment found a new place from which to operate – their own smelly lockers.

Today the House Judiciary Committee is undertaking the next in its series of hearings discussing the Copyright Act. This time the hearing will focus on Title 17, Chapter 12 which discusses copyright protection and management systems, including section 1201 regarding the circumvention of copyright protection systems. The very design of the Chapter was to promote creation and innovation, imbuing the Digital Millennium Copyright Act with flexibility.

By including section 1201, that is, by allowing for secure methods of distribution, artists have been provided some protection against theft of their property. This has resulted in a flood of content for multiple new and traditional platforms that otherwise would have been at high risk of theft. Just as society disallows breaking and entering, or the possession or sale of lock picking tools (except in very narrow circumstances) the section prohibits the circumvention of technological protection measures and disallows the trafficking in tools that are primarily designed for circumvention.

The provision was not without controversy when included in the legislation and remains controversial today. But the section has withstood the test of time. Consumers enjoy massive choice in delivery methods now. New and innovative licensing and distribution models for online content seem to emerge every day. Just in online music the variety of services via abundant business models is amazing including iTunes, Spotify, Pandora, satellite radio, AOL Radio, Slacker, Grooveshark, Jango, Last FM, Songza, Sony Music Unlimited, and many more. For video Ultraviolet, Disney Movies Anywhere, HBO Go, TV Everywhere, Epix HD, Hulu, and Crackle just begin the long list. Means of accessing books are many and highly competitive. Consider Amazon’s Lending Library, which allows Amazon Prime subscribers to borrow titles at no additional cost. This service uses digital rights management technology protected by section 1201. Entertainment software (video gaming) is available in more ways and more places than any boy playing on his Atari could have ever imagined

What does it all mean? It means that once property rights are protected a market will grow, and expand, innovating new products and services to meet the expectations and needs of consumers. The certainty and flexibility of section 1201 provides that property protection and legal certainty, providing a reasonable landscape for artists and creators to make more content available in more ways despite the increased risks of piracy inherent in a digital world.

Of course some have tried to use the law in ways it was never intended. This is not uncommon as lawyers seek to new and creative arguments to benefit their clients, yet the courts have rejected use of the section much beyond protecting copyrighted works which has preserved competition. Often cited as an abuse, is the assertion of section 1201 in an attempt to protect the garage door opener and third-party printer toner cartridge markets. Less often added is that the courts appropriately found that the use of 1201 to leverage sales, instead of merely protecting legitimate copyright interests, was inappropriate and those attempts failed. The system worked.

But no legislation is perfect, particularly as technology and times change. That understanding is an integral part of this law. Anticipating innovation in business models, technology and services the law requires the Library of Congress to update a list of exceptions every three years so that non-infringing uses of copyrighted works could continue even while appropriate safeguards were preserved for creators and distributors. Explicitly protected is free speech by including permanent exemptions, such as for libraries and educational institutions, encryption research, security testing, and reverse engineering.

In all, the law contemplated technological protection measures and made clear that they were allowable. The potential harms were also specifically contemplated with measures included to guarantee that non-infringing uses were allowed. The courts have similarly acted appropriately in constraining the reach of the law to little more than guaranteeing the protection of copy protected works. Erosion of section 1201 to allow the trafficking of tools primarily designed to enable digital theft seems silly on its face given that in the analog world such tools are per se illegal.

Ultimately, Section 1201 encourages self-help, that is, property owners benefit if they take action to protect their own property. This is entirely appropriate, ultimately conserving law enforcement resources for the most challenging issues. The law also encourages innovation by protecting the property of artists, inventors and creators. The result is that all consumers are able to enjoy content in ways not dreamed of even 15 years ago.