Archive for the 'Adult Entertainment' Category

13
Dec
16

VISA Cracking Down on Shell Billing Companies with New Restrictions

There was a time not so long ago when adult website operators created “billing companies” in favorable jurisdictions, whose sole purpose was to bill customers for services provided by the operator, and remit the settled funds to the operator.  The customer was typically indifferent to the identity and location of the billing company, so long as the payment went through and the products or services were delivered.  However, credit card associations have become increasingly insistent that Merchants have a physical location, and be organized where business is actually conducted.  Concerns with consumer protection, fraud, and money laundering have now resulted in tighter restrictions on the identification and location of Merchants’ operating companies.

In August, 2016, VISA issued a “Clarification” of its Core Rules regarding the location of Merchant Outlets.  Effective in October, 2016, any Merchant Outlet involved in Electronic Commerce is required to have a Permanent Establishment through which transactions are completed.  If only digital goods are sold, the Merchant must use the country where the principles of the company actually work.  The Merchant must also hold a valid business license, maintain a local address, and pay applicable sales taxes.  The Merchant’s address for cardholder correspondence must be clearly displayed on the checkout screen, along with various shipping and refund / cancellation policies.

Presumably, these rules prohibit website operators from simply incorporating a billing company in a jurisdiction like the United States, if the principles work in other locations.  Moreover, “shell” corporations with no business license or physical address would be prohibited from serving as a Merchant’s operating company.

More recently, based on information from multiple sources inside the payment processing industry, VISA EU intends to implement new rules that are scheduled to take effect on January 31, 2017.  These rules carry potentially heavy burdens for affected Merchants and Sub-merchants, as they will require companies to show a presence in their country of incorporation and to also retain at least some of their processing funds there rather than settle all those funds to another jurisdiction.

Non-compliance with these restrictions can be crippling.  A first violation carries a €50,000 fine, albeit suspended until the end date of the cure period.  A second violation within 12 months of the first is €100,000, with a monthly increase thereafter of €150,000 above the prior month’s accumulated penalties (e.g., at month 3; €300,000 and so forth).

The new rules can be summarized as follows:

  1. The Merchant’s country of incorporation must be within the Acquirer’s Territory;
  2. A majority of the Merchant’s directors must be in the Acquirer’s Territory;
  3. The Merchant must have a valid address in its country of incorporation, within the Acquirer’s Territory; the incorporation agent’s addresses cannot be used;
  4. The Merchant must pay corporate tax, sales tax or VAT as required by its country of incorporation (within the Acquirer’s Territory);
  5. The Merchant must have a bank account to be used for settlement purposes in a country within the Acquirer’s Territory;
  6. The domain name must be owned by the Merchant or a parent, sister or subsidiary of Merchant;
  7. The Merchant must disclose its location before the customer completes the card transaction, either on the checkout screen or on a screen in the checkout sequence;
  8. The Terms and Conditions must clearly state that the services are provided to the customer by the Merchant, and by no one else, and that all inquiries or complaints be directed to the Merchant; and
  9. Merchants that are not compliant by January 31, 2017 can be subject to fines (see above for the fine schedule).

The increased scrutiny of cross-border transactions, along with the new VISA restrictions, may require substantial business restructuring by some website operators.  Given the relatively brief window before these rules take effect, affected operators should consult with their business, accounting, and legal professionals promptly to begin compliance planning.

08
Jul
16

Stolen Moments – Addressing Webcam Show Piracy

Many webcam performers have experienced a new trend in online piracy – the illegal recording and publication of live webcam performances.  The “business model” is disturbingly simple:  sign up to purchase or view a live webcam performance on any number of webcam networks, use current screen capture technology to record the performance, then distribute the performances on numerous pirate websites hosted in some remote jurisdiction.  Throw in a remote proxy server for good measure, and start generating traffic to a website populated with stolen performances.  Offer a tease of the content for free, and encourage the user to download the entire performance from a file locker for a price.

The webcam performer is victimized because her content is stolen, but the webcam network is also impacted because users can watch recorded “private” performances of their favorite cam stars without paying the typical fee for live viewing.  The stage name of the performer and the brand name of the network’s website are often included in the URL’s generated by the pirate sites, thus resulting in potential trademark infringement against both parties.

So what can be done about this new brand of piracy?  The first step is to sort out who owns what. The webcam network’s Model Agreement will typically state which party retains the copyright to the performances.  Most often those rights will remain with the performer, who will provide some sort of license to the network permitting publication. That means the performer is the party that possesses the legal right to take action for copyright infringement.  Performers who retain copyrights to their performances typically cannot rely on the webcam networks to enforce those rights.  In some circumstances, the performer can authorize the network to take certain steps to enforce his or her copyrights, but not without additional agreements or assignments.  Only the proper party should attempt to take legal action against a pirate camshow site.

The most common initial response to this type of copyright infringement is transmission of a notification of infringement under the Digital Millennium Copyright Act (i.e., a “DMCA notice.”)  Importantly, a DMCA notice is only legally effective when sent to a third-party providing services to the infringer.  DMCA notices should not be sent to infringing parties, directly. The intent behind a DMCA notice is to force the online service provider (such as a host or billing company) to stop providing services to the party committing the copyright violation.  In the business model described above, the DMCA notice would properly be directed to the file locker providing the file storage and download service, not to the infringing site itself.

When pursuing the infringing party directly, the proper legal vehicle is a Cease and Desist demand (“C&D demand.”)  A C&D demand is designed to put the infringer on notice that they’ve been caught, and to demand that the infringing content be removed from circulation.  Typically, a C&D demand reserves the right to sue for damages, or seek other remedies, even if the material is promptly taken down.

Both DMCA notices and C&D demands are relatively inexpensive, and can often be effective.  While the pirate camshow sites frequently hide in jurisdictions with lax copyright enforcement policies, the operators often choose to respond to formal legal notices (sent by proper parties) rather than risk a potential lawsuit.  From their perspective, there’s plenty of other content to be stolen, so discretion is the better part of valor when faced with a valid infringement notice.

Naturally, some pirate camshow sites will refuse to respond to legal notices, and call the copyright holder’s bluff. While this can be frustrating, claimants should make sure they have identified all possible service providers for purposes of DMCA notices, including hosts, domain privacy service providers, file lockers, billing companies, proxy service providers, content delivery networks, etc.  Loss of essential services can result in quick compliance.  Equally important is thorough investigation into all relevant contact points and addresses. A legal notice sent to the correct physical address frequently gets an infringer’s attention.

For some copyright or trademark holders, the filing of a lawsuit for intellectual property theft will be the final solution.  While litigation is expensive and uncertain, permitting rampant theft of copyrighted performances is likewise unacceptable.

As the popularity of live camshows increases, so does the interest in pirating this content. Intellectual property holders are encouraged to consider their available options when addressing the newest flavor of online piracy.

11
May
16

Website Reporting Obligations under Federal Law

Introduction

Adult website operators are typically familiar with the obligations imposed by Title 18 U.S.C. § 2257 (“Section 2257”) which mandates the compilation and maintenance of certain records relating to the production of sexually explicit content.  Less well known, but equally if not more important, are the reporting obligations imposed on certain website operators under 18 U.S.C. § 2258A.  This federal statute requires “electronic communication service providers” such as hosts, forums, dating sites, tube sites, and advertising networks, to report any apparent violations of child exploitation laws, to the CyberTipline; http://www.missingkids.org/cybertipline/, operated by the National Center for Missing and Exploited Children (“NCMEC”).  The following is a summary of those reporting obligations.

 

What Violations Must Be Reported?

Qualifying service providers must report “apparent” violations of federal laws relating to child exploitation or child pornography.  No specific definition of what constitutes an apparent violation is included in the statute.  However, as discussed below, there are benefits to erring on the side of submitting a report in questionable cases.

 

When Must the Report Be Made?

The report to the CyberTipline must be made as soon as reasonably possible after the website operator obtains actual knowledge of any facts or circumstances that a violation of the relevant laws has occurred in connection with the operation of the site or online service.  While no specific time frame is included in the law, the statute contemplates prompt reporting of suspected violations.

 

What Must the Report Contain?

There are 2 types of reports that can be submitted: a public report, or a secure, private report by a registered service provider.  The registration process requires that certain information about the service provider be voluntarily submitted. The secure report permits uploading of images, and provides a receipt confirming the submission.  Service providers are encouraged by NCMEC to register and submit secure reports by submitting an email to its coordinator at espteam@ncmec.org.

The report must include certain categories of information:

  • Identifying information about the individual responsible for posting or transmitting the images, such as IP address, or email address (including any self-reported information submitted by the user).
  • Historical information about when and how the user posted the illegal content.
  • A description of how the violation was discovered by, or reported to, the service provider.
  • Geographic location information relating to the responsible user such as billing address, IP address, or zip code.
  • The suspected images themselves. Note, all “associated images” must be preserved by the service provider as well.
  • The complete communication relating to the suspected images, including any data, digital file, or other information relating to the transmission of information.

 

What Other Obligations Apply?

In addition to reporting suspected violations, the service provider must preserve the  NCMEC report for a period of 90 days, plus an additional 90 days if requested by NCMEC.  The full contents of the NCMEC report must be preserved, along with any other images that are “comingled” or “interspersed” with the suspected images.  Read broadly, this could include all images that appear on a given web page, or which are uploaded by a particular user into the user’s folder or directory.  The website operator must also take steps to keep the preserved material in a secure location, and limit access to the material by its agents or employees.  Finally, operators must permanently destroy any reported images upon the request of law enforcement.

Importantly, the statute does not impose an obligation to monitor any user or the content of any user.  Moreover, there is no obligation to affirmatively seek out potential violations of the applicable laws.  In other words, service providers are not required to become child exploitation investigators.

 

Why Should the Report be Filed?

Affected website operators might ask themselves why they should get involved in submitting reports to law enforcement, relating to their users’ activities.  The most obvious answer is because the law requires such involvement.  Failure to report suspected violations is a criminal offense which can result in the imposition of substantial fines.  Moreover, federal law provides a form of immunity from civil or criminal prosecution for the service provider, in connection with the submission of any reports to the CyberTipline.  See, 18 U.S.C. §2258B(a).  However, this legal protection can be lost if the service provider engages in any intentional misconduct, or if it acts (or fails to act) with actual malice, or reckless disregard for injury to others. §2258B(b).

Conclusion

Certain popular online business models trigger compliance obligations with a wide variety of federal statutes and regulations.  Among them are the statutes imposing reporting obligations to the CyberTipline.  Affected website operators are encouraged to educate themselves regarding the details of these requirements, to avoid inadvertent violations and to foster a cooperative relationship with agencies investigating instances of child exploitation.

22
Jan
14

Witnessing Transformation – Performers into Producers

The beginning of a new year in the adult entertainment industry is always filled with excitement, trade shows, and hopes for success in the year ahead.  Now is also the time when the industry tries to identify upcoming trends in production and distribution of erotic content.  Fresh in the minds of many performers and producers are the battles over condom laws, and production moratoria resulting from STD outbreaks. This, combined with advances in technology and plummeting DVD sales, has encouraged many performers to explore alternative forms of erotic entertainment to fill the gaps between shoots.  Some choose escorting or headlining at strip clubs.  But many others have turned to lucrative live webcam performances and custom video-production.

The effect of these erotic alternatives has been to cut out the middlemen; i.e., the talent agencies, producers, and photographers.  All that’s required is a webcam, a good broadband connection, and a knack for turning on your target audience.  Many webcam platforms and escort advertising networks allow the performer to take control of his or her content production and therefore, directly profit from the work.  With a little creativity and work ethic, some performers have found that webcam performances or custom, amateur videos can be even more lucrative than professional porn shoots.  The new middleman is the webcam platform provider or the clips sales studio.

Interestingly, as technology fosters a more one-on-one interaction, the tastes of typical erotica consumers have evolved as well.  Why lust after the unattainable blonde bombshell, when that webcam performer with the ‘girl next door’ look might actually be the girl next door?   The evolution of technology has allowed the performer to create, market, and distribute their material, all the while inviting customers into their reality.  The average porn consumer now wants to know things like what their favorite performer had for breakfast, how they get dressed in the morning, and their plans for the evening.  Call it a byproduct of a reality TV-obsessed culture, or just living in the age of social networking; all the world’s a stage and performers are more than willing to share the intimate details of their lives with customers.  Ten years ago, an autographed DVD might have been a prized possession for a devoted fan.  Now, last night’s panties are up for grabs – for the right price.  Some performers may even go the extra mile and engage in intimate contact with fans on camera, as a promotional tool.  The popularity of this type of interactive sex and performer/fan dynamic was even the focus of HBO’s premiere of SEX/NOW; the network’s reboot of Real Sex.

So what does this mean for the performer now turned producer of his or her own material?  Most importantly, all of the legal obligations that used to be handled by the producer, photographer, talent agent or other intermediary now fall squarely on the performer.  These legal concerns include Section 2257 records keeping compliance, content clearance, licensing of rights, copyright registration, fair use concerns and trademark issues.  Can I show that painting in the background of my cam shot?  Will the RIAA come after me if I play music during my cam show?  Just because technology allows a seamless transition from performer to producer, does not necessarily mean that the law does the same.

Most cam performers are unaccustomed to dealing with these technical issues and mundane legal obligations – particularly if they have relied on professional producers to handle such matters in the past.  In some ways, we’re all in the same boat.  Anyone who posts a comment on Facebook, or a review on Amazon, is a worldwide publisher.  Anyone who uploads a picture to a blog or forum is a media producer.  That power triggers significant legal obligations.  Issues like defamation, fair use, and commercial exploitation used to be the exclusive province of powerful media stakeholders like the New York Times or NBC.  Now, these issues impact anyone with a smart phone or social networking account.  Add on the additional layer of legal regulation imposed on erotic content, and performers can often become overwhelmed with compliance issues.  With industry-specific devices and applications expressly designed to simplify the process of production and publication, technology can help ease the burden, but only to an extent.  Autonomy requires proactive measures.  If performers wish to capitalize on self-production trends and continue forging virtual relationships with their fan base, the keys to success are education and preventative solutions.  The performer turned producer must learn to recognize the legal issues before they become legal problems.

Lawrence G. Walters heads up Walters Law Group, which has advocated for the adult entertainment industry and Free Speech issues for 25 years.  Nothing contained in this post is intended as legal advice.

07
May
13

Dangerous Intersections

Could a webcam model also be a paid escort and an active member of a “hookup” dating site?  Naturally, the answer is “yes,” but at what costs?  Blurring the lines between these adult-themed user categories creates an uncharted hybrid of legal exposure, for both, the individual model/escort and those operating the associated websites.  However, more and more frequently, we’re seeing this sort of crossover in the live webcam, escort, and casual dating industries.  Historically, escort sites have legally operated on the basis that their advertisers do not engage in sexual activity for hire, but simply offer paid companionship services.  Live webcam operators routinely engage in sexual activity on cam, but are typically prohibited from any “real world” meetings with users, so as to avoid concerns with prostitution and solicitation.  Finally, adult dating sites have avoided prostitution-related issues based on the fact that they merely serve as a forum for social interaction, and should any sexual activity occur between users, it is not in exchange for money or anything of value. However, when the same individual acts as a webcam performer, an escort, and a hookup site user, these important legal distinctions and assumptions can start to break down.

Importantly, no law prohibits an escort from having a normal, romantic dating life, complete with sexual activity.  Similarly, live webcam models are not legally prohibited from offering companionship escort services, or submitting profiles to casual dating sites in search ofan occasional tryst.  The legal danger arises in the not-so-rare scenario, linking all of these activities together in some way. For example, escorts who provide sexually explicit performances via webcam must be careful to separate any discussion of escort activities or reference to online escort profiles, to avoid sending the wrong message to users.  Without clearly distinguishing between the webcam and escorting activities, the government will likely argue that any explicit webcam activity is indicative of the services the model might provide when acting as a paid escort.  Whether such argument would be successful in a court of law is another matter, but the risk exists.  Escorts should be similarly cautious when linking to any dating site profiles that reference sexual activity, so as to avoid conveying any misconception regarding the limited, non-sexual nature of the activities that the escort is willing to engage in during a paid session.

While compelling legal arguments can be made in support of the legality of live webcam sites, escort sites, and hookup sites, those legal arguments can be negatively impacted by linking such activities together in some manner. In a perfect world, escorts would never engage in sexual activity, webcam models would never meet users offline, and adult dating site participants would never be compensated for anything having to do with erotic interaction.  Unfortunately, however, reality is messy.  Escorts and webcam models do have social lives, and are entitled to engage in healthy sex lives, just like anyone else.  But as the escort, webcam, and adult dating business models become more popular and profitable, site operators will be forced to make difficult but important decisions regarding the extent to which any co-mingling of activity will be permitted or referenced on the site.

In the immortal words of The Offspring: “You gotta keep ‘em separated.”  But with many operators permitting posting of user generated content with limited or no pre-publication review, along with real-time social network feeds, the ability of a site operator to control the intersection of these three areas of online adult entertainment can be challenging.  That said, pre-publication review of user posts/profiles creates its own set of complications, and may negatively impact the legal protections afforded to online service providers under federal statutes like Section 230, the DMCA, and Section 2257.  Thus, actively attempting to control linkage of these various activities could impact the site operator’s legal defenses to claims arising from the publication of this third-party content. Coherent operating policies should be adopted in connection with the publication of any such material, taking into consideration all of the factors.  However, given the serious legal consequences attached to the promotion of sexual activity for hire in the United States, site operators, escorts, and performers should be forewarned regarding these dangerous intersections.