Megaupload and Protecting IP

The anti-intellectual property forces on the Internet are upset, as various governments around the world are doing exactly what they should be in protecting private property from theft.

On January 19, the U.S. Justice Department and FBI announced one of "the largest criminal copyright cases ever brought by the United States." The target? As described by the DoJ, it's "an international organized criminal enterprise allegedly responsible for massive worldwide online piracy of numerous types of copyrighted works through and other related sites."

All entrepreneurs and businesses that rely on and build value through IP, and the consumers that enjoy and want more IP-based products and services, should strongly approve of, even celebrate, such actions by law enforcement.

To say that this was an international effort is a bit of an understatement, as in addition to the U.S., law enforcement from New Zealand, Hong Kong, the Netherlands, the United Kingdom, Germany, Canada, Australia and the Philippines were involved to varying degrees.

The seven people charged in the indictment - four originally arrested in New Zealand - are charged with "engaging in a racketeering conspiracy, conspiring to commit copyright infringement, conspiring to commit money laundering, and two substantive counts of criminal copyright infringement."

Federal authorities estimate that the harm to copyright holders is far in excess of $500 million, with $175 million in illegal profits being earned.

The DoJ explained: "According to the indictment, for more than five years the conspiracy has operated websites that unlawfully reproduce and distribute infringing copies of copyrighted works, including movies-often before their theatrical release-music, television programs, electronic books, and business and entertainment software on a massive scale... The indictment states that the conspirators conducted their illegal operation using a business model expressly designed to promote uploading of the most popular copyrighted works for many millions of users to download. The indictment alleges that the site was structured to discourage the vast majority of its users from using Megaupload for long-term or personal storage by automatically deleting content that was not regularly downloaded."

Again, if you operate a business or have a job in the movie, television, publishing and software industries, this case is a positive step forward.

Unlike lawful online storage sites, Megaupload is commonly known as allowing widespread and easy access to unauthorized copies of video and music. Large files can be accessed, shared and/or downloaded anywhere by anyone.

In a January 20 report, the New York Times highlighted the difference between Megaupload, for example, and legitimate services: Aaron Levie, chief executive of, a popular online storage company, "noted that his company and Dropbox, as well as the services from Google and Microsoft, were less likely prosecution targets because they depended to a large extent on legitimate corporate purchases of their storage. These services are more focused on sharing within organizations and small groups. While this can make it more difficult for an outsider or the authorities to see who is storing what, it makes it less likely that huge copyright violations are taking place. Lori Shen, a spokesman for YouSendIt, said any comparison between that site and Megaupload would be inaccurate. ‘YouSendIt is a private and secure business collaboration tool for business users. It provides a secure vehicle to share, send, sign and sync business content online,' Ms. Shen said."

And on January 23, another Times article pointed out steps being taken in response to these actions, including: "Filesonic, Fileserve, FileJungle and UploadStation now forbid users from downloading any content they did not upload themselves."

The Wall Street Journal also explained the recent shift in pirating and its international aspects: "Sites such as Megaupload, known as cyberlockers, have grown in popularity and shifted the technology and business of stealing content. Cyberlockers-so called because they offer virtual storage homes for files that can be accessed from any device with a Web browser-are often foreign sites that offer a smorgasbord of pirated movies, TV shows, music and e-books that people can download with a few clicks, say media companies, and now account for about half of all online pirate activity."

Unfortunately, nations like China and Russia serve as ideal hosts for such services given that government enforcement of intellectual property is weak, at best, in those nations. And that's exactly where assorted IP thieves are increasingly turning to operate.

The Megaupload case should not be a cause for concern or protest by IP creators or consumers. Instead, it should be highlighted as an example of government exercising its proper role of enforcing property rights, and international cooperation protecting IP in the integrated, twenty-first century economy.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Keystone XL: What Can Congress Do?

President Obama was split on energy production during his State of the Union address - at least when it came to carbon-based energy. On non-economic energy, such as wind and solar, Mr. Obama's commitment to provide continuing taxpayer handouts remained undaunted.

Regarding oil and gas, for example, on the one hand, he spoke proudly of increased U.S. oil and natural gas production. On the other hand, Mr. Obama called for higher taxes on oil firms, which, of course, means reduced incentives and resources for exploration and production.

But all of that is just rhetoric for a president facing re-election in November. The rubber hits the road in actual policymaking. And the biggest recent policy decision made by President Obama was to reject the Keystone XL pipeline project.

That project would transport Canadian sands crude oil to refineries on the Gulf Coast, and thereby enhance energy security, boost U.S. GDP, create new opportunities for firms of all sizes in the energy sector, and generate tens of thousands of new jobs.

How could President Obama reject such a project, particularly since, as the government itself made clear in its research, no real environmental risks exist? That question essentially was asked by U.S. Rep. John Sullivan (R-OK) after the State of the Union: "Let's not forget that just last week, President Obama turned his back on 20,000 new private sector jobs and our energy security by rejecting the Keystone XL pipeline. What logical reason could there be to say no to 20,000 new private sector jobs - potentially 100,000 indirect jobs - while our national unemployment rate remains close to 9 percent?"

Joe Oliver, the Minister of Natural Resources in Canada, actually provided the answer recently. As noted by The Wall Street Journal, Oliver observed that the green movement's "goal is to stop any major project no matter what the cost to Canadian families in lost jobs and economic growth. No forestry. No mining. No oil. No gas. No more hydroelectric dams." In particular, any carbon-based energy production must be opposed.

The Obama administration graciously said, however, that TransCanada, the pipeline owner and operator, could reapply. How nice.

Can Congress do anything to reverse the administration's decision?

Well, as widely reported, the Congressional Research Service issued an analysis that under its powers to regulate foreign commerce, Congress could approve this cross-border project.

In a recent op-ed on the issue, U.S. Rep. Ed Whitfield (R-KY), chairman of the House Subcommittee on Energy and Power, wrote: "So we are going to make every effort to see to it that this pipeline is built. That may require giving the Federal Energy Regulatory Commission, the federal agency responsible for domestic pipeline siting, the limited authority to make the final decision on the permit of the Keystone XL pipeline."

As reported by Reuters, U.S. Representative Fred Upton, chairman of House Committee on Energy and Commerce, "expressed his desire to again try to force the construction of Keystone by attaching legislation to the next payroll tax cut bill... Representative Lee Terry, whose home state of Nebraska would host part of the pipeline, told reporters that a highway construction funding bill Congress is likely to consider this year is one of the other measures that Republicans are thinking of using to target for Keystone."

Rep. Lee also has sponsored legislation to transfer authority of the pipeline to the FERC.

On January 26, testifying before the House Subcommittee on Energy and Power, Assistant Secretary of State Kerri-Ann Jones asserted that the pipeline application was not rejected on the merits, but simply because the State Department did not have enough time under the recently imposed deadline imposed in legislation signed by the President in December. But it is important to note that TransCanada already agreed to the re-routing of the pipeline around the Nebraska Sandhills, thereby answering one of the prominent environmental questions, and the legislation signed into law allowed for TransCanada, the state of Nebraska and the State Department to reach an accord to re-route part of the pipeline in that state.

Of course, even if the House passes legislation to advance the pipeline, it would have to pass the Senate as well and be signed into law by President Obama himself. That's not going to happen. But passing such legislation and debating the issue is important so that American businesses and the people can better understand who exactly is obstructing energy production, security and jobs.

In the meantime, it's more delays and mere hope that the U.S. is not simply eliminated from the Canadian sands crude oil equation altogether. As AP reported: "TransCanada has said it will submit a new application once an alternative route for the pipeline is established. Company chief Russ Girling said a proposed route could be made public in a few weeks." But the option also exists for a pipeline from Alberta to British Columbia, with petroleum then exported to Asia.

Environmental opposition to the Keystone pipeline is not about Nebraska Sandhills. Instead, it's all about hard core, unwavering greens who oppose any and all efforts to expand carbon-based energy, especially oil (and, of course, coal). Unfortunately, the President has chosen to align himself with such groups, rather than doing what's right for U.S. consumers, businesses and the overall economy.

As U.S. Rep. Cathy McMorris Rodgers (R-WA) put it after the State of the Union: "As we saw with the recent Keystone decision and tonight's speech, the President has decided that while jobs can wait, his campaign cannot." That's bad economics that just might turn out to be bad politics as well.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

Keating on State of the Union for Fox Business

SBE Council chief economist Ray Keating was quoted by Fox Business News on what President Obama had to say about small business in his State of the Union address.

Keating was quoted: "He was clear on things small business owners didn't want him to be clear on. (For example) taxes on high income earners—that means fewer resources in the hands of entrepreneurs and investors, and more dollars in the hands of politicians. It's difficult to see how that is positive for small businesses."

FOMC's Economic Outlook: Far From Robust

In its statement released on January 25, the Federal Open Market Committee (FOMC) did not change its position on monetary policy.

Basically, the Fed's assessment is that the economy is growing moderately, with household spending up but business fixed investment slowing and housing still depressed. As for inflation, the Fed remains unconcerned. Looking ahead a bit on jobs, the Fed is looking for the unemployment rate to decline slowly.

But what was notable is the Fed's apparent expectation that a slow recovery will continue for the coming three years. Yes, that's three years.

Specifically, the FOMC statement declared: "[T]he Committee expects to maintain a highly accommodative stance for monetary policy. In particular, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through late 2014."

In Fed-speak, "accommodative" means the Fed is unconcerned about inflation, but worried that economic and employment growth will be lacking.

Looking at the new accompanying economic projections by FOMC members, the central tendency points to a range of real GDP growth for 2012 at 2.2%-2.7%, for 2013 at 2.8%-3.2%, for 2014 at 3.3%-4.0%, and the long range is put at 2.3%-2.6%.

Given that real annual growth since 1950 has averaged about 4.5 percent during recovery/expansion years, the Fed is working under the assumption that an under-performing economic recovery is going to persist for at least three more years. Indeed, real GDP growth, according to Fed expectations, is expected to run lower than the average 3.4 percent rate over the past six-plus decades including recession quarters.

Of course, monetary policy ultimately should be about price stability, and FOMC members naturally are projecting tame inflation. Why would we expect otherwise?

In the end, growth is about private sector investment, innovation, entrepreneurship and productivity. These certainly are affected by monetary policy and inflation - for example, in terms of interest rates, the value of the dollar and the ability to plan - but federal tax and regulatory policies are the measures that have significant and direct impact on incentives and therefore the economy. That's the job of the President and Congress, and according to Fed estimates, we need a dramatic shift in a pro-growth direction on taxes and regulations.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is "Chuck" vs. the Business World: Business Tips on TV.

"Fairness" for Small Business Missing in State of the Union

Small Business & Entrepreneurship Council (SBE Council) President & CEO Karen Kerrigan issued the following response to President Barack Obama's State of the Union address:

"Jobs and the economy are the top concerns for Americans, yet President Obama offered only vague statements about how he proposes to help job creators. For small business owners, the ‘fairness' that President Obama spoke about begins with addressing government costs and obstacles that are impeding their growth and ability to create jobs. Regulatory costs, rising health coverage costs, new burdens associated with ObamaCare, proposed workplace rules in the pipeline, the threat of new taxes, uncertainty regarding expiring tax rates and incentives, tough conditions for accessing capital and credit, and the exploding deficit are all weighing on entrepreneurs and small firms. It seems President Obama spent most of the evening defending the policy status quo rather than laying out a meaningful pro-growth agenda that will encourage investment and job creation.

"Remarkably, the President did not talk about health care. ObamaCare is collapsing, and just because it's unpopular with Americans does mean he should ignore the mess. The tax credits for small businesses are an abysmal failure, costs continue to spike higher, and the uninsured rate has now climbed to 17 percent according to Gallup. Once the new taxes and mandates kick in, costs will move even higher. More small businesses are preparing to drop coverage due to the forthcoming costs, burdens and penalties. ObamaCare is driving uncertainty for small business owners, and it remains a major impediment to job creation. The President has consistently said he is open to improving the new law, but little has been done thus far to make it better. Ignoring the new law's major flaws will not make them go away.

"It was distressing to hear the President talk about subsidizing his favored energy companies using our scarce tax dollars while just last week he rejected a true shovel-ready project that would have created 20,000 immediate jobs and 118,000 spin-off jobs using no tax dollars. Small businesses would have benefitted tremendously from Keystone XL - as vendors and suppliers in the energy industry, and as energy consumers. This remains a critical infrastructure project. Building out broadband also remains important to small businesses and their competitiveness, but his Administration sued to block the AT&T/T-Mobile merger which would have brought broadband to entrepreneurs who currently lack access. The merger would have created jobs, and provided work for small firms that are players in the telecommunications and technology industries. At a time when the U.S. needs to get its fiscal house in order, desperately needs jobs, and needs to promote reliable and affordable energy and broadband access, the blocking of multibillion dollar private-sector investment projects by the President makes no sense.

"Finally, the President is still talking about raising taxes on entrepreneurs and investors. Unfortunately, the economy will continue to limp along given this threat and the President's class warfare rhetoric which looks to be his central reelection theme. Nagging business owners into creating jobs, or badgering them to bring them home is not a reasonable strategy for job creation and sustained growth. Policy matters, and more importantly policies must be business friendly."

Karen Kerrigan, President & CEO

State of the Union: What Happened to Small Business?

So, what happened to small business?

In his State of the Union, President Barack Obama offered no direct, substantive remarks about small business. That, of course, is a striking omission given the central role that entrepreneurial firms play in terms of innovation, economic growth and job creation.

However, the President did touch on some issues that affect the entrepreneurial sector of our economy.

Potential positives exist when the President spoke about comprehensive immigration reform, as well as protecting U.S. intellectual property in the international marketplace. But the details on such policymaking are critical. For example, placing further burdens on entrepreneurs and businesses in terms of policing immigration is unwarranted and unwise.

In addition, the President noted recent trade agreements approved by Congress. Those were positive steps. However, they were originally negotiated in the Bush adminhstration, and the President has done nothing else to advance free trade and international opportunity for U.S. businesses and workers.

After these few items, the State of the Union speech simply came back to the anti-growth, anti-business policies that have been the unfortunate hallmark of the Obama years.

Most glaring, of course, was the President’s renewed call for higher taxes on upper income earners. That simply means fewer resources in the hands of private sector investors, entrepreneurs, businesses and consumers, and more resources to be wasted by government. That can only be a negative for the economy.

And Obama’s talk on taxing corporations was anything but friendly towards international businesses. Dressed up in populist rhetoric, the President’s declarations on outsourcing amounted to a clear signal that international firms should set up their headquarters in another nation.

In addition, the President showed no inclination to reduce the size of government. Instead, there were calls for more subsidies for and spending on non-economic energy ventures, politically driven infrastructure projects, and still more federal meddling and handouts on mortgages. Of course, his mortgage plan would come with more taxes on banks, which would mean fewer resources, again, available for the private sector.

This State of the Union was stunning in its lack of vision and substance on how the U.S. economy might get back on a track of robust growth. That was due in part to grossly misguided economic thinking, and to a view of small business that is at best ambivalent and at worst hostile.


Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council. His new book is “Chuck” vs. the Business World: Business Tips on TV.

Small Business to Obama: Walk the Walk

SBE Council chief economist Ray Keating was asked to comment by Fox Business on what to expect from President Obama tonight in his State of the Union speech regarding small business.

Check out Keating's observations and other points in this article titled "Small Business to Obama: 'Walk the Walk.'"