Why the Payments Industry Should Oppose SOPA

On January 18, 2012, several of the most prominent websites on the Internet, including Wikipedia, suspended operations in protest of the Stop Online Piracy Act (SOPA), currently under consideration in the House of Representatives. While the main arguments against SOPA have been focused on free speech and fair use, I have not seen any discussion of a provision that bears directly on the payment industry: the requirement that payment networks refuse to settle transactions with foreign websites alleged to have infringed on copyrights.

The precedent for this provision (Section 103 of H.R. 3261, attached below) is the successful embargo of Wikileaks in 2010 by Visa, MasterCard, PayPal, American Express and other payment processors, which effectively put a stop to the site's release of classified U.S. government documents. While this action was justified at the time by the payment networks under their terms of service, it opened the door to further U.S. government interference.

Under SOPA, payment network operators will be required to stop processing payments for foreign-based websites within five days of receiving a notification from a copyright holder that the site is infringing copyrights, unless the targeted site files a "counter notification". This will put the payment network provider in the middle of a dispute that may have little merit; as the Electronic Frontier Foundation has documented, rights holders have been all too willing to abuse the provisions of the Digital Millennium Copyright Act (DCMA) with frivolous or overbroad claims. If the payment network does not cut off service within five days, it faces unlimited liability should the matter go to court.

Even worse, the provision governing counter notifications contains a "poison pill" requiring the foreign site to agree to be governed by U.S. law, a condition that no foreign site would be willing to accept. Thus, it is unlikely that any counter notifications would be received in these cases. Therefore, SOPA effectively bestows sweeping power to copyright holders to cut off funds to sites they deem threatening. There is no requirement for a court order; just the notification is sufficient. The administrative burden on payment network providers will be heavy, as will the legal and customer service costs.

The long-term threat to the U.S. payments industry is that it will be become politicized, seen as a tool of the U.S. government and a strategic weapon against other states. Just last week, the European Commission issued a Green Paper that reiterated the EC's desire for a European alternative to Visa and MasterCard. Further use of U.S. payments companies to achieve political ends will hinder the global expansion of the industry, as individual governments seek to preserve their sovereignty by establishing or reinforcing domestic payment systems. Since most of the growth for U.S. payments companies is now overseas, this poses a serious threat to their future.

In short, I believe SOPA poses a serious threat to the U.S. payment industry, and should be vigorously opposed. I welcome further discussion of this issue, either in the comments, or directly at amcpherson@idc.com.

Subscribe to the Daily Downloads Newsletter

Comments