Venture Capitalists Speak Out Against the PROTECT IP Act

Opposition to the PROTECT IP Act -- Hollywood-supported legislation intended to reduce content piracy and block counterfeit goods -- is growing among the tech community, with a letter blasting the bill released Thursday by more than 50 venture capitalists from 40 firms that have funded many top Internet companies. They argue that the methods embodied in the proposed law would create untoward burdens and endanger the Internet.

A wide range of Hollywood trade associations and unions disagree, calling the legislation a critical step toward prevention of unauthorized downloading and streaming, problems that have proved near-intractable to date.

Also speaking out in recent weeks against the law is a completely different constituency: groups concerned that the broadly drafted act would endanger U.S. consumers’ access to pharmaceuticals from Canadian and other foreign pharmacies. They contend that such access, which is generally at lower-than-U.S. prices, is vital for uninsured consumers or those with limited coverage.

The Senate Judiciary Committee recently passed the bill, but Sen. Ron Wyden (D-Ore.) immediately put a hold on the legislation, on the grounds that the act was “overreaching” and would “damage . . . speech, innovation and the very integrity of the Internet.”

The bill’s prospects are uncertain: Wyden’s move prevents further action, at least for the time being, and the House has not introduced similar legislation.

In Thursday's letter, the venture capitalists say the bill will “will stifle investment in Internet services, throttle innovation, and hurt American competitiveness.” They assert three problems:

-- The bill burdens “countless Internet services” by requiring sites and search engines to remove links that point to sites offering pirated content.

-- The bill endangers the security and integrity of the Internet by requiring DNS providers to block access to such sites. (The Domain Name System is the Internet mechanism that enables software such as web browsers to connect to websites.)

-- The bill creates a private right of action that rights holders may use in ways that create significant burdens, even on companies acting in good faith. 

The venture capitalists work at such high-profile firms as Andreessen Horowitz, AOL Ventures, Draper Richards, Greylock Partners, Khosla Ventures, Softbank Capital, Venrock and others. According to an accompanying statement by an organization opposing the bill called Demand Progress, the firms collectively manage over $13 billion and the VCs were early investors in Facebook, Twitter, and Skype, among others.

Demand Progress also said that more than 350,000 people have signed its petitions against the PROTECT IP Act and a predecessor version of the bill.

Google's executive chairman, Eric Schmidt, took particular exception last month to DNS domain blocking, noting that this is the same approach that China takes to censoring websites. Blocking “seems like an appealing solution but it sets a very bad precedent,” he said.

Microsoft, in contrast, supports the legislation, though it suggests that some modifications are necessary to address various concerns.

Hollywood too has been broadly supportive of the legislation, with trade groups such as the MPAA, IFTA,and the National Association of Theatre Owners, and unions such as the American Federation of Musicians, AFTRA, DGA, IATSE, SAG and the Teamsters, all speaking out in favor. The RIAA favors the bill as well.

A separate set of criticisms have been raised by groups such as RxRights, which point out that the PROTECT IP Act would also apply to websites of licensed Canadian and other foreign pharmacies that sell prescription drugs to U.S. consumers, often at prices lower than U.S. list prices. That matters to people without health insurance or whose insurance plans omit particular drugs from their approved formulary even when validly prescribed.

Obtaining drugs in this fashion is technically illegal, but the FDA, although recommending against it, generally allows individuals to purchase up to a three month supply at any one time for personal use.

Pharmaceutical companies have come out in favor of the PROTECT IP Act, saying that it would protect both their intellectual property and public health.

Ironically, the PROTECT IP Act’s sponsor, Sen. Patrick Leahy (D-Vt.), is also a co-sponsor of a bill, the Pharmaceutical Market Access and Drug Safety Act, that would ease existing restrictions on purchases from foreign pharmacies. A Leahy spokesman referred inquiries on this seeming inconsistency to Senate Judiciary Committee staff, who did not immediately respond.

Twitter: @jhandel