Chokehold Gatekeepers

By: Lawrence G. Walters, Esq.
While the adult Internet industry was bracing for an onslaught of obscenity prosecutions against adult Websites, government officials were one step ahead, and plotting actions against the industry’s Gatekeepers: the billing processors, AVS’s, hosts, ISPs and merchant banks. The conversations taking place in the prosecutors’ conference rooms have not focused on whether fisting or double penetration is obscene, they have honed in on choking the industry’s Gatekeepers. Law enforcement departments have a budget too: they try to get as much bang for their buck as the average webmaster. “How can we shut down a thousand webmasters for the price of one prosecution?” they may be asking. It didn’t take them long to figure out that access to adult Websites is critically dependent on the permission and continued services of a Website’s: (1) hosting company; (2) third party billing processor (now called ISPS); (3) Age Verification Service (AVS); and/or, (4) merchant bank. The online gambling industry recently learned how dependent it was on the good graces of companies like Citibank, Bank of America and PayPal, after those transaction facilitators pulled out of the game, so to speak, in recent months. While those larger financial institutions have not completely abandoned the adult Internet industry as of yet, their continued presence leaves the fate of the industry hanging in the balance. The time has come to recognize our potential vulnerabilities and develop a new paradigm when considering the industry’s future relationship with these Gatekeepers, upon which so much depends. ISPS/HOSTS The vulnerability of hosts and ISPs has been evident since at least 1998, when (shortly before election time) the Attorney General of New York filed criminal charges against an ISP located in Buffalo, New York, for allegedly providing access to child pornography, through its hosted news groups. Although the particular company involved chose not to fight the charges, and ultimately plead guilty and paid a fine, the legal concerns prompted by such a charge became evident: How can an ISP or a host be expected to monitor, and potentially censor, all of the images and content contained on its servers, under the threat of imposition of criminal sanctions? Section 230 of the Communications Decency Act of 1996 provides immunity to Internet access providers, but only against civil claims, not criminal charges. This concern prompted Representative Robert Goodlatte, R-Va, to introduce the Online Liability Standardization Act of 2002, which would expand the immunity provided to ISPs, and protect such companies not only against civil lawsuits, but also against criminal charges. Thus far, the proposed legislation has not yet become law, but has languished in the Subcommittee on Crime after being referred there in March of 2002. The Digital Millennium Copyright Act, (“DMCA”), also provides a form of safe-harbor, but only if the dictates of the law are meticulously followed including prompt removal of infringing materials after notice, and proper designation of an agent for receipt of DMCA notices. Despite these various protections provided to hosts and ISPs, the government knows that these companies are highly vulnerable to the slightest threat or intimidation concerning criminal liability for hosted content. Under current law, a host can be held coequally responsible for content violations under conspiracy or aiding and abetting theories. Just look at the recent threats made by the Pennsylvania Attorney General against WorldCom, under a questionable Pennsylvania law that requires ISPs to block any Website containing child pornography within five business days after being notified by the Attorney General. Although WorldCom required the Attorney General to obtain a court order enforcing the block request, WorldCom did not put up much of a fight, and immediately complied upon issuance of the order. Like federal obscenity law, the Pennsylvania law imposed criminal sanctions against ISPs who fail to remove the content at issue. One criminal charge against a large adult industry host may cause the entire hosting industry to rethink its willingness to host any adult content. Talk about bang for your buck! Like it or not, adult webmasters continue to exist at the pleasure of the hosting companies and ISPs, along with their legal departments. While the hosting industry as a whole has found itself in a considerable slump, and hosts may be somewhat dependant upon the revenue generated from their adult clients, it is the these companies that can ultimately flip the switch and cause the industry to go dark. AGE VERIFICATION SYSTEMS (AVS’S) As we know, the hosts keep the lights on, but the AVSs keep the kids out and the cash flowing. Large age verification companies have blossomed as a result of state and federal legislation requiring adult webmasters to prevent access by children, along with a moral decision by many participants in the industry to keep children away from adult content. Such a decision may not be entirely the result of self-interest, since obscenity charges are much easier to defend if First Amendment lawyers can argue that the material was produced by adults, for adults – and that no children were involved, either as participants or audience. The industry can only assume that obscenity prosecutors across the country rejoiced upon reading the decision in Perfect 10, Inc. v. Cybernet Ventures, Inc., recognizing the potential for broad, vicarious and contributory liability against AVS’s for copyright infringement. Although copyright violations may also constitute a criminal offense, and can even be prosecuted under RICO theories, the government probably sees this decision as supporting authority for the proposition of expanded criminal liability for Internet Gatekeepers, in general. The government will likely argue that the policies enunciated by the court in the Perfect 10 case are readily transferable to other criminal theories, such as conspiracy and aiding and abetting. While this author would strenuously argue to the contrary, particularly where issues such as obscenity or child pornography are involved, the scope of liability that can be imposed on an AVS is now an extremely open question. Unfortunately, the net effect of the unsettled state of any law in this area benefits the prosecution. All it has to do is cast a wide net over all the alleged co-conspirators, and let them sort out who should or should not be held criminally liable for content which they have all touched in some manner. The fact that all of the Gatekeepers benefit either directly or indirectly from the content, and the webmaster’s business activities, may be seen as enough to justify filing charges initially, thus dragging the AVS through the legal process. In legal terms, this is known as establishing a prima facie case: The government is not required to prove criminal responsibility beyond a reasonable doubt in order to file formal criminal charges against a company or individual; it only needs to make sufficient factual allegations to the effect that a law is being broken, and that somebody broke it. Even less is required for the government to put a Gatekeeper “on notice” through some sort of threatening legal correspondence. This tactic has historically been a favorite trick of government officials seeking to achieve voluntary self-censorship, otherwise known as the “chilling effect.” When Internet communications’ Gatekeepers are involved, the chilling effect can be dramatic and instantaneous. News of a potential governmental threat against an AVS, host or billing company spreads like wildfire through online channels such as message boards, chat rooms and email. It is conceivable that, upon demand by some government official, a particular Website or type of content could be blacklisted and removed from virtually every host, processor and AVS on the Internet in the matter of days. Such actions constitute a textbook prior restraint in violation of the First Amendment. THIRD PARTY PROCESSORS & MERCHANT BANKS Financial institutions have historically stood shoulder-to-shoulder with the government on most issues, given the fact that the financial industry is highly regulated, much like insurance companies. In other words, the financial industry depends heavily on the government for its continued viability and profitability. Accordingly, financial institutions such as Visa and MasterCard are loath to engage in any activity that might be seen as illegal, shady or that the government dislikes. Such is likely the reason why most of the larger financial institutions pulled out of the online gaming industry after the General Accounting Office reported that this industry was often connected with money laundering activities. Third party billing processors (now known as ISPS’s under the new Visa regulations), occupy a unique position in the financial world, however. Clearly these companies serve two diverse masters: One being the conservative merchant banking world, and the other being the fiercely independent and marginalized adult Internet industry. Both must be kept happy despite oftentimes competing interests. However, when push comes to shove, the ISPSs will walk in lockstep with the merchant banks, as the industry has seen most glaringly in recent months. While the adult industry presumably makes up the majority of the online clientele for the billing processors, other mainstream target markets exist. If the adult Internet industry becomes too hot to handle, the processors have other options, although none nearly as profitable. The same cannot be said about the flipside of the transaction – the merchant banks. Visa and MasterCard are the only legitimate options for the ISPS’s. If they pull out, the billing companies are out of business. While the PayPal option should be mentioned in passing, its acceptance amongst adult webmasters and their clients is not widespread by any means, although it is growing. In the end, the ISPSs must walk a tightrope of competing interests, but their loyalty must remain with the merchant banks, as a matter of survival. This becomes a scary proposition when one considers the historical attitude that the traditional banking industry has had towards any form of controversial business transactions. The banking industry is extremely risk-adverse and equally image conscious. All those bank-owned skyscrapers did not get built by investing in risky, underground business opportunities. Should the existing Administration declare that typical online adult imagery is now illegal, through the institution of obscenity prosecutions or other means, the reaction by the merchant banks likely would be drastic and swift. The third-party billing processors might quickly receive correspondence from various legal departments describing the new “policy” concerning future processing for adult Web site transactions. We need not speculate what that new policy might be under the circumstances described. Michigan Attorney General Jennifer Granholm knew who to target in order to rid the Internet of alleged child pornography: the billing processors. She realized that, without the processors’ facilitating the financial transactions, the sites would have no monetary incentive to continue operation no matter how insulated from prosecution they might be. Historically, the government has followed the money when it comes to prosecuting vice crimes including adult entertainment and obscenity. A generation ago, tangible erotic fare was wrapped in brown paper bags and exchanged for cold hard cash. Following the money was substantially more difficult in the underground world of early erotica given the lack of, shall we say, “business formalities.” Although the Internet has allowed adult materials to be distributed with greater speed and precision, online transactions inherently generate specific financial records that are difficult if not impossible to avoid. Thus, in some ways, the strengths of doing business on the Internet are also its weaknesses. Law enforcement officials know precisely where to go to restrict the flow of money associated with specific online erotica, and very little investigative work is required. Gone are the days when the government was required to conduct months of undercover surveillance to trace the flow of greenbacks in those plain brown bags. Now, the industry’s billing processors and merchant banks keep all the necessary records in convenient computer folders, available for inspection upon issuance of a simple investigative subpoena. THE CHOKEHOLD The Gatekeepers must straddle a unique line between mainstream business and the adult Internet industry. Some companies tend to lean one way or the other in their loyalties, but all are extremely susceptible to government pressure, threats and intimidation. Webmasters have as much to fear from the voluntary actions of these Gatekeepers as they do from government prosecution. While much can still be done by the webmasters in the industry to achieve some semblance of legal compliance, attention simply must be paid to the relationships with, and vulnerability of the Gatekeepers. None of the vulnerabilities identified in this article come as a surprise to law enforcement. Prosecutors have historically focused on those in ultimate control of profitability, regardless of the crime or the industry involved. Evidence that this strategy has already been implemented can be gleaned from the Michigan warning letters, the WorldCom court order and the manner in which the federal government has prosecuted online child pornography. The Solutions The solutions to this problem are by no means simple. Competition amongst the Gatekeepers helps to alleviate these problems to a certain extent since upstart competitors may be willing to take risks, or oppose government overreaching more so than the Gatekeepers who are entrenched with mainstream concerns. Solidarity and support is also part of the solution: Webmasters must communicate to the various Gatekeepers that they are willing to stand behind their content and their business activities. The first time that a gatekeeper is the subject of a criminal threat or prosecution, the rest of the industry cannot turn their backs and rejoice that they have dodged the bullet, for the time being. The Gatekeepers must know that they can turn to the webmasters and the content producers for help and assistance with their defense. Remember, again, the Gatekeepers have two places to turn in a crisis, and they must be given a reason to stand behind their clients when the going gets tough. The end user also plays a part in the solution. Choking off the supply of available erotica by attacking the Gatekeepers may not play well with a significant percentage of red-blooded Americans who have a healthy interest in sex. While the government might be able to politically pull off a prosecution against a particularly extreme Website or content type, any government action that has the effect of significantly reducing the flow of popular erotica to the end user could result in a popular backlash. Even pro-law enforcement Americans who rally around the flag during threats to national security or horrific sniper attacks, take a dim view of government regulation of speech. Thus, while a stray prosecution, here or there, against borderline content may not ruffle our collective feathers much, the kind of prosecutorial success that can result from coordinated threats against the Gatekeepers may prove to be the undoing of those officials responsible for the success. Consequently, those in power must proceed with caution when seeking to exploit the adult Internet industry’s vulnerabilities. Fleeting success today, while attractive in the short term, may result in long-term failure. It should also not be forgotten that the Gatekeepers’ control of significant online traffic puts them in a position to influence many minds should a political battle ensue. Time will tell whether they will exploit this power to the benefit of the industry, or whether their vulnerabilities will be the industry’s undoing.  Lawrence G. Walters heads up Walters Law Group which represents adult entertainment industry clients worldwide. Nothing in this post is intended as legal advice. You can reach our firm by visiting our website,, or on social media @walterslawgroup.