<nettime> Why The Offshore Napster Server Initiative May Not Work

[Felix Stalder <stalder@fis.utoronto.ca>]

[A somewhat more comprehensive look at the difficulties of actually
creating an "extraterritorial zone" via the Internet. Felix]

Why The Offshore Napster Server Initiative May Not Work
http://ga.to/children/sealand.html

Important notes: I'm not a Canadian.  I'm not a lawyer.  I am not
intimately familiar with Canadian law.  The following is my uninformed
opinion only.

Okay, now that that's out of the way, the reality of the situation is that
the notion of going offshore to avoid prosecution is hardly new.  Smart
guys have been trying it for years, and the courts have been chasing them
for years.  Before anybody tries such a tactic, they should be very sure
that they've done their homework.

Matt Goyer's [the Canadian who proposed an off-shore Napster.FS] plan goes
something like this: collect $15,000.00 to colocate an OpenNap server
somewhere offshore, ideally Sealand.  HavenCo has set up a business of
running high-security servers on Sealand, and for $15,000.00 US you get a
years' worth of service, attached to the rest of the world with a 256kbps
(1/6 the maximum speed of a DSL line) connection.  HavenCo runs a tight
ship, with armed security and even a strict policy against sending them
your own PC to use as a server, lest it contain a bomb or listening
device.  Nonetheless, Matt is soliciting equipment donations for his
project; perhaps these will be used if he goes with another offshore
location other than Sealand.  For more details, see the links above.

I genuinely wish Matt all the luck in the world.  He's got pluck.  I like
pluck.  I mean him no disrespect or ill will.  But, the problem is
problematic from my viewpoint, for several reasons:

*	He won't have the option of living on Sealand -- very few people
are even allowed to visit it.  It's an ugly piece of metal in the middle of
a choppy sea; in fact, it looks somewhat like a minimalist Unreal
Tournament map.  Whether he stays in Canada is up to him, but he simply may
not have the means or desire to move to a location where copyright laws and
international treaties don't apply.

*	After his server is launched, he will need to continue to collect
$15,000.00 a year to keep the servers running.  This means that he'll need
to treat it as a business.  Whether he incorporates as a non-profit, a sole
proprietorship, or does not incorporate at all, he'll still be conducting
business.

*	The big five record labels, which collectively hold a lot of music
copyrights, have offices in Canada.


So, Matt will have to take careful steps to avoid the following scenario:


*	Matt collects $15,000.00 in donations, wires the money to HavenCo,
and they throw the switch on a server running OpenNap.

*	Self-absorbed teenagers hoping to "stick it to the man" proceed
with trading the latest hits with gay abandon and it is a huge success.

*	The big five record companies notice this, and start warming up
their legal teams.

*	Matt continues to solicit donations to pay for the next years'
worth of service -- he'll need to collect an average of almost $300.00 per
week.

*	Matt starts getting donations from Canada, the United States, and
other countries in which the big five have offices.

*	Quicker than you can say "due process," the big five serve Matt at
his offices in Canada for unfair competition, contributory and vicarious
copyright infringement, and all other sorts of wacky stuff.

*	"But," Matt says, "the server is located on Sealand.  They can't
touch me!"

*	"Oh, yes, they can," points out Matt's lawyer.  "They might have
difficulty touching your server -- at least for now -- but they can
definitely touch you, as you are doing business right here in Canada.  And,
if you're not careful, you'll be sent to a facility where a large man named
'Spike' will also touch you on a nightly basis."

*	Matt's court dates get in the way of his schooling.


Piercing the Corporate Veil

One preemptive defense that Mr. Goyer might take is to incorporate.  One
benefit of incorporating is to prevent your shareholders from being
responsible for the debts and liabilities of the corporation.  If the
company is sued or runs up massive debts, the shareholders (including the
officers, directors, and board members) don't lose their houses.  It sounds
easy -- Matt Goyer becomes Fairtunes, LLC, and if the big five nail him for
a million dollars, his life isn't ruined, as all they can take are the
assets of Fairtunes, LLC.

Unfortunately, this is another tactic that lots of smart people have tried
over the years, and, thus, the courts have lots of experience in chasing
them down.  The courts can easily do what's called "piercing the corporate
veil."  If they determine that a business is a "shell" corporation set up
to manage the personal assets of one person (in US law the company is
referred to as an "alter ego"), they can go after the individual.

So Move The Business Offshore!

Another step that might be taken would be to move the money collection
mechanism offshore -- say, to a Swiss bank account.  This wouldn't work, as
one must still declare one's offshore holdings to RevCan (Matt's equivalent
of the USA's IRS).  Declaring this income would be evidence of doing
business.  Simply not declaring it would be problematic as well, as one
would then be subject to tax evasion charges.  And, if Matt tried to take
this step (not that I believe that he would), the courts would track him
down.  For the OpenNap server to be useful, it would have to be well known
by lots of people, and at that point it would be difficult to keep a secret
from the courts and the copyright holders.  And, Matt's made no secret of
his plans.  The cat is out of the bag; it would be difficult for him to
disclaim ownership, and doubly difficult for him to attempt to continue
coordinating those $300 a week in donations to keep the server running. 
Governments are very thorough about finding tax evaders, especially the
flagrant ones.  They're regular rat dogs, those governments are.  PayPal
will cough up account ownership information when presented with a court
order (1), and even if an attempt were made to have a PayPal account
registered to a person in another country, the copyright holders would
simply go after that person.  If that person were living in a country that
was not a party to The Berne Convention or a member of the WTO/WIPO (and
these countries are getting hard to find), countries subject to such
treaties still have ways of putting economic pressure on non-treaty
countries.  Is it possible to hide absolutely?  Sure, people manage to do
it.  But it's very, very hard.

Again, I don't believe Mr. Goyer, or any other intelligent person, would
even try resorting to such extreme steps.  There comes a time when you just
have to ask yourself if it's ultimately easier and safer if all those
16-year-olds just buy their own goddamn CDs.

Then What's The Point?

You may wonder what the purpose of locating a server on Sealand is, if the
owner of the server can still be prosecuted on their own turf.

The benefit of such an arrangement is that your server is beyond the
jurisdiction of any country.  This is a subtle distinction which is
important to understand.

Here's an example of how this can be useful: many a shady business has been
shut down and had their records seized.  The records were then used to
prosecute the owners, and perhaps the records even led to other
wrongdoers.  Entire networks of illegal betting operations, money
laundering, and other unsavory activities have been shut down just this
way, going back to the days of pencil-and-paper recordkeeping.

If you're running a business where you'd just as soon not have the
authorities pore over your financial records at their whim, HavenCo might
be able to help you out.  Set up a server on Sealand, use an encrypted
transmission, and the records of your financial transactions are safe.  If
the worst happens, your country's authorities have absolutely no right to
go fetch the server from Sealand.  Even if you get put in jail or are
otherwise detained, you'll eventually default on your contract with
HavenCo, and they will destroy your server's hard drives and send the rest
of the equipment back to a predetermined location (as explained on their
FAQ.).

So, in short, you use HavenCo's services when you want to be private. 
Using Sealand to run a public server open to all may not be the wisest
course of action.

Lastly, there's one more important thing to understand about Sealand: they
get their Internet connection from somewhere.  Whether they've laid
fiber-optic under the channel or they're using a two-way satellite
transmission, they have to be connecting to somebody who's selling them the
bandwidth.  And that somebody is most likely located in a Berne Convention
nation and/or a nation where the big five record companies do business.  If
they thought it necessary, the big five could sue to have the Internet
connection to the Fairtunes OpenNap server blocked.  They may not be able
to get to the server, but they can ensure that nobody gets to it.

(1) http://www.paypal.com/cgi-bin/webscr?cmd=p/gen/privacy-outside

[--end--]

Some more media coverage of this thing:
http://news.cnet.com/news/0-1005-200-5025950.html
http://www.cnn.com/2001/TECH/internet/03/06/napster.offshore/index.html
http://www.theregister.co.uk/content/6/17360.html
http://slashdot.org/articles/01/03/06/0025244.shtml

--------------------++-----
Les faits sont faits.
http://www.fis.utoronto.ca/~stalder

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