@musictechpolicy: (From 2012) Snakes in the Kitchen: A Journal of How McDonald’s Does Its Bit for Brand Supported Piracy

Now that brands have finally decided to do something about advertiser fraud from Google’s massive ad network, it’s worth remembering the MTP campaign against brand sponsored piracy–essentially the exact same problem as the current YouTube debacle over ads served on hate speech videos.

Here’s Chris’s post from 2012 “Snakes in the Kitchen: A Journal of How McDonald’s Does Its Bit for Brand Supported Piracy” and here’s the letter that Chris wrote to McDonald’s alerting them to the problem.  While McDonald’s did call to inquire further, the company took no action–for five years.  While MTP readers can take satisfaction in having kept up the pressure on these companies for which many people owe you appreciation, the fact is that they all knew about the problem long ago.  Why they did nothing about it is a question for them to answer.

Dear Ms. ____

I write to you as an attorney who represents both recording artists, producers, independent record companies, songwriters and music publishers.  I also represent technology companies (starting with the original Napster) who wish to negotiate legitimate business models.  My work in trying to bring technology companies and rights holders together has taken me all over the world.  I have spoken about these issues at the US Congress, the UK Parliament and the OECD.  I am a member of the legal and legislative committee of the American Association of Independent Music, the indie label trade association (although I write to you as an individual and not on behalf of anyone).Never have I seen such a gigantic step backwards in bringing legitimate companies to market as I have seen with so-called “Web 2.0” pirates.  Advertising-driven piracy has produced what I believe to be one of the largest and most systematized organizations of fraud and deception in history.  I tend to agree with the U.S. Department of Homeland Security that many of these sites are run by organized crime.  Unfortunately, those charged with maintaining the integrity of brands like McDonald’s are, I believe, just as deceived as are the artists, moviemakers and other intellectual property owners whose works are sold in a vast black market of criminal proportions.

In addition to the screen captures I previously sent to you, I have now found another McDonalds’ ad on the Lyrics007 site that also features the Olympics logo (copy attached).  I have dealt with the Olympics several times in my career and I would be absolutely stunned if the IOC agreed to allow McDonald’s to trash the Olympics brand by including it in advertising on illegal sites.

Having said that, my initial reaction is that I wish there were anything particularly surprising about McDonalds’s situation.  Having been down this path before, I think I can predict what you will be told:

1.  No one knows anything at McDonalds.  It’s all a mystery.

2.  McDonalds’s outside advertising agency uses a variety of advertising networks, exchanges, auctions, etc., to deliver your advertising to a large inventory of websites.  “Millions” of sites, no doubt.  So many that they are impossible to police.  (This will be offered as an excuse for continuing the bad behavior, not as a rationale for why it is irresponsible to be in a position where you cannot control your brand—see “naked trademark license”.)

3.  McDonalds has a contract with an advertising agency that requires strict controls on McDonalds’s valuable brand and prohibits the brand from being served to a variety of places, including pirate sites that deal in infringing content, illegal drugs (i.e., drugs sold without a prescription or counterfeit drugs), illegal or fraudulent mortgage products, human trafficking sites including “mail order brides” and the like.

4.  McDonalds’s ad agency has a corresponding agreement with an ad agency or other intermediary or series of intermediaries all of which have made reciprocal promises to the advertising intermediary as the intermediary made to McDonalds.

5.  McDonalds’s reporting from the intermediary includes not quite enough information for the ad agency and McDonalds to be able to determine the particular sites where the ads show up, do not include screen captures, and generally lacks sufficient evidence for McDonalds to know that your advertising is being delivered to pirate sites.

6.  McDonalds pays for the advertising, and McDonalds’s payment is shared with all the intermediaries and the pirate site.

7.  No one ever audits the ad networks because no one wants to know.

8.  This process is repeated millions of times a day if not an hour so it is “impossible” to track—except everyone in the chain somehow gets a share of McDonalds’s advertising spend.  That part can be tracked just fine.

9.  This process is repeated for hundreds if not hundreds of thousands of other brands.

10. Everyone is happy because everyone gets paid—except the creators.

11.  No sale of intellectual property is a lost sale because all sales are monetized—for everyone except the owners of the intellectual property being sold on black market sites.

12.  McDonalds will point to some verification service like Double Verify (or as we call it, “Double Blind”), which I believe to be largely incompetent and is employed by the ad networks to make it look like they are doing something to prevent theft when in fact there is, if anything, more theft than there was before Double Verify.

Does that sound familiar?

The biggest ad networks are involved.  As you will note, Lyrics007 has a Google Adsense publisher account and many of the ads on its site are served by Google.  What the artists are told by companies like Google is that Google endorses a “follow the money” approach to catching illicit advertising sales.  They would like independent artists to spend the time tracing the ad revenue through a labyrinth of companies—a labyrinth which, by the way, I am told has suddenly gotten even more complex since the SOPA legislation was withdrawn.  Strange coincidence.

An increasing number of artists are of the mind that when they see a McDonalds ad on a pirate site, they will follow the money—to where it starts.  And it starts with McDonalds.  We know where it starts and where it ends.  We don’t really care how it gets there, how many noses are in the trough as the dollars make their way to the pirate’s bank account which always seems to be in China or the former Soviet Union (Lyrics007 is registered in China).  We know in this case that for whatever reason, McDonalds is the ultimate paymaster of what is no doubt a legion of thieves.  Whether McDonalds knows it or not.  And in this case, it appears that the ads are served by Google Adsense as Lyrics007 has a Google Adsense publisher account and many of their ads can be traced back to Google with little effort.

By the way—we agree with Professor Ben Edelman of the Harvard Business School that it is ultimately the McDonalds shareholders who are being ripped off just as much as the artists are.  McDonalds should not only be entitled to transparency in accounting but accountability from its advertising agencies.  McDonalds should be getting rebates when its ads show up in places that are damaging to its brand and that it never authorized.  Or I should say that you hope no one at McDonalds or acting for McDonalds ever authorized, and I have to bet that the IOC would agree with McDonalds use of its logo in this unsavory manner.

Berkeley journalism professor Ellen Siedler has written an excellent blog about this problem called “Pop Up Pirates” (www.popuppirates.com) in which she documents repeated instances of advertising served by Google on the Hong Kong-based Megavideo site.  If you recall from newspaper accounts, the FBI and the New Zealand police raided the multimillion home of Megavideo’s owner, Kim Dot Com on a federal indictment for violation of the Racketeer Influenced and Corrupt Organizations Act (“RICO”).  Dot Com is currently under house arrest awaiting extradition from New Zealand (where he bought a resident visa for $10 million) to stand trial in the U.S. for his crimes.

Dot Com’s federal indictment estimated that he made over $175 million in a few years using a scheme like the one I’ve outlined above.  Realize that Dot Com’s $175 million is his share of mostly advertising revenue that was split with adserving networks including Adsense and Adbrite according to the indictment.

You should also realize that there are many counts of money laundering included in the Dot Com RICO indictment, each of which is a RICO “predicate”.  No brands have been indicted yet under the RICO statute, but it is made for prosecuting that kind of network and the trial has not yet started.  (You may recall that RICO was the principle statute used by the FBI and the Department of Justice to prosecute the Mafia, Michael Milken and others for massive insider trading and money laundering.)

Another good example of this problem is in the area of pharmaceutical intellectual property infringement and violations of the Controlled Substances Act promoted and sustained by advertising sold by Google’s advertising entities.  Google paid one of the largest fines in U.S. history last year under a nonprosecution agreement following a years-long grand jury investigation into its advertising practices–$500,000,000.

Let me say that again—half a billion dollars.

US government agencies ran several different sting operations against Google that revealed that the company knowingly sold advertising that promoted the sale of prescription drugs such as RU 486, oxycontin, human growth hormone and steroids to name a few.  This sting was well-documented in reporting in the Wall Street Journal.

According to the U.S. Attorney for Rhode Island as quoted in the Wall Street Journal, the 4.2 million emails and other documents that Google was compelled to produce to the Rhode Island grand jury demonstrated that the knowledge and decisionmaking to promote the sale of illegal drugs went to the highest levels of the company, including Larry Page.  These drugs were sold in a variety of online “pharmacies”, including in countries that are the targets for Interpol’s Operation Pangea.

And yet if you go to Google search right now and put in the search term “buy oxycontin online no prescription” you will get Autocomplete suggestions (including “buy oxycontin online no prescription cheap”).  There are also paid search results and links to what are pretty clearly illegal pharmacy sites.  So not much has changed.  Except Google is participating in a White House effort to shut down illegal online pharmacies.  Like Double Verify, we are not convinced that this is a serious effort.  We will start to be more convinced when Google has done something as simple as clean up Autocomplete.

And of course, the Google shareholders pursuing a variety of shareholder derivative actions against the Google board are not convinced either.

So ask yourself—when an artist knows this information, what do they think when they see a McDonalds ad on a site that is selling their music or movies illegally or the music or movies of one of their friends?

They think you are in on it.  Can you blame them?

I would like to encourage McDonalds to understand the gravity of what your company is involved in.  What is necessary and would be welcome is for the brands to align with the artists, film makers, authors, songwriters, actors and others who buy your products and endorse your brands and really crack down hard on whoever is responsible for your ads showing up on pirate sites.

Harvard Business School Professor Ben Edelman has an excellent summary of the problem: http://www.benedelman.org/advertisersrights/ “Towards a Bill of Rights for Online Advertisers.”  (Note this was written in 2009—imagine how much of McDonalds’s money has been paid to the black market since then.)

Because I can assure you that when you research McDonalds advertising practices, you will find that the Lyrics007 ad is just the tip of the iceberg.  If you can get anyone in the chain to tell you the truth.

What is also necessary, and what I think would be truly commendable corporate governance on the part of McDonalds, would be for McDonalds to disclose how it has been unwittingly caught up in this corrupt organization and the steps it has taken to be sure—certain, preferably—that McDonalds has done everything to produce the result that no McDonalds advertising appears on illegal sites.

We are often told that artists should just give up because advertisers will make them play an endless game of whack a mole to stop the support of thieves by major brands.  I would suggest to you that two can play that game, and frankly McDonalds have a lot more to lose with the future disclosures.

But wouldn’t it be a much more productive to stop the flow of money to these illegal sites?  The artists want it to stop and I’m sure you do, too.  But only McDonalds is in a position to stop its own advertising spend that is split with illegal sites absent a court order.  Let the government prosecute the criminals for the past, but going forward wouldn’t it be infinitely more productive for McDonalds to get a rebate for these illegal advertising sales and for the artists to have the comfort that they have an ally in a fine brand like McDonalds?

I’m happy to discuss with you further if you like.

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