Adult Industry Update October 2002

Visa Clamps Down

The most shocking news this month came from the private sector in the form of dramatic new regulations for those webmasters using third party payment processors, such as iBill, CC Bill and Epoch. Each Webmaster will now be required to pay an initial registration fee of $750 and thereafter an annual fee of $375 to become a “sponsored merchant.” Moreover, the processors must now maintain records, by IP address, of each sponsored merchant’s chargeback ratios. This information can be reviewed by Visa, and used to terminate the sponsored merchant’s account, at Visa’s discretion.

Most significant for the foreign Webmasters is the new requirement that each company using a third party processor (now called an IPSP) must have a “presence” in the country where the processor is doing business. According to one source, a “presence” means the existence of staff employees in the host country. Given the large number of foreign webmasters processing memberships through United States billing companies, such as those listed above, this new “presence” requirement will likely cause a significant shake-out in the industry, with the smaller players seeking refuge under new business arrangements with domestic webmasters. Other webmasters will establish United States offices or corporations in attempted compliance.

Speculation abounds as to the underlying rationale for these sudden policy changes. Rumors ranged the gamut from clandestine cooperation between Visa and the government to simple gouging of a presumptively profitable industry. Regardless of the actual reason for these changes, the small amateur market will be particularly hard hit by the annual fees and individual charge back analysis. More discussions and clarifications concerning this issue are inevitable in the coming weeks.

Election Time

As election time nears, the adult industry braces for its regular political onslaught, given its unenviable position as a favorite target of social conservatives. A video store in Oxford, Alabama may be one of the first victims in this election season’s political witch-hunt. Deputies seized over 5,000 VHS tapes and more than 900 DVD movies from Perfect Touch & Lingerie early this month. Nobody was arrested in the raid, and the merchandise was seized based on the District Attorney’s “opinion” that it was obscene. Perhaps the store owner’s mistake was that he placed a political sign in his front yard supporting the challenger in the local Sheriff’s race. The store was raided by the current Sheriff eight days later. The store had been in operation for over 2 years, and is the largest adult store in Alabama. Investigators claimed that material crossed the line into obscene pornography since it showed actual sexual intercourse. Using that standard, just about every adult video could qualify as obscene in Oxford, Alabama.

Another video store owner accuses the Metropolitan Bureau of Investigation in Orlando, Florida, of waging a dirty political war against his operation. Undercover law enforcement agents have been sent into the store to purchase various adult video titles from Video Exposy’, and have made a total of ten arrests at the store, charging clerks and managers with selling adult material without a license. While law enforcement officials claim that he simply needs to get a license, the owner says that the City will not issue one to him. Every time he attempts to comply with City ordinances, they change the laws on him, the owner said in a recent interview. The store’s attorney believes that the arrests are in retaliation for a legal challenge made to the County’s Adult Bookstore Ordinance, which was settled under terms allowing him to remain open with several changes to the store. The harassment has forced the owner to consider selling his store.

More Problems for WorldCom

The Pennsylvania Attorney General, not to be out done by the Michigan Attorney General, obtained a court order from a Pennsylvania judge instructing WorldCom to block access to five Websites containing purported child pornography. One of the sites was hosted by Spain’s largest Internet portal, and a divisions of Terra Lycos. The judge relied on a recently enacted Pennsylvania law that requires ISPs to block any Website containing child pornography within five business days after being notified by the Attorney General. Criminal sanctions are available against ISPs who fail to comply. For its part, WorldCom expressed concern over the breadth of the decision. Not coincidentally, both the Michigan and Pennsylvania Attorney Generals are running for Governor.

Web Escort Service Update

In another politically charged prosecution, Central Florida law enforcement officials are turning up the heat on Websites advertising escort services. The Metropolitan Bureau of Investigation, (MBI), in a desperate attempt to justify their existence (and budget) have initiated prosecutions against several Florida-based escort Websites – some even outside their Orlando-area jurisdiction. Shortly after the raid and arrest of the Website’s operators, a judge ordered the Website closed. The operators refused to shut down however, and are challenging the order in court. “They’ve just thumbed their nose at it [the court order], commented an assistant to the Florida Attorney General.” The operators have argued that mere discussion and information regarding escort services on a Website constitutes protected speech. Therefore, any court order forcing a shutdown of the Website constitutes a prior restraint in violation of the First Amendment. Should the Florida Attorney General be successful in this case, the decision would set a disturbing precedent potentially authorizing the forced closure of any Website operated by an individual who happens to be involved in criminal activity. Further updates on this one will be sure to follow.

Politically Motivated?

These recent actions by various Attorney Generals have even caused the mainstream press to question whether state politicians are going public with their campaigns against online erotica, to coincide perfectly with election time. Similar actions were seen four years ago when, exactly one week before election day, the New York State Attorney General’s Office raided an ISP in Buffalo, New York, confiscating its news server. The ISP, BuffNet, was charged with providing access to newsgroups where child pornography could be found. Unfortunately for that Attorney General, the ploy didn’t work and he lost to a Democratic challenger by a razor-thin margin.

Obscenity Report

Two more obscenity cases bit the dust this month: John Cornetta, owner of the Love Shack in Gwinnett County, Georgia, took the “godfather deal” in the obscenity case against Shane’s World 20. Charges were dropped against all employees, and the corporation plead guilty of distribution of obscene material. “The First Amendment got a little bruised, but it’s alive and well,” said Cornetta about the plea deal.

The other case is the closely watched trial against Max Hardcore involving Max Extreme 4: Extreme Team, Vols. 18, 19, 21 and 24 ended in a hung jury and a mistrial. Hardcore could be retried, unless prosecutors decide to drop the case. Significantly, even Extreme Associates, who had been called upon for assistance in demonstrating acceptability of the material in California, stonewalled the defense, refusing to cooperate by producing business records relating to sales statistics of similar erotic material. The defense served the company with a Subpoena Duces Tecum to produce a compilation of statistics or sales figures in California relating to the sale of comparable material to the tapes at issue. In response to the Subpoena, a representative submitted an Affidavit stating that the company had no such records.

“That’s bullshit,” said a former Extreme employee who saw the Affidavit. This goes to show that one quickly learns who one’s friends are when faced with defending an obscenity prosecution. To its credit, Legend Video fully cooperated in the case. Of course, nobody wants to get involved with helping the current target of government persecution for fear of being next on the hit list. Fortunately for Hardcore, and the industry, this case ended in a mistrial and not a conviction.

Bumfights Busted

Last month also saw the beginning of the end of the “Bumfights” odyssey. This disturbing content, featuring actual street fight scenes, was promoted on several adult Websites. This short-lived craze died a sudden death after the arrest of the producers of the video by the La Mesa, California, Police Department. Police say that the producers convinced homeless people to fight for the camera in exchange for cash. Police also alleged that one person broke his leg during a taping session, and that producers threatened witnesses. The producers were charged with conspiracy, solicitation of a felony crime and illegally paying people to engage in fighting. Shortly after the bust, one of the major distributors of Bumfights pulled the content from the Net.

Hotel Campaign Goes National as a follow up to their recent successes in eliminating adult movies from various Cincinnati-area hotels, the Citizens for Community Values met recently in Washington D.C. to urge Attorney General John Ashcroft and the Justice Department to conduct a nationwide crackdown on hotel erotica. In response, the Justice Department claimed that it is “committed to enforcing federal obscenity laws.” Apparently, the craze has caught on: The American Family Association of Michigan, another pro-censorship group, is attempting to convince prosecutors in that state to prosecute local hotels offering similar fare.

Prisoners & Privates

What do prisoners and military personnel have in common? Neither one can enjoy adult material under a court decision and new law; both effective in September, 2002. The Ninth Circuit Court of Appeals rendered its decision upholding the Military Honor and Decency Act on September 13, 2002. The court found that the Act did not violate the First Amendment and was a reasonable regulation of speech. Just three days earlier, the California Corrections Department imposed a ban on adult materials in prisons, because of complaints from female guards that the material prompted inappropriate behavior. This is one way to keep our military men on edge – but do we really want that for our prisoners?

Child Modeling Update

The federal child modeling prohibition is currently winding its way through the House Judiciary Committee. United States Representative Mark Foley (R-Fla.) called teen modeling Websites a “fix for pedophiles” and noted that the number of images are growing “at an unabated pace.” The National Coalition Against Censorship (NCAC) claims that the legislation is “doomed from the start” as an unconstitutional infringement of Free Expression. The bill would impose prison terms of up to ten years for exploitative child modeling, defined as “marketing the child himself or herself in lascivious positions and acts, rather than actually marketing products.” Apparently those sites that also sell panties are in the clear.

Online Gaming Faces Another Battle

The online gambling industry is battling yet another demon; this time in the form of a proposed bill known as the “Internet Gambling Funding Prohibition Act,” introduced by Rep. James Leach (R-Iowa). The House of Representatives passed the bill on October 2, 2002, shortly after the General Accounting Office issued a report accusing the Internet gambling industry of involvement in money laundering.

Geo-Targeting

Geographic location equipment is soon to become a reality for Webmasters. The Online Gaming Systems company has created a product known as “Geopoint” which claims to achieve a level of data aggregation and accuracy that is unrivaled in the industry, according to its spokesperson, Lawrence Tombari. The legal and business implications of such geo-locator products for the Adult Internet industry are both significant and obvious. Webmasters may soon be able to accurately block certain communities from accessing particularly explicit or unconventional content. The widespread availability of such technology may also be a detriment to the industry, which may be called upon to implement such technology if it is available and accurate.

FTC Gears Up Against Fraud

The Federal Trade Commission has again turned its attentions to e-commerce and online fraud; this time with a global twist. The FTC recently announced an international effort to combat online fraud through initiatives with international law enforcement agencies designed to root out cross border fraud in e-commerce transactions. Foreign Webmasters beware: Have your promotional material, Terms & Conditions and overall business practices reviewed by American attorneys.

Conclusion

Perhaps once the political season dies down, both the industry and politicians can get back to business as usual. In these times, even that may be a scary concept.

Lawrence G. Walters, Esquire is a partner with the law firm of Weston, Garrou & DeWitt, with offices in Orlando, Los Angeles and San Diego. Mr. Walters represents clients involved in all aspects of adult media. The firm handles First Amendment cases nationwide, and has been involved in significant Free Speech litigation before the United States Supreme Court. All statements made in the above article are matters of opinion only, and should not be considered legal advice. Please consult your own attorney on specific legal matters.

You can reach Lawrence Walters at Larry@LawrenceWalters.com, FreeSpeechLaw.com or AOL Screen Name: “Webattorney.”