The emperor still has no clothes!

The emperor still has no clothes!

Recently, a jury found Mr. Ross Ulbricht guilty of running the black market website Silk Road. Many observers claim that the government’s theory expanded liability for third parties like Mr. Ulbricht online. As I mention in a recent GizMoto interview, the government’s theory of liability wasn’t new, but “whether the government obtained the evidence that they wish to use to prove this narrative . . . in a lawful way consistent with the Fourth Amendment” is still up for debate.

On Silk Road, you could buy everything from cyanide, to marijuana, to, yes, some say hit men! The site was dubbed the Amazon of the black market. While diary entries from Mr. Ulbricht showed that he initially intended to launch the site so that he could sell mushrooms, the factual issue in the trial was whether he was the infamous Dread Pirate Roberts who continued to captain the site after it got up and running — and after Mr. Ulbricht supposedly bailed out.

Some have claimed that the government’s theory of liability “would expand legal liability for commerce in contraband online,” and that the outcome of the trial shows that “anonymity is dead.” Under this view, it is a slippery slope to hold Mr. Ulbricht liable for the conduct of people on Silk Road. That means all folks running websites have to be nannies who oversee all that is done on the site or risk criminal prosecution.

Maybe so. The Silk Road verdict makes it tougher to be a libertarian provider of a virtual platform where people can freely — and anonymously — transact. The freewheeling atmosphere on Silk Road was facilitated via the use of Bitcoin as the medium of payment. Some in the financial industry have sought similar anonymity with their “dark pool” methods of trading, where “the trading volume created by institutional orders . . . are unavailable to the public.” Dark pools, too, have come under legal scrutiny.

Contributory liability under copyright makes a third party — here Mr. Ulbricht — liable for infringements that occur under their control that they are aware of, or should be aware of. There is no intentional ostrich defense — “I chose not see or hear criminality!” — to such liability, nor is there such a defense to aiding and abetting violations of federal law. If Mr. Ulbricht was, in fact, Dread Pirate Roberts, then he intentionally facilitated the illegal transactions. In this respect, the case did not “expand legal liability for commerce in contraband online,” and so the emperor still has no clothes, contrary to what others say.

However, Silk Road did suggest new methods of potential government overreaching in the digital age. According to some pundits, the F.B.I. was mysteriously able to uncover the Silk Road servers supposedly via a software flaw on a site’s login page that, in turn, revealed an IP address. Supposedly, the IP address led the feds to an Iceland location where the server for Silk Road was located. Whether this cookie crumb trail created by the feds violated the Fourth Amendment is an issue that will likely be raised on appeal.

Regardless of the outcome of that appeal, Silk Road illustrates the tension between being able to conduct business in private online without the government unlawfully snooping, and society’s interest in regulating virtual transactions that have negative externalities — nasty effects — on all but the transacting parties.