Statement of Marybeth Peters
The Register of Copyrights
Subcommittee on Courts and Intellectual Property
Committee on the Judiciary
United States House of Representatives
105th Congress, 1st Session
September 11, 1997
No Electronic Theft (NET) Act of 1997 (H.R. 2265)
Mr. Chairman, members of the Subcommittee, thank you for the opportunity to
testify on this important piece of legislation, the No Electronic Theft
(NET) Act of 1997. The bill would amend the provisions of current law
dealing with criminal liability for copyright infringement to cover willful
piracy that may cause serious commercial harm despite the infringers lack
of a profit motive.
The Copyright Office supports the purpose and approach of the proposed changes.
We agree with the sponsors of the bill that a significant loophole exists in
current law, which permits deliberate and destructive piracy to escape criminal
penalties where it is done for motives other than financial gain. In order to
preserve legitimate markets for copyrighted works, it is critical, especially
in the era of digital transmission, to close this loophole quickly. While we
have some concerns with respect to specific language of the proposed changes,
we are confident that these concerns can be resolved.
Introduction and Background
The Copyright Act provides for both civil and criminal liability for acts of
copyright infringement. 17 U.S.C., Chapter 5. Infringement is a crime only where
it is done willfully and for purposes of commercial advantage or private
financial gain. 17 U.S.C. § 506(a). The penalties for criminal infringement,
set forth in Title 18 of the U.S. Code, are determined by its extent: if the
infringer has made, in any 180-day period, ten or more copies of one or more
copyrighted works with a total retail value of $2,500, the crime is a felony
entailing up to five years imprisonment and/or a fine of up to $250,000 for
individuals and $500,000 for organizations. 18 U.S.C. §§ 2319(a),
3571(b). For cases not meeting this threshold, the crime is a misdemeanor, with
the maximum penalty of imprisonment for up to one year and/or a fine of up to
$25,000 for individuals and $100,000 for organizations. Id. §§
2319(c), 3571(b). There is also an increased penalty for repeat offenders, authorizing
a sentence of up to 10 years. Id. § 2319(b).
This general approach to criminal liability dates back to the first criminal
infringement provision in the copyright law, which required the infringement
to be willful and for profit. Act of January 6, 1897, 54th Cong.,
2d Sess., 29 Stat. 481. The profit element was maintained in the 1909 Copyright
Act, but was elaborated in 1976 to read for purposes of commercial advantage
or private financial gain. 17 U.S.C. § 506(a). Although Congress
did not explain the change,see H.R. Rep. 1476, 94th Cong., 2d. Sess.
163 (1976), courts have pointed out that the current language conforms to judicial
interpretation of the prior laws for profit requirement as
covering infringers who intended to make a profit but did not actually do so.
See United States v. Cross, 816 F.2d 297, 301 (7th Cir. 1987); United
States v. Moore, 604 F.2d 1228, 1235 (9th Cir. 1979).
The damage from piracy has grown over the years as technology has developed,
making it easier and easier to produce higher quality copies of copyrighted
works in various formats. Copyright owners today lose substantial sums of money
to piracy. The advent of digital technology has the potential to exacerbate
greatly the impact of piracy, as it allows users to make multiple perfect copies
in an instant, without requiring a major investment in physical manufacturing
and distribution facilities. As it becomes easier to transmit large amounts
of information quickly over the NII, it becomes easier for those without a commercial
stake or profit motive a disgruntled former employee, a dissatisfied
customer, an Internet user opposed to the fundamental concept of copyright law
to inflict tremendous damage to the market for a copyrighted work. Unlike
the traditional analog world, substantial commercial harm can be caused without
a commercial aspect to the piracy itself. Moreover, for such infringers, civil
remedies are less likely to serve as an effective deterrent and criminal sanctions
may be needed to deter these individuals from causing serious harm to the value
of copyrighted works.
The case of United States v. LaMacchia, 871 F. Supp. 535 (D.
Mass. 1994), has drawn attention to current laws shortcomings. David LaMacchia,
a student at the Massachusetts Institute of Technology described by the court
as a computer hacker, id. at 536, created and operated electronic
bulletin boards on the Internet and encouraged users to upload and download
copies of popular copyrighted commercial software. The illegal copying that
took place on the bulletin boards resulted in alleged losses to the copyright
owners of over one million dollars. Because LaMacchia lacked a commercial motive,
however, the government charged him with wire fraud rather than criminal copyright
infringement. Id. at 541-42. The court dismissed the indictment, holding
that copyright infringement can only be prosecuted under the Copyright Act.
Id. at 545 (relying on Dowling v. United States, 473 U.S.
LaMacchia demonstrates that the lack of criminal penalties for willful,
noncommercial infringement has become a significant loophole in the digital
environment. The court itself decried this loophole, expressing frustration
with the confines of section 506(a):
[O]ne might at best describe [the defendants] actions as heedlessly
irresponsible, and at worst as nihilistic, self-indulgent, and lacking in
any fundamental sense of values. Criminal as well as civil penalties should
probably attach to willful, multiple infringements of copyrighted software
even absent a commercial motive on the part of the infringer. . . . But, it
is the legislature, not the Court which is to define a crime, and ordain its
Id. at 545 (quotations omitted).
H.R. 2265 responds to the courts call for a legislative solution to its
dilemma. The bill would close the loophole in current law by making two main
changes. First, it clarifies that the private financial gain element
of criminal infringement includes barter that is, situations where the
illegal copies are traded for items of value such as other copyrighted works,
not only where they are sold for money. Second, it redefines criminal infringement
to include willful infringement by reproduction or distribution, including by
electronic means, that lacks a commercial motive but has a substantial commercial
A. Definition of Financial Gain
Section 2(a) of the bill would introduce a new definition in section 101 of
the Copyright Act for the term financial gain. Under the current
section 506(a), the standard for criminal liability is that the infringer acted
willfully and for purposes of commercial advantage or private financial
gain. The new definition of financial gain would clarify that
the term includes receipt of anything of value, including the receipt
of other copyrighted works. This language ensures that criminal liability
will not turn on the technicality of whether the infringing copies were sold
for money, as opposed to other valuable benefits.
The Copyright Office believes that the proposed clarification is desirable.
The new definition will be particularly important in protecting copyright owners
from piracy on the Internet, where a multitude of economic models have developed
to compensate infringers fortheir illegal copies. It has become common, for
example, for electronic bulletin boards to facilitate bartering systems where
users contribute copies of infringing software in exchange for the ability to
download copies of other software. See, e.g., Sega Enters. Ltd. v. MAPHIA,
948 F. Supp. 923, 927-28 (N.D. Cal. 1996); LaMacchia, 871 F. Supp.
B. Substitution of Commercial Impact for Commercial Purpose
Other sections of the bill allow criminal liability for willful infringement
to be based on the commercial impact on the copyright owner rather than the
commercial purpose of the infringer.
Section 2(b) of the bill renumbers the existing criminal infringement provision
in section 506(a) as subsection 506(a)(1), and adds a new subsection 506(a)(2).
Under the new subsection, any person who infringes a copyright willfully
. . . by the reproduction or distribution, including by electronic means, of
1 or more copies, of 1 or more copyrighted works is subject to the criminal
penalties set forth in Title 18. The core of this subsection is its omission
of any requirement of commercial purpose or financial motive. In addition, it
makes explicit that reproduction and distribution of electronic copies via the
Internet can qualify for criminal sanctions.
The bill also revises section 2319 of Title 18 to set forth the penalties for
violation of the proposed new subsection. Under the revisions, the criminal
infringement would be a felony if the offense involves the copying or distribution,
in any 180-day period, of ten or more copies of one or more copyrighted works
with a total retail value of $5,000. See H.R. 2265, § 2(d) (adding
new section 2319(c) to Title 18). The maximum sentence is up to 3 years in prison
and/or a fine of up to $250,000 for individuals and $500,000 for organizations
(the bill does not amend the existing fine amounts found in 18 U.S.C. §
3571). Repeat felony offenders could receive a sentence of up to 6 years. A
less extensive violation of section 506(a)(2) would be a misdemeanor, with the
maximum sentence of up to one year in prison and/or a fine of up to $25,000
for individuals and $100,000 for organizations. See H.R. 2265, §
2(d) and 18 U.S.C. § 3571.
As discussed above, the Copyright Office supports the goal of the proposed
revisions in addressing damaging piracy that is motivated by non-commercial
purposes. While the existing commercial purpose requirement, in
the the world of physical copies, has served to limit criminal liability to
piracy on a commercial scale, a new standard is needed in the digital environment,
where significant economic damage can be caused without a commercial purpose.
We are concerned, however, that certain aspects of the language of H.R. 2265
as drafted could cause unintended negative consequences. Because of the placement
of all the factors delineating the extent of the infringement in the penalties
section in Title 18, the structure of the bill indicates that willful infringement
through reproduction or distribution of a single copy of a copyrighted work
could lead to criminal liability. While the more serious cases listed in Title
18 would constitute felonies, cases of less severity appear to qualify as misdemeanors.
In our view, it would be preferable to limit criminal liability for infringement
without a profit motive to cases of willful infringement that threaten to cause
substantial economic harm. When Congress last revised criminal penalties for
copyright infringement, the legislative reports made clear that de minimis
copying would not be subject to the new criminal penalties. See H.R.
Rep. No. 102-997, 102d Cong., 2d Sess. 6 (1992). At that time, the House Judiciary
Committee stated that the new felony provisions would not apply to children
making copies for friends as well as other incidental copying of copyrighted
works having a relatively low retail value. Id. We believe a
similar distinction is appropriate here.
This result could be accomplished by a change in drafting technique. We would
suggest incorporating directly into section 506(a)(2) the limits currently found
in the proposed penalty provisions regarding time period, number of copies and
retail value. This approach would make clear that the new criminal provisions
are limited to situations like LaMacchia, where the infringers
conduct substantially damages the market for the copyrighted works. The definition
of the criminal conduct itself would then contain limitations requiring
the conduct to take place within a 180-day period and involve 10 or more copies
of works worth $5,000 or more that would leave no doubt that minor, isolated
instances of willful infringement would not inappropriately be subject to criminal
liability. The bill already takes similar precautions in this area by increasing
the current felony retail value threshold for commercial piracy
from $2,500 to $5,000. See section 2(d)(1).
Concern has also been expressed about the impact of the bill on libraries,
universities and other nonprofit organizations. Some have suggested that the
proposed language, even if limited as proposed above, might expose these organizations
inappropriately to the risk of criminal liability, since the retail value limits
could easily be surpassed, particularly by large nonprofits.
Much of this concern should be allayed by the requirement that the infringement
be willful, given the interpretation that courts have given this
term in the criminal context. The courts have held that it is not enough for
the defendant in a criminal case to have had an intent to copy the work; he
must have acted with knowledge that his conduct constituted copyright infringement.
See, e.g.,United States v. Cross, 816 F.2d 297, 300 (7th Cir. 1987) and
United States v. Moran, 757 F. Supp. 1046 (D. Neb. 1991). In Cross,
the Seventh Circuit upheld the following jury instruction for determining willfulness
under the criminal provision of the Copyright Act:
[W]illfully as used in the statute means the act was committed
by a defendant voluntarily, with knowledge that it was prohibited by law, and
with the purpose of violating the law, and not by mistake, accident or in good
816 F.2d at 300. In Moran, the defendant was charged with criminal infringement
for his practice of making backup copies of the videotapes he purchased for
his video rental store. The court held that the willful element
of criminal copyright infringement was similar to that in federal criminal tax
statutes, and thus requires a voluntary, intentional violation of a known
legal duty. Id. at 1049 (citing U.S. v. Cheek, 111 S.Ct.
604, 610 (1991)). The court therefore held that because the defendant believed,
albeit incorrectly, that he had a right to make such copies, he could not be
convicted of criminal infringement. Id. at 1051-52.
Thus, libraries and other nonprofit organizations that implement a conscientious
copyright policy should not be subject to the threat of criminal sanctions under
H.R. 2265. In particular, if such an organization believes in good faith that
its copying is permissible as fair use or under section 108 or another provision
of the Copyright Act, it would not be acting willfully. In order to confirm
this interpretation, the legislative history could refer to the case law described
above. To the extent that nonprofits may identify specific situations where
the bill could create an inappropriate risk of criminal liability, the Copyright
Office would be pleased to assist in developing language to meet their concerns
while maintaining the intended purpose of the legislation.
The Copyright Office has one additional technical suggestion about the language
of the bill. We recommend that the phrase copies that appears both
in section 506(a)(2) and in section 2319(c) of Title 18 be expanded to read
copies or phonorecords, in order to cover all forms of material
objects in which copyrighted works may be embodied. See definitions of
copies and phonorecords in 17 U.S.C. § 101.
The Copyright Office supports enactment of H.R. 2265, with
the minor revisions suggested. The bill would close a gap in existing legal
shields against the piracy of copyrighted works, particularly as piracy has
evolved into different forms in the Internet context.