Intellectual property crimes.

• Author: Shiffman, Ben
• Position: IV. Copyright A. Copyright Act 1. Elements of the Offense through VIII. Sentencing, with footnotes, p. 954-983 - Twenty-Seventh Annual Survey of White Collar Crime

1. Elements of the Offense

   The government must prove four elements in a criminal prosecution for copyright infringement under 17 U.S.C. [section] 506: (a) a valid copyright; (b) infringement of that copyright; (c) willfulness; and (d) either (a) that the infringement was for purposes of commercial advantage or private financial gain, (b) that the infringer reproduced or distributed, during any 180-day period, one or more copies or phonorecords of one or more copyrighted works, with a total retail value of more than $1,000, or (c) that the distribution of a work being prepared for commercial distribution. (206)

   1. Existence of a Valid Copyright

      The first element of the criminal copyright offense is the existence of a valid copyright. (207) A certificate of registration issued within five years after first publication of a given work constitutes prima facie evidence of a valid copyright. (208) Presentation of the certificate shifts the burden to the defendant, who can then challenge its validity by showing the copyright was obtained by fraud, the registration certificate is not genuine, or the work cannot be copyrighted. (209) However, registration of a copyrighted work is not a prerequisite for obtaining copyright protection. (210)

   2. Infringement

      The second element necessary to establish a criminal copyright offense is an infringement of the valid copyright. (211) Infringement is the copying of a protected work's original elements of expression, (212) proven by showing that the defendant had access to the copyrighted work and that the alleged copy is "substantially similar." (213)

      The tests for substantial similarity differ within the federal circuits, and a court may employ different tests in different contexts. Several circuits apply an "objective-observer" test, which asks whether an objective, lay observer comparing the original elements of the copyrighted work to the alleged infringement would conclude the works are substantially similar, a standard which courts articulate differently. (214)

      Other circuits use a two-step "extrinsic-intrinsic" analysis to determine whether substantial similarity exists. (215) The extrinsic test entails an objective comparison and dissection of specific expressive elements to determine whether there is a substantial similarity in the basic ideas utilized in the two works. Such similarity is established by focusing on specific extrinsic criteria, such as the type of work involved, the materials used, the subject matter, and the setting for the subject, and can take into account expert testimony. (216) The second step of the analysis, the intrinsic test, involves an inquiry into whether an ordinary reasonable person would find substantial similarity in the expression of the ideas so as to constitute infringement. A third test, the "Abstraction-Filtration- Comparison" test, is widely applied in cases involving computer programs, (217) though some circuits use this test more generally. (218) When determining whether the non- literal elements (219) of a computer program are substantially similar, the copyrighted program is broken down into its constituent structural parts in order to isolate each level of abstraction and to differentiate any unprotected material from protectable original ideas. The protected core is then compared side-by-side with the allegedly infringing copy. (220) However, when an idea can be expressed in only a minute number of possibilities, the idea itself is considered merged with the method of expressing the idea, thus barfing filtration and copyright protection. (221)

      It is not infringement for the owner of a copy of a computer program to make, or authorize the making of, a copy or adaptation, if such a step is deemed essential to using the program, or if the step is solely for archival purposes and the copy can be destroyed if necessary. (222) It is also not infringement for the owner or lessee of a machine to make, or authorize the making of, a copy of a computer program solely by virtue of the activation of the machine that contains a lawful copy of the program, for the purposes of maintenance or repair, if such new copy is destroyed immediately after the completed maintenance or repair. (223)

   3. Willfulness

      The third element of the criminal copyright offense is "willfulness." (224) A majority of the courts have interpreted the term to mean that the government must show that the defendant specifically intended to violate copyright law. (225)

   4. Financial Gain or Threshold Violation

      The No Electronic Theft Act of 1997 modified the fourth element of the criminal copyright offense to require the government to show either an intent to obtain commercial advantage or financial gain, or, in the absence of an intent to obtain financial gain, the actual reproduction or distribution of one or more copies with a total value in excess of $1,000. (226) Intent to obtain commercial advantage or financial gain can be found regardless of whether a benefit is realized. (227) Acts achieving a financial gain may involve monetary transactions or bartering for other protected materials. (228)

2. Defenses

   While the criminal copyright infringement statute does not provide explicit statutory defenses, civil defenses are available. (229) One potential defense is the "first sale" doctrine. (230) According to this doctrine, upon sale, the author conveys title of the particular copy of a copyrighted work and abolishes his tight to restrict subsequent sales of that particular copy. (231) The purchaser does not, however, gain the tight to reproduce and distribute additional copies of the work. (232) Further, the benefits of the doctrine do not extend to rental or loan arrangements. (233) This defense is not available where copies were not made domestically or previously sold in the United States with the copyright holder's consent. (234)

   Another defense, "fair use," applies an "equitable rule of reason" (235) analysis requiting the balancing of factors to protect the copyright owner, while still promoting the purpose behind copyright laws, namely fostering creativity. (236) No bright line test exists for determining whether any particular use is a "fair use" rather than an act of infringement, so each use requires a case-by-case determination. (237) Factors considered by a court to determine if a "fair use" defense applies include: (i) the purpose and character of the use, including whether it is of a commercial nature or for non-profit educational use; (ii) the nature of the copyrighted work; (iii) the amount and substantiality of the portion used in relation to the copyrighted work as a whole; and (iv) the effect of the use upon the potential market for, or value of, the copyrighted work. (238) A defense of "fair use as parody" (239) requires an examination of the expressive intent of the infringing work to determine if it has a "critical beating on the substance or style" of the original work. (240) Reverse engineering can also be fair use when it is the sole route to access ideas and functional elements of a copyrighted computer program. (241) The Family Entertainment and Copyright Act of 2005 (242) allows editing of DVD movies to create "sanitized" versions, but does not allow creation of new hard copies or insertion of replacement footage.

3. Penalties

   The basic offense of copyright infringement involving sound recordings, phonorecords, motion pictures, and audiovisual works now carries a sentence of up to five years in prison. (243) Any subsequent offense increases the penalty to up to ten years of imprisonment. (244)

   The Copyright Damages Improvement Act of 1999 compelled changes in the United States Sentencing Guidelines ("Guidelines"), which further impacts statutory penalties. (245) The Guidelines increased the base offense level to eight. (246) Enhancement is permitted for offenses involving "manufacture, importation, or uploading of infringing" works. (247) The offense level is further increased if the infringement amount exceeds $2,000 or $5,000. (248)

   Violations of 18 U.S.C. [section] 2318 carry criminal penalties of fines, imprisonment of not more than five years, or both. (249) When a person is convicted of violating 18 U.S.C. [section] 2318(a), the court is also required to order the forfeiture, destruction, or disposition of all counterfeit or illicit labels and all articles to which such labels are affixed, as well as any equipment or material used to facilitate these activities. (250) A copyright owner who is injured or threatened with injury can bring a civil action in an appropriate U.S. District Court. (251) The court, at its discretion, may grant an injunction; order the impounding of any articles used to violate this statute; award the injured party reasonable attorney fees and cost; and award either actual damages plus profits realized by the copyright infringer or statutory damages in an amount between $2,500 and $25,000. (252) This award may be increased by three times the amount awarded if the court finds that an individual has violated subsection 18 U.S.C. [section] 2318(a) within three years after final judgment for a violation of that subsection. (253)

   The Family Entertainment and Copyright Act of 2005 provides for fines, imprisonment of not more than three years, or both. (254) The penalty for a subsequent offense is a fine and imprisonment of not more than six years. (255) As with 18 U.S.C. [section] 2318, this statute also orders the forfeiture or destruction of all unauthorized recordings, devices and equipment used in connection with the offense. (256) In addition, an owner or lessee of a motion picture theater may detain, for a reasonable time period, any person suspected of violating this statute without liability for the detention, so long as he has "reasonable cause" for so doing. (257)

4. Reverse Engineering

   Reverse engineering is the process by which a protected work is broken down to its component and non-protected parts...