Prosecuting Ip Crimes Manual 2013

prosecuting_ip_crimes_manual_2013

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H. Marshall Jarrett

Director, EOUSA

Cameron G. Chandler

Director, OLE

OLE

Litigation

Series

Ed Hagen

Assistant Director,

OLE

Andrea Sharrin

Deputy Chief for

Intellectual Property

CCIPS

Criminal Division

P

I

P C

Fourth Edition

Published by

Oce of Legal Education

Executive Oce for

United States Attorneys

e contents of this book provide internal suggestions to

Department of Justice attorneys. Nothing in it is intended

to create any substantive or procedural rights, privileges, or

benets enforceable in any administrative, civil, or criminal

matter by any prospective or actual witnesses or parties. See

United States v. Caceres, 440 U.S. 741 (1979).

iii

Table of Contents

Preface and Acknowledgements ...................................................................xi

I. Intellectual Property—An Introduction ............................................ 1

A. Why Is Intellectual Property Enforcement Important? ................................. 1

B. What Is Intellectual Property? ............................................................................. 6

1. Copyright .......................................................................................................... 6

2. Trademarks and Service Marks .................................................................... 6

3. Patents ................................................................................................................ 7

4. Trade Secrets ..................................................................................................... 8

II. Criminal Copyright Infringement—

17 U.S.C. § 506 and 18 U.S.C. § 2319 ................................................. 9

A. Overview ................................................................................................................10

1. What Copyright Law Protects ...................................................................10

2. Legal Basis for Copyright and Related Laws ..........................................11

3. Relevance of Civil Cases to Criminal Prosecutions ...............................11

4. Federal Preemption ....................................................................................... 12

5. When Copyright Protection Begins and Ends ....................................... 13

6. e Rights Protected by Copyright ..........................................................14

7. When Infringement Is Criminal ................................................................15

B. Elements .................................................................................................................16

1. Existence of a Copyright .............................................................................18

2. e Defendant Acted “Willfully” ..............................................................26

3. Infringement of the Copyright ..................................................................33

4. Additional Element for Enhanced Sentence: Purpose of

Commercial Advantage or Private Financial Gain ................................ 55

5. Misdemeanor Copyright Infringement ....................................................59

C. Defenses .................................................................................................................. 60

1. Statute of Limitations: 5 years ....................................................................60

2. Jurisdiction ......................................................................................................61

3. Venue ................................................................................................................63

4. e First Sale Doctrine—17 U.S.C. §109 .............................................63

5. Fair Use ............................................................................................................ 69

6. “Archival Exception” for Computer Software—17U.S.C.§117 ..... 74

D. Emerging and Special Issues ..............................................................................76

1. Internet Streaming ........................................................................................76

2. Cyberlockers and Linking Sites ..................................................................78

E. Penalties ..................................................................................................................80

1. Statutory Penalties .........................................................................................80

2. Sentencing Guidelines ..................................................................................80

F. Other Charges to Consider ................................................................................81

III. Trafcking In Counterfeit Trademarks, Service Marks,

and Certication Marks—18 U.S.C. § 2320 ................................. 89

A. Introduction...........................................................................................................89

1. Overview .........................................................................................................89

2. Why Criminal Law Protects Trademarks, Service Marks,

and Certication Marks ...............................................................................92

B. Elements .................................................................................................................94

1. e Trademark Counterfeiting Crime in General .................................94

2. Relevance of Civil Trademark Law in Criminal

Counterfeiting Cases ....................................................................................96

3. Intentionally Tracked in Goods or Services (or Labels,

Documentation, or Packaging for Goods or Services) .........................97

4. e Defendant Used a “Counterfeit Mark”:

Denition of a Counterfeit Mark ...........................................................104

5. e Defendant Used the Counterfeit Mark “Knowingly” ................121

6. Tracking in Counterfeit Military Goods or Services .......................126

7. Tracking in Counterfeit Drugs .............................................................128

8. Venue ..............................................................................................................129

C. Defenses ................................................................................................................130

1. Authorized-Use Defense: Overrun Goods ............................................130

2. Authorized-Use Defense: Gray Market Goods ....................................133

3. Repackaging Genuine Goods ...................................................................134

4. Lanham Act Defenses .................................................................................137

5. Statute of Limitations .................................................................................138

6. Vagueness Challenges .................................................................................139

D. Special Issues ........................................................................................................140

1. High-Quality and Low-Quality Counterfeits ......................................140

2. Counterfeit Goods with Genuine Trademarks .....................................141

3. Selling Fakes While Admitting at ey Are Fakes..........................141

4. Selling Another’s Trademarked Goods As One’s Own

(Reverse Passing-O) ..................................................................................141

5. Mark-Holder’s Failure to Use ® Symbol ................................................142

6. Storage Costs and Destruction .................................................................142

7. Units of Prosecution ...................................................................................143

8. Olympic Symbols ........................................................................................145

E. Penalties ................................................................................................................146

1. Fines and Imprisonment............................................................................146

2. Restitution ....................................................................................................146

3. Forfeiture .......................................................................................................149

4. Sentencing Guidelines ................................................................................149

F. Other Charges to Consider ..............................................................................151

IV. Theft of Commercial Trade Secrets—

18 U.S.C. §§ 1831-1839 .......................................................................... 155

A. Introduction.........................................................................................................155

B. e Economic Espionage Act of 1996, 18 U.S.C.§§1831-1839 .........157

1. Overview .......................................................................................................157

2. Relevance of Civil Cases ............................................................................161

3. Elements Common to 18 U.S.C.§§1831, 1832 ...............................162

4. Additional 18 U.S.C.§1831 Element: Intent to Benet a Foreign

Government, Foreign Instrumentality, or Foreign Agent ..................182

5. Additional 18 U.S.C.§1832 Elements .................................................185

6. Attempts and Conspiracies, Including

the Impossibility Defense ..........................................................................189

C. Defenses ................................................................................................................191

1. Common Defenses .....................................................................................191

2. Parallel Development .................................................................................198

3. Reverse Engineering....................................................................................199

4. Legal Impossibility ......................................................................................200

5. Advice of Counsel .......................................................................................200

6. Claim of Right—Public Domain and Proprietary Rights .................201

7. e First Amendment ................................................................................202

8. Void-for-Vagueness .....................................................................................203

D. Preserving Condentiality and the Use of Protective Orders ..................205

1. Overview .......................................................................................................205

2. Interlocutory Appeals .................................................................................207

3. Types of Protective Orders ........................................................................210

4. Return of Trade Secrets Upon Conclusion of the Case ......................214

E. Special Issues ........................................................................................................214

1. Civil Injunctive Relief for the United States .........................................214

2. Parallel Proceedings .....................................................................................215

3. Signicance of Electronic Evidence in Trade Secret

and Economic Espionage Act Cases .......................................................219

4. Extraterritoriality .........................................................................................221

5. Department of Justice Oversight .............................................................221

F. Penalties ................................................................................................................222

1. Statutory Penalties .......................................................................................222

2. Sentencing Guidelines ................................................................................224

G. Other Charges to Consider ..............................................................................224

V. Digital Millennium Copyright Act—

17 U.S.C. §§ 1201-1205 .......................................................................... 233

A. Introduction.........................................................................................................233

1. DMCA’s Background and Purpose .........................................................233

2. Key Concepts: Access Controls vs. Copy Controls,

Circumvention vs. Tracking ..................................................................234

3. Dierences Between the DMCA and Traditional CopyrightLaw ..238

4. Other DMCA Sections at Do Not Concern Prosecutors .............240

B. Elements of the Anti-Circumvention and

Anti-Tracking Provisions ...............................................................................241

1. Circumventing Access Controls—17 U.S.C. §§1201(a)(1)

and1204 .......................................................................................................241

2. Tracking in Access Control Circumvention Tools

and Services—17 U.S.C. §§1201(a)(2) and 1204 .............................253

3. Tracking in Tools, Devices, and Services to Circumvent

Copy Controls—17 U.S.C. §§1201(b)(1) and 1204 .......................258

4. Alternate §1201(b) Action—Tracking in Certain

Analog Videocassette Recorders and Camcorders ...............................262

5. Falsifying, Altering, or Removing Copyright Management

Information—17U.S.C. §1202 ............................................................262

C. Defenses ................................................................................................................263

1. Statute of Limitations .................................................................................263

2. Librarian of Congress Regulations ..........................................................263

3. Certain Nonprot Entities ........................................................................264

4. Information Security Exemption .............................................................264

vii

5. Reverse Engineering and Interoperability

of Computer Programs ..............................................................................264

6. Encryption Research ...................................................................................267

7. Restricting Minors’ Access to the Internet ............................................269

8. Protection of Personally Identifying Information................................269

9. Security Testing ............................................................................................270

10. Constitutionality of the DMCA ..............................................................270

D. Penalties ................................................................................................................279

VI. Counterfeit and Illicit Labels, Counterfeit

Documentation and Packaging—18 U.S.C. § 2318 ............... 281

A. Distinguished from Trademark and Copyright Statutes ...........................281

B. Elements ...............................................................................................................282

1. e Defendant Acted “Knowingly” ........................................................283

2. e Defendant Tracked ..........................................................................284

3. Tracking in Labels Axed to, Enclosing, or Accompanying

(or Designed to be Axed to, Enclose, or Accompany)

a Phonorecord, Computer Program, Motion Picture

or Other Audiovisual Work, Literary, Pictorial, Graphic,

or Sculptural Work, or Work of Visual Art, or Tracking

in Documentation or Packaging for Such Works ................................285

4. e Labels, Documentation, or Packaging Materials

Are Counterfeit or Illicit ............................................................................286

5. Federal Jurisdiction .....................................................................................288

6. Venue ..............................................................................................................290

C. Defenses ................................................................................................................290

1. Statute of Limitations .................................................................................290

2. First Sale (Does Not Apply) ......................................................................290

D. Special Issues ........................................................................................................290

1. Electronic Copies of Labels, Documentation, or Packaging.............290

2. Advantages of Charging a §2318 Oense ............................................291

E. Penalties ................................................................................................................292

1. Fines................................................................................................................292

2. Imprisonment ..............................................................................................292

3. Restitution ....................................................................................................292

4. Forfeiture .......................................................................................................293

5. Sentencing Guidelines ................................................................................293

F. Other Charges to Consider ..............................................................................295

viii

VII. Patent ............................................................................................................... 297

A. Overview of Patent .............................................................................................297

B. Forgery of Letters Patent—18U.S.C.§497 ...............................................298

C. False Marking of Patent—35U.S.C.§292 .................................................299

D. No Prosecution for Interstate Transportation or Receipt

of Stolen Property—18 U.S.C. §§2314, 2315 ..........................................304

VIII.Penalties, Restitution, and Forfeiture ........................................... 305

A. Introduction.........................................................................................................305

B. e Statutory Sentencing Factors ...................................................................306

C. Sentencing Guidelines .......................................................................................310

1. Oenses Involving Copyright (Including Bootleg Music,

Camcorded Movies, and the Unauthorized Use of Satellite,

Radio, and Cable Communications), Trademark,

Counterfeit Labeling, and the DMCA ..................................................311

2. Oenses Involving the Economic Espionage Act (EEA) ...................331

D. Restitution ............................................................................................................343

1. Restitution is Available—and Often Required—

in Intellectual Property Prosecutions ......................................................343

2. Identifying Victims Who Qualify for Restitution ...............................348

3. Determining a Restitution Figure ...........................................................352

E. Forfeiture ..............................................................................................................357

1. Property Subject to Forfeiture ..................................................................360

2. Overview of Forfeiture Procedures ..........................................................360

3. Choosing a Forfeiture Procedure .............................................................368

4. Civil Forfeiture in Intellectual Property Matters .................................369

5. Criminal Forfeiture in IP Matters ...........................................................370

6. Domain Name Forfeiture ..........................................................................372

7. Interbank Account Seizures of Foreign Bank Funds ...........................375

IX. Charging Decisions ................................................................................. 377

A. Introduction.........................................................................................................377

B. e Federal Interest in Intellectual Property Crimes .................................378

1. Federal Law Enforcement Priorities ........................................................378

2. e Nature and Seriousness of the Oense ..........................................379

3. e Deterrent Eect of Prosecution .......................................................381

4. e Individual’s History of Criminal Oenses and

Civil Intellectual Property Violations .....................................................381

5. e Individual’s Willingness to Cooperate

in the Investigation or Prosecution of Others ......................................382

C. Whether the Person Is Subject to Prosecution

in Another Jurisdiction .....................................................................................382

D. e Adequacy of Alternative Non-Criminal Remedies .............................384

E. Special Considerations in Deciding Whether

to Charge Corporations and Other Business Organizations ...................385

X. Victims of Intellectual Property Crimes—

Ethics and Obligations ............................................................................ 387

A. Victims’ Rights ....................................................................................................387

B. e Victim’s Role in the Criminal Prosecution ...........................................390

1. Reporting an Intellectual Property Crime .............................................390

2. Ethical Concerns When the Criminal Prosecution Results

in an Advantage in a Civil Matter ...........................................................390

3. Parallel Civil Suits .......................................................................................393

C. Oers of Assistance From Victims and Related Parties .............................397

1. Gift Issues ......................................................................................................398

2. Professional Responsibility Issues ............................................................408

3. Strategic and Case-Related Issues ............................................................409

4. Help and Advice ..........................................................................................412

Appendices

A. Commonly Charged Intellectual Property Crimes ....................................413

B-F. Sample Indictments and Jury Instructions .................................................437

G. Intellectual Property Contact List ..................................................................439

H. Checklist for Reporting an Intellectual Property Crime ...........................453

I. Pre-PRO-IP Act Forfeiture Statutes for IP Oenses ..................................465

J. Examples of Traditional Assistance and Gifts to Law Enforcement .......473

Index ......................................................................................................................... 481

Preface and

Acknowledgements

is publication is the fourth edition of the “Prosecuting Intellectual

Property Crimes” Manual and provides signicant updates to the comprehensive

2006 edition. It examines in depth all areas of prosecuting intellectual property

crimes and incorporates a number of recent changes to the case law, statutes,

and sentencing guidelines. roughout, the material is presented in a way that

is intended to provide the most practical use to prosecutors.

is publication is the result of a tremendous amount of work by many

individuals in the Computer Crime and Intellectual Property Section. Kendra

Ervin assumed primary responsibilities as Managing Editor as well as providing

substantive updates to chapters. Many other CCIPS attorneys made signicant

contributions as well, including in alphabetical order: omas Dougherty,

Scott Eltringham, Jason Gull, Eric Klumb, Brian Levine, Evan Williams and

John Zacharia. Former CCIPS attorneys whose eorts also contributed include

Matthew Bassiur, Mark Krotoski, Tyler Newby and Tara Swaminatha. CCIPS

supervisory paralegal specialist Kathleen Baker deserves special mention for

her superior editing and proong contributions. Other paralegals and summer

interns who contributed to this publication over the past few years include:

Allyson Bennett, Jarrell Cook, Glenn Gordon, Lily Hines, Michael McCluskey,

and John Sprangers.

Finally, we are grateful to Ed Hagen and others at the Oce of Legal

Education for putting this Manual into nal form worthy of publication.

is Manual is intended as assistance, not authority. e research, analysis,

and conclusions herein reect current thinking on dicult areas of the law;

they do not represent the ocial position of the Department of Justice or

any other agency. is Manual has no regulatory eect, confers no rights or

remedies, and does not have the force of law or a U.S. Department of Justice

directive. See United States v. Caceres, 440 U.S. 741 (1979).

If you have questions about anything in this book, we invite you to call

the Computer Crime and Intellectual Property Section at (202) 514-1026.

xii

Attorneys are on duty every day for the specic purpose of answering such calls

and providing support to U.S. Attorney’s Oces nationwide.

Andrea M. Sharrin,

Deputy Chief

Computer Crime & Intellectual Property Section

Criminal Division

Department of Justice

Intellectual Property—

An Introduction

A. Why Is Intellectual Property Enforcement

Important?

Intellectual property (IP), including creative works protected by copyright,

brand identication protected by trademark, and novel inventions protected

by patents and trade secret law, encompasses a vital component of the U.S.

economy and, increasingly, the world’s collective wealth. American music,

motion pictures, business and entertainment software, as well as American

brands, form an important part of America’s cultural identity. e U.S. is

also home to some of the world’s largest manufacturers and most innovative

companies, whose sought-after products are exported throughout the world.

According to the Department of Commerce, in 2010 “IP-intensive industries”—

those most reliant on copyright, trademark and patent protection—accounted

for more than 27 million or more than one sixth of all jobs in the U.S., and

more than one third of the U.S. gross domestic product. Department of

Commerce, Intellectual Property and the U.S. Economy: Industries in Focus at

vi-vii (March 2012), available at http://www.esa.doc.gov/sites/default/les/

reports/documents/ipandtheuseconomyindustriesinfocus.pdf. Eective IP

enforcement can help to preserve and create jobs and economic growth by

fostering a level playing eld for fair competition in the global marketplace.

Protecting IP rights is essential to fostering the innovation and creativity

which fuels the U.S. economic engine. IP rights create incentives for

entrepreneurs, artists, rms, and investors to commit the necessary resources

to research, develop, and market new technologies and creative works. As one

court observed, “[t]he future of the nation depends in no small part on the

eciency of industry, and the eciency of industry depends in no small part

on the protection of intellectual property.” Rockwell Graphic Sys., Inc. v. DEV

Indus., Inc., 925 F.2d 174, 180 (7th Cir. 1991).

2 Prosecuting Intellectual Property Crimes

e criminal enforcement of IP rights plays a critical role in safeguarding

U.S. economic and national security interests as well as protecting the health

and safety of consumers worldwide. e impact of today’s IP crime is not limited

to the economic challenges associated with piracy, counterfeiting, or trade

secret theft. Inferior, unsafe counterfeits, ranging from electrical equipment

to auto parts to pharmaceuticals, not only defraud ordinary consumers, but

also can pose signicant risks to their health and safety. e potential harm

from counterfeit goods is further compounded when those goods enter the

government or military supply chain, where they can impact the safety of our

Armed Forces, and even compromise national security. Likewise, our national

security interests can be undermined by foreign and domestic competitors who

deliberately target leading U.S. industries and technologies to obtain sensitive

trade secrets that have applications in defense, security, or critical infrastructure.

is is a dynamic time for IP enforcement. New technology and more

sophisticated methods of manufacturing and distribution have created

unprecedented opportunities for legitimate businesses, both large and small,

to develop their products and market and distribute them around the world.

Manufacturers and consumers are increasingly interconnected due to advances

in telecommunication networks, integrated nancial markets, and global

advertising. Consumers enjoy near-immediate access to almost any product

manufactured in the U.S. or abroad. ey can provide instant payment through

an international credit card system or online payment processors and receive

their purchase either through immediate downloading of digital content

or overnight shipment of tangible goods through express courier services.

Companies and their employees also can conduct business seamlessly from

anywhere in the world. Virtually all business records, research, and sensitive

information exists in digital form and can be stored, accessed, copied, and

transmitted using computer networks, cloud storage, and large capacity mobile

devices.

Unfortunately, IP criminals exploit the benets of these advances to support

illegal piracy and counterfeiting operations. U.S. companies suer substantial

losses from international trade in counterfeit and pirated goods, which the

OECD has estimated to amount to hundreds of billions of dollars each year.

See Organization for Economic Cooperation and Development, Magnitude of

Counterfeiting and Piracy of Tangible Products: An Update (November 2009);

Frontier Economics, Estimating the Global Economic and Social Impacts of

Counterfeiting and Piracy (February 2011) (suggesting the value of counterfeit

I. Intellectual Property—An Introduction 3

and pirated products for G20 nations was $650 billion in 2008 and likely to

more than double by 2015).

Although quantifying the economic eects of counterfeit and pirated goods

with precision is dicult, the problem is undeniably sizable with substantial

consequences: to industry in the form of lost sales, lost brand value, and reduced

incentives to innovate; to consumers who use or ingest substandard or unsafe

counterfeit goods; to governments which may lose tax revenue and face risks of

counterfeits entering national security or critical infrastructure supply chains;

and to economic growth slowed by reduced innovation and lost trade revenue.

See U.S. Government Accountability Oce, Intellectual Property: Observations

on Eorts to Quantify the Economic Eects of Counterfeit and Pirated Goods

(Publication Number GAO-10-423) (April 2010).

In addition to piracy and counterfeiting, corporate- and state-sponsored

trade secret theft is on the rise and increasing in size and scope. Whether

committed by corrupt insiders or foreign actors, the Internet and new

technologies have enabled criminals to steal massive amounts of sensitive

information almost instantaneously while remaining dicult to detect. See

Oce of the National Counterintelligence Executive, Foreign Spies Stealing US

Economic Secrets in Cyberspace, available at http://www.ncix.gov/publications/

reports/fecie_all/Foreign_Economic_Collection_2011.pdf. As leaders in

innovation, U.S. companies are prime targets for the misappropriation of

valuable and sensitive trade secrets, particularly by foreign competitors. Trade

secrets may represent years of research and development to a company, with

billions of dollars in related costs, and may constitute a substantial portion of

the company’s worth. Trade secret theft can nancially devastate an individual

victim and, when committed for the benet of a foreign entity, can undermine

the economic competitiveness of the U.S. as a whole. In cases involving critical

technologies with military or other sensitive applications, trade secret theft can

also pose a risk to national security.

Recognizing the escalating and serious threats posed by IP crime,

Congress, the Administration, and the Department of Justice have all taken

steps to enhance IP enforcement domestically and abroad. In the last ve years,

Congress has enacted several major pieces of legislation to enhance criminal

enforcement tools to combat IP crime, including amendments to the statutes

criminalizing trademark counterfeiting, criminal copyright infringement,

and economic espionage. As of the writing of this Manual, the United States

Sentencing Commission is considering amendments to the Sentencing

4 Prosecuting Intellectual Property Crimes

Guidelines applicable to oenses involving trade secret theft, counterfeit drugs,

and counterfeit military goods or services.

In the Prioritizing Resources and Organization for Intellectual Property Act

of 2008 (PRO-IP Act), Pub. L. No. 110-403, § 101, 122 Stat. 4256 (2008),

Congress established the Intellectual Property Enforcement Coordinator (IPEC)

position to serve in the Executive Oce of the President. Among other things,

the IPEC brings a coordinated government-wide approach to IP enforcement.

e Department worked closely with the IPEC in developing the 2010 Joint

Strategic Plan on Intellectual Property Enforcement (June 2010) and the 2013

Joint Strategic Plan on Intellectual Property Enforcement (forthcoming),

the IPEC’s Annual Report on IP Enforcement, the Administration’s White

Paper on Intellectual Property Enforcement Legislative Recommendations

(March 2011), and the Administration Strategy on Mitigating the eft of

U.S. Trade Secrets (February 2013), among other eorts. See http://www.

whitehouse.gov/omb/intellectualproperty. e Department plays a signicant

role in implementing the criminal enforcement aspects of the Administration’s

strategies.

Attorney General Holder has also made the investigation and prosecution

of IP crime a top law enforcement priority. Although a well-developed civil

enforcement regime in the U.S. allows IP owners to enforce their rights and

obtain compensation for losses, civil enforcement alone is insucient to address

the increasingly sophisticated nature and broad scope of IP infringement.

Criminal sanctions are critical to deter and hold accountable the most egregious

IP violators. To this end, in February 2010, the Attorney General established

a Task Force on Intellectual Property as part of a Department-wide initiative

to confront the growing number of domestic and international IP crimes.

e IP Task Force, chaired by the Deputy Attorney General and comprising

senior Department ocials from components with a stake in IP enforcement,

including the Criminal Division and Executive Oce of the U.S. Attorneys,

has brought a coordinated approach and high-level support to the Department’s

overall eorts to combat IP crime. See http://www.justice.gov/dag/iptaskforce/.

rough the IP Task Force, the Department recommends that prosecutors

prioritize IP investigations and prosecutions involving health and safety,

trade secret theft and economic espionage, and large-scale criminal copyright

infringement and trademark counterfeiting. Prosecutors are also encouraged to

pay particular attention to those oenses committed or facilitated by use of the

I. Intellectual Property—An Introduction 5

Internet, perpetrated by organized criminal networks or repeat oenders, and

those cases that are international in scope.

e Department pursues a three-front approach to ensure aggressive and

eective prosecution. First, the Criminal Division’s Computer Crime and

Intellectual Property Section (CCIPS), based in Washington, D.C., provides a

core team of expert IP prosecutors who investigate, prosecute, and coordinate

national multi-district and international IP cases. is group of specialists helps

develop and implement the Department’s overall IP enforcement strategy, and

provides training and 24/7 support to Assistant U.S. Attorneys nationally. is

Manual, for instance, is one of the training tools that CCIPS provides.

Second, because primary responsibility for prosecution of federal crimes

generally—and IP oenses specically—falls to the ninety-three U.S. Attorneys’

Oces across the U.S. and its territories, the Department has designated at

least one, and often more than one, Computer Hacking and Intellectual

Property (“CHIP”) Coordinator in every U.S. Attorney’s Oce in the country.

CHIP Coordinators are Assistant U.S. Attorneys with specialized training

in prosecuting IP and computer crime oenses and who serve as subject-

matter experts within their districts. As of this writing, there are over 260

CHIP prosecutors designated to handle both computer crime and IP matters

nationwide.

ird, CHIP Units augment the extensive network of CHIP prosecutors.

Each CHIP Unit consists of a concentrated number of trained Assistant U.S.

Attorneys in the same oce. CHIP Units are strategically located in districts

that experience a higher incidence of IP and cyber-crime, or where such

crimes have the highest economic impact. ese specialized squads focus on

prosecuting IP oenses such as trademark counterfeiting, criminal copyright

infringement, and theft of trade secrets. In addition, they prosecute high-

technology oenses including computer hacking, virus and worm proliferation,

Internet fraud, and other attacks on computer systems. CHIP Unit attorneys

are also actively involved in regional training of other prosecutors and federal

agents on conducting high-tech investigations, and they work closely with

victims of IP theft and cybercrime on prevention eorts.

e combined prosecution eorts of the CHIP network, CHIP Units, and

CCIPS create a formidable enforcement network to combat IP crime. ese

enforcement eorts will be even more critical in the future, as advances in

6 Prosecuting Intellectual Property Crimes

technology, and the increasingly important role IP plays in the U.S. and global

economy, continue to present new challenges.

B. What Is Intellectual Property?

Similar to the way the law recognizes ownership rights in material

possessions such as cars and homes, it also grants rights in intangible property,

such as the expression of an idea or an invention. Federal law protects IP in

four distinct areas: copyright, trademark, patent, and trade secrets.

1. Copyright

the free ow of ideas by providing legal protection for creative expression.

exclusive rights in “original works of authorship xed in any tangible medium

of expression,” including: computer software; literary, musical, and dramatic

works; motion pictures and sound recordings; and pictorial, sculptural, and

architectural works. See 17 U.S.C.§102(a). e six exclusive rights are the

rights of reproduction, public distribution, public performance, public display,

preparation of derivative works, and public performance by digital audio

transmission. 17 U.S.C. § 106. Copyright law protects the physical expression

of an idea, but not the idea itself. erefore, legal protection exists as soon as

the work is expressed in tangible form, but not before.

Although civil and criminal law contain protections for all the copyright

owner’s exclusive rights, criminal enforcement focuses primarily on the

distribution and reproduction rights, the only two rights for which the violation

can be a felony oense subject to higher criminal penalties. See 17 U.S.C.

§506(a) and 18 U.S.C. § 2319. ose convicted of criminal felony copyright

infringement face up to ve years’ imprisonment and a $250,000 ne. Id.

2. Trademarks and Service Marks

e federal law of trademarks and service marks protects a commercial

identity or brand used to identify a product or service to consumers. e

Lanham Act, 15 U.S.C. §§ 1051-1127, prohibits the unauthorized use of

a trademark, which is dened as “any word, name, symbol, or device” used

by a person “to identify and distinguish his or her goods, including a unique

product, from those manufactured or sold by others and to indicate the source

of the goods.” 15 U.S.C.§1127. By registering trademarks and service marks

I. Intellectual Property—An Introduction 7

with the U.S. Patent and Trademark Oce, the owner is granted the exclusive

right to use the marks in commerce in the United States, and can exclude

others from using the mark, or a comparable mark, in a way likely to cause

confusion in the marketplace. A protected mark might be the name of the

product itself, such as “Pzer” or “L.L.Bean”, a distinguishing symbol, such as

the Nike “Swoosh” or the MGM lion, or a distinctive shape and color, such as

the blue diamond shape of a Viagra tablet. Certain symbols like the Olympic

rings also receive protection.

Legal protections for trademarks and service marks not only help protect

the goodwill and reputation of trademark owners, but also promote fair

competition and the integrity of the marketplace. Additionally, they protect

consumers by helping to ensure they receive accurate information about the

origins of products and services.

Federal criminal law has long prohibited tracking in goods or services

that bear a counterfeit mark. 18 U.S.C. § 2320. As discussed more fully in

subsequent chapters, in 2012, the criminal trademark statute was amended to

create new oenses and higher penalties for tracking in counterfeit drugs and

certain counterfeit military goods or services. Individuals convicted of § 2320

oenses generally face up to 10 years’ imprisonment and a $2 million ne.

If the oense involved serious bodily injury, counterfeit drugs, or counterfeit

military goods or services, individuals face up to 20 years in prison and a $5

million ne.

3. Patents

Patents protect the world of inventions. In its simplest form, a patent is

a property right for an invention granted by the government to the inventor.

A patent gives the owner the right to exclude others from making, using, and

selling devices that embody the claimed invention. See 35 U.S.C.§271(a).

Patents generally protect products and processes, not pure ideas. us, Albert

Einstein could not have received a patent for his theory of relativity, but methods

for using this theory in a nuclear power plant are patentable. Inventors must

le for patent protection with the U.S. Patent and Trademark Oce.

ere are three types of patents: utility, design, and plant. Utility patents

are the most common form and are available for inventions that are novel,

non-obvious, and useful; that is, “any new and useful process, machine,

manufacture, or composition of matter, or any new and useful improvement

thereof.” 35 U.S.C.§101. Examples of utility patents include the ingredients

8 Prosecuting Intellectual Property Crimes

of Silly Putty (1949) and the diagnostic x-ray system known as the CAT-Scan

(1975).

Unlike copyright and trademark infringement, there are no criminal—only

civil—penalties for committing patent infringement. However, there are some

criminal and quasi-criminal penalties for certain conduct related to patents.

4. Trade Secrets

A trade secret can be any form or type of commercially-valuable information

that the owner has taken reasonable measures to keep secret and that has

an independent economic value from the fact that it is secret and cannot

be readily ascertained by the public. Trade secrets can include, for example,

technical, scientic, and engineering data, business records, or economic and

nancial information. See 18 U.S.C. § 1839(3). One of the most famous trade

secrets is the formula for manufacturing Coca-Cola. e Coca-Cola formula

was recognized as a trade secret in 1920, at which time a court noted that

the formula had been continuously maintained as a trade secret since the

company’s founding in 1892. See Coca-Cola Bottling Co. v. Coca-Cola Co.,

269 F. 796 (D. Del. 1920) (holding that Coca-Cola retained legal title to its

formula upon entering a bottling contract because it kept the formula secret).

And, it remains Coca-Cola’s most closely guarded trade secret to this day. See

http://www.worldofcoca-cola.com/secret-vault.htm.

Trade secrets are broader in scope than patents, and include scientic and

business information (e.g., market strategies). However, the information can be

freely used if it is obtained or learned through legitimate means, such as reverse

engineering. Moreover, if the trade secret is publicly disclosed, it generally loses

its legal protection.

e theft of trade secrets is punishable by up to 15 years’ imprisonment

and a $5 million ne if committed to benet a foreign government or agent,

see 18 U.S.C. § 1831, and up to ten years’ imprisonment and a $250,000 ne

in other cases, see 18 U.S.C. § 1832.

II.

Criminal Copyright

Infringement—

17 U.S.C.§506 and

18 U.S.C.§2319

Willful copyright infringement is criminalized by 17 U.S.C. § 506(a),

which denes what conduct is prohibited, and 18 U.S.C. §2319, which sets

the penalties for such conduct. Felony penalties can attach either when the

violation consists of the reproduction or distribution of at least ten copies

having a total retail value of at least $2,500 or, under amendments enacted in

2005, when the violation involves online distribution of a “pre-release” work

not yet available on the legitimate market over a publicly-accessible computer

network.

is Chapter provides an overview of copyright law, an analysis of the

elements of copyright infringement, a review of the defenses to the crime, and

a summary of the statutory penalties arising from convictions. is chapter

also explores some of the novel copyright infringement issues presented by new

technologies. Forms providing sample indictments and jury instructions for

criminal copyright infringement are provided in Appendix B.

Prosecutors may also wish to consult Nimmer on Copyright, a leading

treatise on copyright law, with many of its sections being cited by courts as

if they were black-letter law, including a chapter on criminal oenses. See

Melville B. Nimmer & David Nimmer, Nimmer on Copyright (2011). Other

major treatises and articles that may be instructive include William F. Patry,

Patry on Copyright (2012); Copyright Law and Practice (1994 & Supps. 1995-

2000); Ronald D. Coenen Jr. et al., Intellectual Property Crimes, 48 Am. Crim.

L. Rev. 849 (2011); Michael Coblenz, Intellectual Property Crimes, 9 Alb. L.J.

Sci. & Tech. 235 (1999).

10 Prosecuting Intellectual Property Crimes

A. Overview

1. What Copyright Law Protects

In the United States, copyright law has a two-part goal: to protect the

rights of authors, and thereby, to foster development of more creative works to

benet the public. e Constitution, in granting Congress the power to enact

intellectual property laws, describes this goal and the means to achieve it: “[t]o

promote the Progress of Science and useful Arts, by securing for limited Times

to Authors and Inventors the exclusive Right to their respective Writings and

Discoveries.” U.S. Const., art. I, §8, cl. 8. Maintaining an appropriate balance

between the rights and incentives for authors, and encouraging dissemination

of knowledge and information by and to the public, is a constant theme

throughout the history of copyright law. See Twentieth Century Music Corp. v.

Aiken, 422 U.S. 151, 156 (1975).

in a tangible medium, a “copyright,” which is the exclusive right, protected

for a limited period of time, to copy, distribute, and make certain other uses

of the work. See 17 U.S.C.§102(a) (Copyright law protects “original works

of authorship xed in any tangible medium of expression, now known or later

developed, from which they can be perceived, reproduced, or otherwise

communicated, either directly or with the aid of a machine or device.”)

(emphasis added). “Originality” in copyright law is a low threshold: the work

need only have been independently created by the author, as opposed to copied

from another, previous work, and it must possess only a minimal degree of

creativity. See Section B.1.a. of this Chapter.

An important limitation of copyright is that it protects only the creative

expression of an idea, but not the idea itself. See Section B.1.a. of this Chapter.

Novel ideas, methods, and processes may enjoy protection under patent law (or

other areas of law, such as trade secret protection), but are not copyrightable. For

example, consider a microbiologist who invents a new technique for modifying

particular genes in a cell, then writes an article for a magazine that describes the

technique. e article may be protected by copyright as the author’s original

expression of his or her ideas regarding this new technique. e technique

itself, however, would not be copyrightable, although it may be patentable.

Copyrights are also distinct from trademarks, which protect the exclusive

use of certain names, pictures, and slogans used in connection with goods or

services. Trademarks need not be original or creative and may consist of short

II. Criminal Copyright Infringement 11

single words or phrases that are ineligible for copyright protection. Trademarks

are discussed in Chapter III of this Manual. Despite the dierences between

copyrights and trademarks, there are instances in which a single items may be

both copyrighted and trademarked; an iconic example of such an item would

be the image of Disney’s Mickey Mouse.

2. Legal Basis for Copyright and Related Laws

e Constitution grants Congress the power to regulate copyright: “[t]o

Promote the Progress of Science and useful Arts, by securing for limited Times

to Authors and Inventors the exclusive Right to their respective Writings and

Discoveries,” U.S. Const., art. I, § 8, cl. 8. Congress also derives authority

to regulate some copyright-related issues from the Commerce Clause, U.S.

Const. art. I,§8, cl. 3.

Studios, Inc., 464 U.S. 417, 429-31 (1984). Federal copyright statutes are

found primarily in Title 17 of the U.S. Code, of which sections 101 through

1101 are known as the “Copyright Act,” a reference to the last major overhaul

of copyright statutes in the 1976 Copyright Act. e oenses for criminal

penalties are set forth in 18 U.S.C. §2319.

e rst sale and fair use defenses to copyright infringement, originally

common law doctrines, have been codied in the Copyright Act at 17

U.S.C. §§107, 109, respectively. Additionally, because courts often interpret

exists signicant judge-made law that might not otherwise be obvious from

the statutes. E.g., Metro Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd., 545 U.

S. 913 (2005); Sony, 464 U.S. 417.

3. Relevance of Civil Cases to Criminal Prosecutions

e vast majority of copyright case law is civil, rather than criminal,

and often civil cases provide the only judicial authority available in criminal

prosecutions. In this regard, civil precedent is often instructive to criminal

1977) (noting “general principle in copyright law of looking to civil authority

for guidance in criminal cases”); see also United States v. Manzer, 69 F.3d 222,

227 (8th Cir. 1995) (same); United States v. Cross, 816 F.2d 297, 303 (7th Cir.

1987) (same, with respect to jury instructions); Kelly v. L.L. Cool J., 145 F.R.D.

12 Prosecuting Intellectual Property Crimes

32, 39 (S.D.N.Y. 1992) (noting that conduct that does not support a civil

action for infringement cannot constitute criminal infringement); 4 Nimmer

on Copyright §15.01.

Criminal penalties, however, apply to only a subset of conduct constituting

make a good criminal case. For example, a defendant can be civilly liable

for copyright infringement as a matter of strict liability, with no intent to

infringe. See Bright Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp.

177 (S.D.N.Y. 1976) (nding infringement where composer “subconsciously”

copied earlier song). By contrast, a criminal copyright defendant can be

convicted only if he infringed willfully. See Section B.2. of this Chapter.

4. Federal Preemption

of the United States, state- and common-law copyright protections coexisted

with federal copyright laws. See, e.g., Wheaton v. Peters, 33 U.S. 591, 597-98

(1834). But the Copyright Act of 1976 amended Title 17 to preempt state laws

that provide rights “equivalent to” rights granted under federal copyright law.

17 U.S.C. §301(a).

Despite this preemption, copyright law continues to be intertwined with

state law in certain cases, such as those involving license agreements and other

contracts governing ownership and use of copyrighted works. E.g., Storage

Technology Corp. v. Custom Hardware Eng’g & Consulting, Inc., 421 F.3d 1307

(Fed. Cir. 2005). State copyright law also continues to apply to sound recordings

recorded before 1972 because sound recordings were not protected by federal

still be protected by state copyrights for several more decades. See La Cienega

Music Co. v. ZZ Top, 53 F.3d 950 (9th Cir. 1995); 17 U.S.C. §301(c).

Although § 301 preempts state laws that provide protection equivalent to

federal copyright law, a number of states have adopted criminal laws against

unauthorized copying or distribution of copies that are directed toward the

same types of piracy and counterfeiting targeted by federal criminal copyright

laws. For example, most states have adopted statutes (often known as “true

names” or “true name and address” laws) that require distributors of copies of

certain classes of works (generally recorded music or lms) to identify on the

copies themselves the name and address of the manufacturer or distributor of

those copies. See, e.g., Cal. Penal Code § 653w(a)(1) (unlawful to sell recordings

II. Criminal Copyright Infringement 13

that do not “clearly and conspicuously disclose the actual true name and

address of the manufacturer”); Ga. Code §16-8-60(b) (unlawful to distribute

recorded music or lm unless copies bear true name and address of producer);

Mich. Comp. Laws Ann. § 752.1053 (criminal oense to distribute recordings

knowing they do not bear the true name and address of manufacturer); N.Y.

Penal Law §§ 275.35, 275.40 (unlawful to commercially distribute recordings

that do not bear true name and address of manufacturer or performer); Virginia

Code § 59.1-41.4 (“Recorded devices” must show true name of manufacturer).

ese types of state law have been upheld against preemption challenges.

See, e.g., Anderson v. Nidorf, 26 F.3d 100, 102 (9th Cir. 1994) (California “true

names” statute not preempted by § 301 in sound recording case); Briggs v.

State, 638 S.E.2d 292 (Ga. 2006) (Georgia “true names” statute not preempted

because lack of identifying label was “extra element” not present in federal

5. When Copyright Protection Begins and Ends

A work is protected by copyright law from the moment it is created. See 17

U.S.C.§§101-102(a), 408(a). Neither publication of the work nor registration

of the work with the Register of Copyrights is a prerequisite to copyright

protection; however, these acts may aect the remedies available for infringement.

For example, registration is a prerequisite to a copyright holder’s civil suit for

infringement, at least in the case of U.S. works. See 17 U.S.C. § 411. If a

work is registered only after infringement has occurred, a copyright owner may

still collect actual damages for infringement committed prior to registration,

but cannot collect statutory damages or attorneys’ fees. See17 U.S.C. §412.

As claried in the Prioritizing Resources and Organizations for Intellectual

Property (PRO-IP) Act of 2008, Pub. L. No. 110-403, § 101, 122 Stat. 4256,

4257-58 (2008), registration of a copyright is not a prerequisite to criminal

prosecution for infringement of that work, although copyright registration is

helpful in proving the elements of a criminal case, as discussed in Section B.1.

of this Chapter.

Works created in 1978 or later are protected by copyright for the life of

the author plus 70 years. See 17 U.S.C.§302(a). For a work with one or more

joint authors, the life of the surviving author is used. 17 U.S.C. § 302(b).

Works made for hire (i.e., works made by or at the behest of a corporation) and

anonymous works are protected for 95 years from the date of rst publication,

or 120 years from creation (whichever comes rst). 17 U.S.C.§302(c). Most

14 Prosecuting Intellectual Property Crimes

works created prior to 1978 are protected for 95 years from the date the

U.S.C.§304.

6. e Rights Protected by Copyright

Copyrighted law grants copyright holders the following six exclusive rights

to their works: (1) reproduction, (2) preparation of derivative works based upon

the original copyrighted work, (3) public distribution, (4) public performance

of certain types of works, (5) public display of certain types of works, and

(6) performance of sound recordings by means of digital audio transmission.

See 17 U.S.C. § 106(1)-(6); 17 U.S.C. § 101 (dening “sound recording”

to exclude audiovisual works); 17 U.S.C.§114(j)(5) (excluding transmission

of audiovisual works from the denition of “digital audio transmission”);

17 U.S.C.§114(d) (limitations including exemptions for certain broadcast

transmissions, subscription transmissions, and licensed transmissions). In

March 2011, the Oce of the Intellectual Property Enforcement Coordinator

recommended expanding the performance right in sound recordings to

include other, non-digital audio transmissions (such as traditional broadcast

radio), and bills have been introduced in Congress to eect similar changes. See

Administration’s White Paper on Intellectual Property Enforcement Legislative

Recommendations at 10 (March 2011), available at http://www.whitehouse.

gov/sites/default/les/ip_white_paper.pdf; Performance Rights Act, H.R. Rep.

No. 111-680 (2010) (H.R. 848; S. 379). As of this writing, however, U.S.

as to digital audio transmissions.

e exclusive rights set forth in 17 U.S.C. §106 are subject to a number

of exceptions and limitations described in §§107-122, such as the right to

make limited or “fair use” of a work without permission, to resell or transfer

one’s own lawful copy of a work, and to reproduce a lawful copy of computer

software either as an essential step in using it or to make an archival copy.

ose exceptions are addressed throughout this Chapter.

Exercising one of the exclusive rights under §106 without the copyright

holder’s authorization, or other legal authority, constitutes copyright

infringement. 17 U.S.C. §501. e exclusive rights granted in § 106 are broad,

and include a variety of commercial and noncommercial activities. However,

not every unlicensed or unauthorized use of a copyrighted work constitutes an

infringement, as many uses will either fall outside the scope of § 106, or be

II. Criminal Copyright Infringement 15

specically exempted by §§ 107-122. “An unlicensed use of the copyright is

not an infringement unless it conicts with one of the specic exclusive rights

conferred by the copyright statute.” Sony Corp. v. Universal City Studios, Inc.,

464 U.S. 417, 447 (1984) (citation omitted); see also Benjamin Kaplan, An

Unhurried View of Copyright 57 (1967) (“e fundamental [is] that ‘use’ is

not the same thing as ‘infringement,’ that use short of infringement is to be

encouraged....”).

7. When Infringement Is Criminal

Any instance of infringement will generally entitle a copyright owner to a

civil remedy, such as damages or injunctive relief. But not every infringement

is a criminal oense. roughout the history of copyright in the United

States, criminal copyright penalties have been the exception rather than the

rule. Although criminal copyright law has greatly expanded the scope of the

conduct it penalizes over the past century, criminal sanctions continue to apply

only to certain types of infringement—generally when the infringer knows the

infringement is wrong, and when the infringement is particularly serious or the

type of case renders civil enforcement by individual copyright owners especially

dicult. As described in more detail below, a willful violation of any exclusive

right for commercial advantage or private nancial gain is a misdemeanor,

whereas only a violation of the rights to reproduction and distribution under

certain circumstances constitutes felony infringement.

did so either (1) for commercial advantage or private nancial gain, (2) by

reproducing or distributing one or more infringing copies of works with a

total retail value of over $1,000 over a 180-day period, or (3) by distributing

a “work being prepared for commercial distribution” by making it available

on a publicly-accessible computer network. 17 U.S.C. §506(a)(1). Criminal

described above involved reproduction or distribution of at least ten copies of

copyrighted works worth more than $2,500 in a 180-day period, or involved

distribution of a “work being prepared for commercial distribution” over a

publicly-accessible computer network. See id.; 18 U.S.C. §2319.

16 Prosecuting Intellectual Property Crimes

B. Elements

ere are three essential copyright crimes:

1. Willful infringement “for purposes of commercial advantage or private

nancial gain,” 17 U.S.C. §506(a)(1)(A).

2. Willful infringement by “the reproduction or distribution, including

by electronic means, during any 180-day period, of 1 or more copies or

phonorecords of 1 or more copyrighted works, which have a total retail

value of more than $1,000,” 17 U.S.C. §506(a)(1)(B). Note that this

type of infringement does not have a nancial component.

3. Willful infringement “by the distribution of a work being prepared for

commercial distribution, by making it available on a computer network

accessible to members of the public, if such person knew or should

have known that the work was intended for commercial distribution,”

17 U.S.C. §506(a)(1)(C) (enacted in 2005). is violation, enacted in

2005, is commonly referred to as “pre-release” piracy and also does not

have a nancial component.

e common factors for all criminal copyright oenses are that (1) there must be

a valid copyright, (2) there must be an infringement, and (3) the infringement

must be willful. Some courts also require that the government prove an extra

element: that the infringing items at issue were not permissible “rst sales,”

although most courts hold the issue of “rst sale” to be an armative defense.

See Section C.4. of this Chapter.

Felony copyright infringement only occurs when the defendant willfully

infringed a copyright by reproduction and distribution and only in the

following ways:

1. by (a) reproducing or distributing, “including by electronic means;” (b)

“during any 180-day period;” (c) “at least 10 copies or phonorecords,

of 1 or more copyrighted works;” (d) that have a “total retail value of

more than $2,500.” 18 U.S.C. §2319(b)(1); OR

2. by (a) distributing a work; (b) that is “being prepared for commercial

distribution;” (c) by “making it available on a computer network;” (d)

“[knowing it] was intended for commercial distribution.” 17 U.S.C. §

506(a)(1)(C); 18 U.S.C. § 2319(d).

II. Criminal Copyright Infringement 17

Although felony copyright infringement does not require a prot motive,

the maximum penalties will increase from three years to ve if the oense

is committed for commercial advantage or private nancial gain. 18 U.S.C.

§§2319(b)(1), (d)(2).

In other words, there are four essential elements to a charge of felony

1. A valid copyright exists (see Section B.1. of this Chapter);

2. e defendant acted willfully (Section B.2. of this Chapter);

3. e defendant infringed the copyright by reproduction or distribution

of the copyrighted work, or for violations of 17 U.S.C. §506(a)(1)(C),

by distribution (Section B.3.a. of this Chapter);

4. e infringement consisted of either of the following:

(a) reproduction or distribution of at least 10 copies of one or more

copyrighted works with a total retail value of more than $2,500

within a 180-day period (Section B.3.b. of this Chapter); OR

(b) distribution

(i) of copies of a “work being prepared for commercial distribution”

(ii) by making such copies available on a publicly-accessible

computer network

(iii) when the defendant knew or should have known the work was

being prepared for commercial distribution (Section B.3.c. of

this Chapter).

Repeat felonies are subject to increased maximum penalties. See 18 U.S.C.

§2319(b)(2), (c)(2), (d)(3)-(4).

Amendments to the criminal copyright statutes in 1997 and 2005

signicantly changed the elements of felony copyright infringement. See

No Electronic eft Act (NET) Act, Pub. L. No. 105-147, 111 Stat. 2678

(1997) (removing the nancial requirement for felony infringement); Family

Entertainment and Copyright Act of 2005, Pub. L. No. 109-9 §103, 119 Stat.

218, 220-21 (2005) (creating a felony for pre-release piracy and camcording

in a movie theater, among other things); see also Prioritizing Resources and

Organizations for Intellectual Property (PRO-IP) Act of 2008, Pub. L. No.

110-403, 122 Stat. 4256 (2008) (clarifying forfeiture authority for property

18 Prosecuting Intellectual Property Crimes

used to facilitate criminal copyright and other intellectual property oenses).

Cases predating these statutes should not necessarily be relied upon for

delineating the elements of current copyright oenses, but they remain useful

in interpreting the current law’s elements.

1. Existence of a Copyright

Under 17 U.S.C. § 506(a), the initial element of criminal copyright

infringement is that a valid copyright exists in the work or works in question.

While on its face this element may appear the simplest to prove, a number of

issues can add considerable complexity.

a. Copyrightability

medium of expression ....” 17 U.S.C.§102(a) (emphasis added).

i. Original Work Fixed in a Tangible Medium

e subject matter of copyright is dened by two requirements: originality

and xation. A work must be an original, creative expression of an idea or

concept, and it must be recorded in tangible form. us, copyright law protects

a novel or poem written on paper or typed in a computer, a song recorded in

a studio or written on sheet music, a sculpture modeled in clay or bronze, or a

computer program on a computer’s hard disk.

For copyright purposes, “original” has two requirements. First, the work

must have been independently created by the author, as opposed to copied

from another previous work. A work can be original even if it closely resembles

another work, “so long as the similarity is fortuitous, not the result of copying.”

Feist Publ’ns, Inc. v. Rural Telephone Co., 499 U.S. 340, 345-46 (1991) (citing

Sheldon v. Metro-Goldwyn Pictures Corp., 81 F.2d 49, 54 (2d Cir. 1936) (noting

that identical poems created by dierent poets ignorant of one another would

both be original and copyrightable)). In practice, the odds against an artist or

author or musician creating a new work identical to an existing one, without

knowing of the earlier work, are remote, and in cases involving suspiciously-

similar works, where the later artist had access or opportunity to learn of the

earlier work, courts have found the subsequent work infringing. See, e.g., Bright

Tunes v. Harrisongs Music, 420 F. Supp. 177 (S.D.N.Y. 1976). Second, the

work must also possess “at least some minimal degree of creativity.” Feist, 499

U.S. at 345. e amount of creativity required for originality is extremely low;

II. Criminal Copyright Infringement 19

“a slight amount” of “creative spark” is all that is necessary, “no matter how

crude, humble or obvious.” Id. (citing 1 Nimmer on Copyright §§ 2.01[A],

[B] (1990)). What qualies as “original” for copyright purposes may not be

considered “original” by, for example, those assessing the item’s artistic, literary,

or academic merit. Nor should “originality” be confused with “novelty,” which

is the touchstone of patent law, not copyright. See Chapter VII of this Manual.

To be copyrightable, a work must also be “xed,” meaning the work is

recorded in some tangible medium by the author. For example, a song that is

composed onto sheet music or recorded to tape is xed and thus copyrightable,

but a live performance of a song that is not recorded by the performer (or

someone authorized by the performer) would not be xed, and thus the

performance itself would not be copyrightable, although the performance

might still enjoy protection under other laws. See the discussion of 18 U.S.C.

§2319A in Section F. of this Chapter.

ii. Short Phrases Are Not Copyrightable

Short single words, short phrases, and familiar symbols and designs

generally cannot be copyrighted. 37 C.F.R. § 202.1(a) (2004). ey may,

however, be trademarked and thus protected under 18 U.S.C. § 2320; see

Chapter III of this Manual.

iii. Expression of an Idea vs. Idea Itself

An important limitation of copyright is that it protects only the creative

expression of an idea—but not the idea itself. 17 U.S.C. §102(b) (“In no case

does copyright protection ... extend to any idea, procedure, process, system,

method of operation, concept, principle, or discovery....”); see also Feist, 499

U.S. at 344-45; Mannion v. Coors Brewing Co., 377 F. Supp. 2d 444 (2005);

Whelan Assoc. v. Jaslow Dental Lab., 797 F.2d 1222 (3d Cir. 1986). Novel

ideas, methods, and processes may enjoy protection under trade secret or

patent law, but are not copyrightable. See Chapters IV and VII of this Manual.

For example, consider a new technique for modifying genes in a cell that is

described in a magazine article. Although the article might be copyrightable—

as an original expression of the author’s ideas about this new technique—the

technique itself would not. e technique might, however, be patentable.

20 Prosecuting Intellectual Property Crimes

b. Copyrights vs. Registrations vs. Certicates

e notion of having a valid copyright is easily confused with the issue of

whether the work is registered with the Copyright Oce, or with possession

of a valid copyright certicate issued by the Copyright Oce. roughout

much of U.S. history, copyright protection was predicated on certain formal

requirements, such as the need to register published works with the Copyright

Oce, deposit copies with the Library of Congress, and mark copies of the

work with a copyright notice. However, major revisions to copyright law in the

1970s and 1980s eased these requirements, and now protect a copyrightable

work regardless of whether such formalities have been observed. See La Resolana

Architects, PA v. Clay Realtors Angel Fire, 416 F.3d 1195, 1198-1205 (10th Cir.

2005), abrogated on other grounds by Reed Elsevier, Inc. v. Muchnick, 130 S.Ct.

1237 (2010). For a work created on or after January 1, 1978, copyright subsists

from the moment an original work of authorship is created by “x[ing it] in

any tangible medium of expression.” 17 U.S.C. §102(a); see also id. §302(a).

at is, a work is copyrighted the moment it is created, regardless of whether

it has been registered or bears a copyright notice.

A “copyright” is the author’s legal entitlement to the exclusive rights granted

under 17 U.S.C. § 106. Neither a copyright registration nor a registration

certicate is equivalent to a copyright. A registration certicate signies the

decision that the work is copyrightable subject matter and that the application

is proper. See 17 U.S.C. §408(a). Although not dispositive of whether a valid

the certicate of registration can, however, have legal signicance at trial. See

Sections B.1.d.-e. of this Chapter.

c. “Preregistration” of Certain Types of Works

e Family Entertainment and Copyright Act of 2005 created a new

procedure, known as “preregistration,” intended to address some problems

with works that are pirated before their lawful publication or ocial release by

the copyright owner. See Pub. L. No. 109-9 §104, 119 Stat. 218, 221-22 (Apr.

27, 2005); 17 U.S.C. §§408(f) (setting forth basic rules for preregistration),

411(a) (preregistration or registration necessary to institute infringement action

in most cases); 37 C.F.R. §202.16 (Copyright Oce rules for preregistration).

Preregistration is available for certain types of work judged by the Copyright

Oce to be especially vulnerable to piracy before their lawful release or

II. Criminal Copyright Infringement 21

publication, including movies, musical compositions and sound recordings,

computer software and video games, literary works, and “advertising and

marketing photographs.” See id. A copyright owner can preregister these

types of works if they are unpublished, but “being prepared for commercial

distribution,” meaning that the copyright owner has a reasonable expectation

that the work will be commercially distributed to the public, and the work,

if not yet nished, has at least been commenced. Id. §202.16(b)(2). Upon

submission of an application and fee, the Copyright Oce will undertake a

limited review of the work, and if approved, it will preregister the work and

issue a certicate, much as in the case of copyright registration. Id. §202.16(c).

But preregistration is not a complete substitute for registration. Although

preregistration oers some benets to copyright owners, preregistration

involves only a cursory review by the Copyright Oce and consequently

preregistration, unlike registration, will not serve as prima facie evidence of the

validity or ownership of a copyright. 37 C.F.R. §202.16(c)(6), (7), (13). See

Sections B.1.d.-e. of this Chapter.

d. Signicance of Registration

As noted above, a creative work can be protected by copyright even before,

or absent, registration of the work with the Copyright Oce. Many foreign

works of authorship are never registered with the United States Copyright

Oce, nor are most unpublished works by domestic authors ever registered,

and yet such works may still enjoy copyright protection under U.S. law.

However, registration of a copyright may be necessary for a copyright owner to

enforce such protections civilly. Specically, U.S. law requires copyright owners

to register their works with the Copyright Oce as a prerequisite to ling a

lawsuit for infringement. Section 411 of Title 17 provides that “no civil action

for infringement of the copyright in any United States work shall be instituted

until preregistration or registration of the copyright claim has been made in

accordance with this title.” § 411(a) (emphasis added). Note that §411 applies

only to “United States work[s],” meaning works rst published domestically, or

works created by U.S. nationals or “habitual residents.” See 17 U.S.C. §§101,

411(a). us, before a civil lawsuit for infringement of a United States work

can be initiated, the work must be registered, although registration is not

a prerequisite to ling a law suit for infringement of a foreign work (nor is

registration a prerequisite for criminal enforcement, as discussed below).

22 Prosecuting Intellectual Property Crimes

Some aspects of the § 411 registration requirement are the subject of

disagreements among the federal courts. For example, courts continue to

disagree over which specic steps § 411 requires to be satised prior to the

ling of a lawsuit. Although some courts require only that a copyright owner

submit a facially valid application and required fee to the Copyright Oce

before ling suit, most conclude that § 411’s language (that a registration must

be “made” prior to suit) means the Copyright Oce must have either accepted

and approved the registration, or formally rejected it as invalid, prior to the

ling of a lawsuit. Compare Lakedreams v. Taylor, 932 F.2d 1103, 1108 (5th

Cir. 1991) (Section 411 requires only the ling of an application before suit

may be led); Apple Barrel Prods., Inc. v. Beard, 730 F.2d 384, 386-87 (5th Cir.

1984) (same); Prunte v. Universal Music Group, 484 F. Supp. 2d 32 (D.D.C.

2007) (same) with La Resolana Architects, PA v. Clay Realtors Angel Fire, 416

F.3d 1195 (10th Cir. 2005) (Section 411 requires Copyright Oce to issue

or reject registration prior to ling of lawsuit), abrogated on other grounds by

Reed Elsevier, Inc. v. Muchnick, 130 S.Ct. 1237 (2010); M.G.B. Homes, Inc. v.

Ameron Homes, Inc., 903 F.2d 1486, 1488 (11th Cir. 1990); Mays & Assocs. Inc.

v. Euler, Inc., 370 F. Supp. 2d 362, 368 (D. Md. 2005) (Section 411 requires

registration as opposed to mere application for copyright); see also Vacheron &

Constantin-Le Coultre Watches, Inc. v. Benrus Watch Co., 260 F.2d 637, 640-

41 (2d Cir. 1958) (ling of suit under pre-1976 law requires that registration

process be complete).

e Supreme Court in Reed Elsevier, Inc. v. Muchnick, 130 S. Ct. 1237

(2010) resolved another circuit split over the issue of whether registration is,

on the one hand, merely a procedural requirement or case-processing rule, or

whether, on the other hand, is necessary to confer subject-matter jurisdiction

in federal court. Reversing the Second Circuit, the Supreme Court held that

although registration is a precondition to ling an action in district court,

failure to comply with § 411 does not deprive a federal court of subject matter

jurisdiction to hear claims involving unregistered works. e Court, however,

declined to address whether registration is a threshold mandatory requirement

that district courts may or should enforce by dismissing sua sponte cases

involving unregistered works.

i. Registration Not a Prerequisite for Criminal Prosecution

Intellectual Property Act of 2008 (PRO-IP) Act of 2008, Pub. L. No. 110-403,

II. Criminal Copyright Infringement 23

122 Stat. 4256 (2008) claried this point by amending § 411 to add the word

“civil.” Notwithstanding that copyright registration is not a requirement for

initiating a criminal prosecution, copyright registration is nevertheless helpful

in proving certain elements of the oense at trial and avoiding a number of

practical challenges that may result from a lack of registration. See Section

B.2.b. of this Chapter. For example, introducing certicates of registration at

trial is often the simplest way to prove a copyright’s validity and ownership.

Even though registration is not legally required, without it prosecutors will

have to prove these elements “from scratch” through testimony and other

evidence. See Section B.1.e. of this Chapter. erefore, to the extent possible,

prosecutors should try to ensure that any copyrights on which a prosecution is

sought are registered or “preregistered” before the prosecution is commenced.

If registration is needed for pending litigation, it can often be expedited for

completion within a week. See U.S. Copyright Oce, Information Circular

10, “Special Handling,” available at http://www.copyright.gov/circs/circ10.

pdf.

but not as critical. So long as the government can present sucient evidence

of a valid copyright to satisfy a probable cause standard, a lack of a copyright

registration or certicate should not be an impediment to obtaining search

warrants, grand jury subpoenas, and even indictments.

When registration is lacking (which may merely be an oversight, or

could reect a conscious choice to delay registration until a work is ready for

publication) prosecutors should bear in mind the circumstances surrounding

the absence of registration, which may militate against the choice to prosecute.

For example, a copyright-holder’s refusal to register his copyright may

indicate—or be interpreted as—his intent to allow others to copy the work. If,

on the other hand, registration has been sought from the Copyright Oce and

refused, the refusal may indicate a weak claim of copyrightability or ownership.

e. Proof of Copyright at Trial

At trial, the government typically proves the existence of a valid copyright

by introducing a certicate of registration. e certicate’s probative value

depends on whether the work was registered earlier or later than ve years after

the work was published. A certicate of registration “made before or within ve

years after rst publication of the work shall constitute prima facie evidence of

the validity of the copyright.” 17 U.S.C.§410(c) (emphasis added); see Gaylord

24 Prosecuting Intellectual Property Crimes

v. United States, 595 F.3d 1364, 1376 (Fed. Cir. 2010); United States v. Taxe,

540 F.2d 961, 966 (9th Cir. 1976); United States v. Moore, 604 F.2d 1228, 1234

(9th Cir. 1979); see also 17 U.S.C. § 101 (“‘Publication’” is the distribution of

copies or phonorecords of a work to the public by sale or other transfer of

ownership, or by rental, lease, or lending. e oering to distribute copies or

phonorecords to a group of persons for purposes of further distribution, public

performance, or public display, constitutes publication. A public performance

or display of a work does not of itself constitute publication.”).

Once the certicate of registration is introduced by the government and

accepted as authentic by the court, the burden shifts to the defendant to prove

that the copyright is not valid or that the registration was obtained fraudulently.

See, e.g., Gaylord, 595 F.3d at 1376; Autoskill, Inc. v. Nat’l Educ. Support Sys.,

Inc., 994 F.2d 1476, 1487 (10th Cir. 1993), overruled on other grounds by TW

Telecom Holdings Inc. v. Carolina Internet Ltd., 661 F.3d 495 (10th Cir. 2011).

en, the prosecutor may rebut with evidence showing that the certicate

is genuine, the registration was properly obtained, or that the copyright is

otherwise valid. If the work was registered more than ve years after its rst

publication, the certicate’s probative value is left to the court’s discretion.

See 17 U.S.C. §410(c); Religious Tech. Ctr. v. Netcom On-Line Comm. Servs.,

Inc., 923 F. Supp. 1231, 1241 (N.D. Cal. 1995); Pan-American Products &

Holdings, LLC v. R.T.G. Furniture Corp., 825 F. Supp. 2d 664, 702 (M.D.N.C.

2011); Koontz v. Jaarian, 617 F. Supp. 1108, 1111-12 (E.D. Va. 1985), a’d,

787 F.2d 906 (4th Cir. 1986).

Certicates of registration should be obtained from the victim. e

certied copies. See http://www.copyright.gov/records/; U.S. Copyright Oce,

Information Circular No. 6, “Obtaining Access to and Copies of Copyright

Oce Records and Deposits,” available at http://www.copyright.gov/circs/

circ06.pdf. But copyright owners may be able to respond faster, since they

should have retained their registration certicates in the ordinary course of

their business.

Although producing a copyright certicate is the preferred method of

proving validity and ownership of a valid copyright, it is not the only way to

do so. e parties can stipulate to the copyright’s validity. E.g., United States

v. Beltran, 503 F.3d 1, 2 (1st Cir. 2007); United States v. Sherman, 576 F.2d

292, 296 (10th Cir. 1978). Courts may also take judicial notice of a work’s

II. Criminal Copyright Infringement 25

Corp., 413 F.3d 257, 261 (2d Cir. 2005); see also United States v. Hux, 940

F.2d 314, 318 (8th Cir. 1991) (allowing introduction of copyright certicates

the morning of trial, but noting other evidence previously given to defense

provided ample basis for plainti to establish, and defendant to challenge,

existence of copyright), overruled on other grounds by United States v. Davis,

978 F.2d 415 (8th Cir. 1992); La Resolana Architects, PA, 416 F.3d at 1208;

United States v. Backer, 134 F.2d 533, 535-36 (2d Cir. 1943) (allowing civil

proceeding where Copyright Oce had provided plainti with certicate due

to error; technical irregularities in the registration process should not invalidate

an otherwise proper registration). For instance, the government could introduce

testimony regarding the copyright owner’s creation and xation of the work,

evidence that the work is original, and that it was not a work for hire created

for someone else.

In cases where the validity of a copyright is likely to be contested, prosecutors

may wish to gather additional evidence of the validity of the copyright, such as

the type described above. Even where copyright in a work has been registered

within ve years of publication thus giving rise to a presumption of validity,

some courts have cautioned against placing too much weight on registrations as

proof of a valid copyright, due to the cursory nature of the copyright registration

process. See Universal Furniture Int’l, Inc. v. Collezione Europa USA, Inc., 618

F.3d 417, 428 (4th Cir. 2010); Charles W. Ross Builder, Inc. v. Olsen Fine Home

Bldg., LLC, 827 F. Supp. 2d 607, 616 (E.D. Va. 2011); Pan-American Products,

825 F. Supp. 2d at 702.

f. Copyright Notice

Particularly in cases involving older works, prosecutors should conrm

that copyright in a work has not lapsed. Copyright protection expires at the

end of the statutory term, which will vary depending on the date of creation,

publication, or the author’s death. However, for works rst published prior

to March 1, 1989, copyright may also have lapsed if the work lacked a valid

March 1, 1989, their publication without a copyright notice is of no moment.

See Berne Convention Implementation Act of 1988 (“BCIA”), Pub. L. No.

100-568, 102 Stat. 2853 (enacted October 31, 1988). For works published

before March 1, 1989, however, initial publication without a copyright notice

would have extinguished their copyright and consigned them to the public

domain. See 17 U.S.C. §§10, 19 et seq. (1909 Act); 17 U.S.C. §405(a)(2)

(1976 Act); see also 2 Nimmer on Copyright §§7.02[C][1]-[3], at 7-16 to 7-17.

26 Prosecuting Intellectual Property Crimes

Generally speaking, the form of copyright notice generally contains the

symbol ©, the word “copyright,” and the name of the copyright owner (e.g.,

As noted in the following Section, the presence of a copyright notice on an

infringed work may be useful in proving a defendant’s willfulness.

2. e Defendant Acted “Willfully”

a. Legal Standard

To establish criminal intent, the government must prove that the defendant

infringed the copyright willfully. See 17 U.S.C.§506(a) (“Any person who

willfully infringes a copyright shall be punished ....”) (emphasis added).

“[E]vidence of reproduction or distribution of a copyrighted work, by itself,

shall not be sucient to establish willful infringement.” 17 U.S.C.§506(a)(2).

is was intended to require proof of more than general intent and to ensure

that, for instance, “an educator who in good faith believes that he or she is

engaging in a fair use of copyrighted material could not be prosecuted under

the bill.” 143 Cong. Rec. 26,420-21 (1997).

e Supreme Court has recognized that “willful ... is a word of many

meanings, its construction often being inuenced by its context.” Spies v.

United States, 317 U.S. 492, 497 (1943). is was reected in Congressional

debate over the NET Act amendments to the Copyright Act. Senator Hatch,

the Chairman of the Senate Judiciary Committee, advocated that in copyright

crimes “‘willful’ ought to mean the intent to violate a known legal duty,” 143

Cong. Rec. 26,420 (1997), because a lower mens rea could cause “the net” of

criminal sanctions “[to] be cast too widely.” Id. Senator Hatch cited several

cases in which the Supreme Court had construed “willfulness” in this fashion

when the substantive law was complex, such as Cheek v. United States, 498 U.S.

192 (1991), in which the Court held that the general principle that “ignorance

of the law or a mistake of law is no defense to criminal prosecution,” must

yield given the complexity of federal criminal tax statutes. In other words, the

defendant’s good-faith misunderstanding of the legal duties imposed on him

by the tax laws would negate a nding of willfulness. Id. at 199. is reasoning

has been applied in other contexts as well. E.g., Ratzlaf v. United States, 510

U.S. 135 (1994) (failure to report cash transactions in excess of $10,000).

In debate on the corresponding House bill, two of the bill’s sponsors,

Representatives Goodlatte and Coble, made comments suggesting that

II. Criminal Copyright Infringement 27

the “willfulness” may be met with something less than direct proof that the

defendant was actually aware he was violating the law:

It should be emphasized that proof of the defendant’s state of

mind is not required. e Government should not be required

to prove that the defendant was familiar with the criminal

cases of clear infringement, the willfulness standard should be

satised if there is adequate proof that the defendant acted with

reckless disregard of the rights of the copyright holder. In such

circumstances, a proclaimed ignorance of the law should not

allow the infringer to escape conviction. Willfulness is often

established by circumstantial evidence, and may be inferred

from the facts and circumstances of each case.

143 Cong. Rec. 24,325 (1997) (statement of Rep. Coble); see also id. at 24,326

(statement of Rep. Goodlatte, repeating passage above verbatim, with the

addition of the word “also” after “be” in the rst sentence). Although the rst

sentence of the passage quoted above might suggest Representatives Coble and

Goodlatte viewed the criminal copyright oense as a strict liability crime, the

context of their statements suggests that both Congressmen meant, not that the

criminal copyright oense required no proof of a defendant’s intent or state of

mind, but rather that the “willfulness” standard did not require direct evidence

of mens rea, and that a “willful” state of mind could be proven circumstantially

(or, in their view, through armative proof of reckless disregard for the rights

of copyright holders).

Although the statements of individual members reect somewhat diering

conceptions of the “willfulness” standard, both houses of Congress indicated

their intent not to aect the existing “willfulness” standard applicable to

distribution, by itself, was insucient to prove willfulness. See 17 U.S.C. §

506(a)(2); Statement of Rep. Coble, 143 Cong. Rec. 24,325 (1997) (“Evidence

of reproductions or distributions, including those made electronically on behalf

of third parties, would not, by itself, be sucient to establish willfulness under

the NET Act.”). Otherwise, Congress left the term’s denition to the courts.

See 143 Cong. Rec. 26,422 (remarks of Sen. Leahy) (“is clarication does

not change the current interpretation of the word ‘willful’ as developed by

case law and as applied by the Department of Justice, nor does it change the

denition of ‘willful’ as it is used elsewhere in the Copyright Act.”); H.R. Rep.

28 Prosecuting Intellectual Property Crimes

No. 102-997, at 4-5 (1992), reprinted in 1992 U.S.C.C.A.N. 3569, 3572-73

(discussion of Copyright Felony Act, Pub. L. No. 102-561, 106 Stat. 4233

(1992)).

Most courts that have interpreted “willfulness” in criminal copyright

cases have adopted the more stringent standard articulated by Senator Hatch:

the intentional violation of a known legal duty. See United States v. Moran,

757 F. Supp. 1046, 1049 (D. Neb. 1991) (holding that willful infringement

means a “‘voluntary, intentional violation of a known legal duty’”) (quoting

Cheek v. United States, 498 U.S. 192, 200 (1991)); see also United States v.

Sherman, 576 F.2d 292, 297 (10th Cir. 1978) (upholding jury’s verdict because

jury “apparently either disbelieved the genuineness of this contract [which

defendants claimed had licensed their conduct], or believed that defendants

were not innocent of knowledge that the tapes provided were copies from the

original artists’ records”, and noting that “willfulness” required proof of specic

intent, but without clarifying whether that required proof that the defendants

knew their conduct was unlawful, or merely knowledge that they were selling

copies); cf. United States v. Heilman, 614 F.2d 1133, 1138 (7th Cir. 1980)

(holding that the government had proved willfulness because the defendant

“chose to persist in conduct which he knew had ‘a high likelihood of being held

by a court of competent jurisdiction to be a violation of a criminal statute’”)

(quoting trial court); United States v. Cross, 816 F.2d 297, 300-01 (7th Cir.

1987) (approving without comment a jury instruction that an act is willful

when it is committed “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 faith,” and arming conviction because the record amply demonstrated

that the defendant “knowingly and voluntarily violated the copyright laws”);

see also Ronald D. Coenen Jr. et al., Intellectual Property Crimes, 48 Am.Crim.

L.Rev. 849, 877-89 (2011).

A minority of courts in criminal copyright cases have suggested that a lower

standard of “willfulness” may support a criminal prosecution. United States v.

Backer, 134 F.2d 533, 535 (2d Cir. 1943) is frequently cited as applying the

lower standard, that of merely having the intent to carry out the activities of

infringement without knowledge that they constituted infringement. In that

case, the defendant had arranged for a manufacturer to duplicate a copyrighted

gurine as closely as possible without, in the defendant’s words, “copyright

trouble.” Id. at 535. e Second Circuit found the evidence sucient to

support willful infringement, noting there could not “be any fair doubt that

II. Criminal Copyright Infringement 29

the appellant deliberately had the copies made and deliberately sold them for

prot.” Id. Some commentators have characterized Backer as representing a

circuit split. E.g., 4 Nimmer on Copyright §15.01[A][2] at 15-6 (opining that

“[T]he better view construes the ‘willfulness’ required for criminal copyright

infringement as a ‘voluntary, intentional violation of a known legal duty.’”);

Julie L. Ross, A Generation of Racketeers? Eliminating Civil RICO Liability for

Saunders, Criminal Copyright Infringement and the Copyright Felony Act, 71

Denv. U. L. Rev. 671, 673 (1994).

It is not clear, however, that Backer represents an actual circuit split. e

case can also be read as holding the defendant’s mention of “copyright trouble”

to be sucient evidence of his knowledge of a legal duty not to infringe.

Moreover, more recent civil copyright cases suggest that the Second Circuit

interprets willfulness to require either actual knowledge that the infringement

violated the law, or perhaps “constructive knowledge” shown by reckless

disregard for whether the conduct violated copyright. See Twin Peaks Prods.,

Inc. v. Publ’ns Int’l, Ltd., 996 F.2d 1366, 1382 (2d Cir. 1993) (holding standard

for willfulness to be “whether the defendant had knowledge that its conduct

represented infringement or perhaps recklessly disregarded the possibility”);

Fitzgerald Publ’g Co. v. Baylor Publ’g Co., 807 F.2d 1110, 1115 (2d Cir. 1986)

(same); Lydia Pallas Loren, Digitization, Commodication, Criminalization:

e Evolution of Criminal Copyright Infringement and e Importance of the

Willfulness Requirement, 77 Wash. U. L.Q. 835, 879 (1999) (arguing that

the Second Circuit is actually not in disagreement with other circuits). is

approach is consistent with the Seventh Circuit’s ruling in United States v.

Heilman, a criminal copyright case holding that the government proved

willfulness because the defendant “chose to persist in conduct which he knew

had a high likelihood of being held by a court of competent jurisdiction to be a

violation of a criminal statute.” 614 F.2d 1133, 1138 (7th Cir. 1980) (citation

and internal quotation marks omitted).

e majority rule in criminal copyright cases for a higher standard of

willfulness is also generally consistent with civil copyright cases. e issue arises

in civil cases when plaintis attempt to recover increased statutory damages,

which are available only for willful infringement. 17 U.S.C. §504(c). Whereas

criminal willfulness requires a specic intent to violate “a known legal duty,”

civil cases require a more specic intent to violate copyright laws; that is that

willfulness is not just an intent to copy, but rather an intent to infringe. 4

30 Prosecuting Intellectual Property Crimes

Nimmer on Copyright § 14.04[B][3][a]; e.g., BC Technical, Inc. v. Ensil Int’l

Corp., 464 Fed. Appx. 689 (10th Cir. 2012) (“willful” infringement in civil

case requires specic intent to violate copyright laws - also noting without

analysis that criminal cases require an intent to violate copyright laws, but

relying, in part, on criminal cases and authorities referring to “known legal

duty”); Twin Peaks Prods., Inc., 996 F.2d at 1382; Danjaq, L.L.C. v. Sony Corp.,

263 F.3d 942, 959 (9th Cir. 2001); RSO Records, Inc. v. Peri, 596 F. Supp. 849,

859 (S.D.N.Y. 1984) (holding, in civil action, that defendant’s earlier guilty

plea to two counts of criminal copyright infringement suced to show he

knew similar conduct was unlawful). Given that willfulness requires an intent

to infringe, or at least constructive knowledge of infringement plus a reckless

disregard of the victim’s rights, a nding of willfulness may be precluded if the

defendant acted with a good-faith belief that he was not infringing. See Section

B.2.b. of this Chapter.

b. Proof at Trial

“Willfulness is rarely provable by direct evidence, and most often can

be proven only by inference from the evidence introduced.” United States v.

Sherman, 576 F.2d at 297. Certain types of evidence in criminal copyright

cases have been found particularly relevant to proving the defendant’s intent:

• e defendant’s acknowledgment that his or her conduct was

improper. See United States v. Manzer, 69 F.3d 222, 227-28 (8th Cir.

1995) (defendant’s admission in a published interview that selling

or giving away copyrighted computer chips was illegal, and software

program and packaging bore copyright notice); United States v. Drebin,

557 F.2d 1316, 1324 (9th Cir. 1977) (defendant’s warning customers

of FBI investigation and recommending that customers “really be

careful”); United States v. Hux, 940 F.2d 314, 319 (8th Cir. 1991)

(defendant’s admission to FBI that he knew modifying copyrighted

descrambler chips was infringement), overruled on other grounds by

United States v. Davis, 978 F.2d 415 (8th Cir. 1992); United States v.

Taxe, 540 F.2d 961, 968-69 (9th Cir. 1976) (defendant’s solicitation of

attorney to lie about legality of tapes); United States v. Kim, 307 Fed.

Appx. 324, 326 (11th Cir. 2009) (statements by CEO to buyers from

which CEO’s willful intent and awareness of unlawfulness “reasonably

could be inferred”).

II. Criminal Copyright Infringement 31

• Actualnotice tothe defendantthat hisownconduct wasillegal.

See, e.g., United States v. Cross, 816 F.2d 297, 300-01 (7th Cir. 1987)

(defendant’s sale of pirated videotapes after FBI agents told him that

selling and renting unauthorized tapes was illegal). Cease and desist

letters from rights owners to the defendant can also be useful in

establishing willfulness.

• Notice to the defendant that another person’s similar conduct

constituted infringement. See United States v. Heilman, 614 F.2d

1133, 1138 (7th Cir. 1980) (defendant’s awareness that government

was prosecuting individuals engaged in conduct similar to his own

and that conduct had been ruled illegal by four federal and three state

courts); United States v. Kim, 307 Fed. Appx. 324 (11th Cir. 2009)

(not error for court to nd defendant acted willfully where there was

evidence that defendant’s cousin, a police ocer, had advised his

conduct was illegal and defendant had previously been convicted of

trademark counterfeiting).

• e defendant’s past manufacture and distribution of infringing

items. See United States v. Kim, 307 Fed. Appx. 324 (11th Cir. 2009)

(not error for court to nd defendant acted willfully where defendant

had previously been convicted of trademark counterfeiting, and had

been advised by police ocer relative that his conduct was illegal);

United States v. Whetzel, 589 F.2d 707, 712 (D.C. Cir. 1978), abrogated

on other grounds, Dowling v. United States, 473 U.S. 207 (1985).

• edefendant’sadmissiontocopying,inconjunctionwithother

circumstantial evidence indicating defendant knew copies were

unauthorized. United States v. Dadamuratov, 340 Fed. Appx. 540

(11th Cir. 2009) (admission of copying, along with circumstantial

evidence of infringement and knowledge, sucient to prove willful

infringement).

• edefendant’sstatementtoPostalServiceemployeethatothers

weresellingillegalDVDsinthearea. United States v. Draper, No.

7-05 CR 0004, 2005 WL 2746665, at *2 (W.D. Va. Oct. 24, 2005).

• e defendant’s frivolous or bad-faith claim of compliance with

Cf. United States v. Gardner, 860 F.2d 1391, 1396 (7th Cir. 1988)

(holding that when seller of “black boxes” for receiving unauthorized

32 Prosecuting Intellectual Property Crimes

cable TV gave buyers a “Notice of Warning” that disclaimed liability

for illegal uses, it was “establish[ed] that he was well aware that his

actions were unlawful”).

• edefendantadmissiontoinfringement,butwithclaimthathe

believederroneouslythatcriminaloenserequirednancialgain.

In United States v. Dove, No. 2:07CR00015, 2008 WL 3979467 (W.D.

Va. Aug. 25, 2008), the defendant admitted to participating in scheme

to produce and distribute infringing les online, but claimed he had

not made any money in connection with the scheme and that he

erroneously believed that infringement was not criminal in the absence

of nancial gain. e court permitted a “willful blindness” instruction

at trial.

Conversely, other factors may be relevant to nding an absence of

“willfulness”:

• Evidenceofthedefendant’sgood-faithbeliefthathisconductwas

lawful,coupledwithrationalattemptstocomplywiththecopyright

lawasunderstoodbythedefendant. Compare United States v. Moran,

757 F. Supp. 1046, 1051-53 (D. Neb. 1991) (court in bench trial

nding police ocer who operated a “mom-and-pop” video rental

business not guilty, because he made single copies of lawfully purchased

videos and rented the copies only to prevent vandalism of original

tapes, and because his activities were “conducted in such a way as not

to maximize prots, which one assumes would have been his purpose

if he had acted willfully”) with United States v. Sherman, 576 F.2d 292,

297 (10th Cir. 1978) (arming conviction of defendants who claimed

a good-faith belief that pirated tapes they manufactured and sold were

“sound-a-likes,” and thus noninfringing). See also Danjaq, L.L.C. v.

Sony Corp., 263 F.3d 942, 959 (9th Cir. 2001) (stating that one who

has been notied that his conduct constitutes copyright infringement,

but who reasonably and in good faith believes the contrary, has not

acted willfully) (citing 4 Nimmer on Copyright §14.04).

• Actingpursuanttolegalcounsel,eveniftheadvicewaserroneous,

ifthedefendantdisclosedallrelevantcircumstancestohisattorney

andfollowedtheattorney’sadviceingoodfaith. See 4 Nimmer on

§§27.07-.08 (Corpus Juris Publishing 2004).

II. Criminal Copyright Infringement 33

Possible alternative charges that require lower mens rea standards are

discussed in Section F. of this Chapter.

3. Infringement of the Copyright

e next element is that the defendant infringed a copyright. See 17

U.S.C.§506(a). “Infringement” refers to the violation of one or more of the

exclusive rights granted to a copyright owner at 17 U.S.C. §106. Infringement

is implicitly dened in 17 U.S.C.§501(a):

Anyone who violates any of the exclusive rights of the copyright

owner as provided by [17 U.S.C.§§106-122]or of the author

as provided in [17 U.S.C. §106A(a)], or who imports copies or

phonorecords into the United States in violation of [17 U.S.C.

§602], is an infringer of the copyright.

Consequently, infringement may include more than violation of the rights

enumerated in § 106 (and also include violations of the rights to exclude

imports under §602, or the rights of certain authors to attribution and integrity

dened in §106A(a)), and at the same time, may not extend to all violations of

the rights in §106 (because the rights enumerated in §106 are “subject to [the

limitations of] §§107 through 122”). For purposes of criminal enforcement,

however, the relevant types of infringement are those enumerated in §106. (An

author’s rights to attribution and integrity under §106A(a) are not enforceable

criminally. See 18 U.S.C. §506(f ).)

Section 106 of Title 17 sets out the copyright owner’s exclusive rights.

ese rights consist of the rights “to do and to authorize” the following:

• to reproduce a work in copies or phonorecords, §106(1);

• to prepare derivative works, §106(2);

• to distribute copies or phonorecords of the work to the public, §106(3);

• to perform the work publicly (for certain types of works), §106(4),

(6);

• to display a work publicly (for certain types of works), §106(5).

Sections 107 through 122 limit these rights, the most notable limitations

for criminal enforcement purposes are the public’s right to make “fair use”

of a work without authorization, the rst sale doctrine, limitations on rental

of software and musical sound recordings, and exceptions for installing and

backing up software, all of which are discussed in detail in Section C. of this

Chapter.

34 Prosecuting Intellectual Property Crimes

Felony penalties apply only to infringement of the reproduction or

distribution rights. See 17 U.S.C. §§506(a), 106(1), (3). Specically, felony

penalties apply only if the infringement involved either “reproduction

or distribution” of a minimum number and value of works, see 17 U.S.C.

§506(a)(1)(A) and 18 U.S.C. §2319(b)(1); 17 U.S.C. §506(a)(1)(B) and

18 U.S.C. § 2319(c)(1), or if the infringement involved “distribution of a

work being prepared for commercial distribution,” by making it available on

a publicly-accessible computer network. See 17 U.S.C. § 506(a)(1)(C); 18

U.S.C. §2319(d)(1). See also Section B.4.c. of this Chapter.

Misdemeanor penalties apply to infringement by reproduction or

distribution that meet a lower numeric and monetary threshold—one or more

copies of one or more copyrighted works, having a total retail value of more than

$1,000. See 17 U.S.C. §506(a)(1)(B), 18 U.S.C. §2319(c)(3). Misdemeanor

penalties also cover willful infringement of any of the exclusive rights under

§106, if committed for commercial advantage or private nancial gain. See 17

U.S.C. §506(a)(1)(A), 18 U.S.C. §2319(b)(3), and the discussion in Section

B.4. of this Chapter.

Criminal prosecutions have historically focused on reproduction and

distribution because these have generally been the most serious infringements,

and these infringements incur the most signicant penalties under the current

criminal law. However, willful infringement of other exclusive rights may also be

suciently serious to warrant criminal prosecution, particularly as advances in

technology lead greater use of technologies that implicate other exclusive rights,

such as the use of Internet “streaming” to disseminate copyrighted material

(both legitimately and illegimately). Where appropriate, the Department

can and should investigate and prosecute copyright misdemeanors for prot-

motivated infringements of other rights, such as public performance, public

display, or derivative work.

a. Infringement by Reproduction or Distribution

Felony penalties are provided for willful infringement committed “by the

reproduction or distribution” of ten or more copies (or phonorecords) of one

or more copyrighted works, with a total retail value of $2,500 or more. ere

are actually two separate combinations of statutory provisions that provide

felony penalties for this type of conduct.

Infringement committed with or without the purpose of commercial

advantage or private nancial gain can fall under 17 U.S.C. §506(a)(1)(B) if

II. Criminal Copyright Infringement 35

the willful infringement was committed “by the reproduction or distribution,

including by electronic means, during any 180-day period, of 1 or more copies

or phonorecords of 1 or more copyrighted works, which have a total retail value

of more than $1000.” For these oenses, 18 U.S.C. § 2319(c)(1) provides

felony penalties “if the oense consists of the reproduction or distribution of

10 or more copies or phonorecords of 1 or more copyrighted works, which

have a total retail value of $2,500 or more.” e statutory maximum penalty is

3 years’ imprisonment, 6 for repeat oenders. See §2319(c).

Infringement committed for commercial advantage or private nancial

gain can also fall under 17 U.S.C. § 506(a)(1)(A), which is a felony if the

oense “consists of the reproduction or distribution, including by electronic

means, during any 180-day period, of at least 10 copies or phonorecords, of

1 or more copyrighted works, which have a total retail value of more than

$2,500.” 18 U.S.C. §2319(b)(1). e statutory maximum penalty is 5 years’

imprisonment, or 10 for repeat oenders.

ere is a slight variation in language between the two provisions that set

the $2,500 felony threshold: 18 U.S.C. § 2319(c)(1) requires a total retail

value of “$2,500 or more,” whereas §2319(b)(1) requires “more than $2,500.”

It is unclear whether this variation was intentional.

In addition to the felony penalties discussed in the prior paragraphs, there

are also felony penalties in 17 U.S.C. §506(a)(1)(C) for distribution over a

computer network accessible by the public. See Section B.3.b. of this Chapter.

e reproduction and distribution rights are set forth in 17 U.S.C. §106(1)

(exclusive right “to reproduce the copyrighted work in copies or phonorecords”)

and § 106(3) (exclusive right “to distribute copies or phonorecords of the

copyrighted work to the public by sale or other transfer of ownership, or by

rental, lease, or lending”).

• DenitionofCopiesandPhonorecords

e term “copies” is often used to refer generically to any material object in

which a copyrighted work has been xed. However, the Copyright Act reserves

the term “copies” only for works other than sound recordings. “Copies” are

dened as “material objects, other than phonorecords, in which a work is xed

by any method now known or later developed, and from which the work can

be perceived, reproduced, or otherwise communicated, either directly or with

the aid of a machine or device.” 17 U.S.C.§101. “Phonorecords” are what

we think of as copies of sound recordings, and are dened as “material objects

36 Prosecuting Intellectual Property Crimes

in which sounds, other than those accompanying a motion picture or other

audiovisual work, are xed by any method now known or later developed,

and from which the sounds can be perceived, reproduced, or otherwise

communicated, either directly or with the aid of a machine or device.” Id.

us, examples of a “phonorecord” would include an audio tape or CD, or

an MP3 le. Examples of “copies” would include a book, a painting, a piece

of sheet music, or a sculpture. A software program on disc or in a le on a

computer, or a movie on DVD or videotape, would also be “copies,” even

though these objects might also include an audio sound track.

Somewhat confusingly, the terms “copy” and “phonorecord” can also

refer to the original object in which the copyrighted work was xed, such as a

handwritten manuscript, or original studio tapes for a sound recording.

• “Stealing”

Infringement is often referred to as a form of theft. For example, 18 U.S.C.

§2319 is located in a chapter of the criminal code entitled, “Stolen Property.”

Yet infringement is distinct from common-law theft, and requires no showing

that the defendant “stole” or deprived another person of a physical copy of a

work. Making additional copies of a book, movie, or other work may constitute

infringement, even if the defendant obtained his original source for additional

copies lawfully. Likewise, although publicly distributing copies that were stolen

from the copyright owner could constitute infringement, cf. United States v.

Chalupnik, 514 F.3d 748 (8th Cir. 2008) (discussing defendant’s criminal

post oce without authorization), it is not always necessary to show that copies

were “stolen” in order to show infringing distribution.

i. Reproduction

Reproduction encompasses a wide array of conduct, ranging from a

novelist’s plagiarizing substantial portions of someone else’s book or a musician’s

sampling several notes from a previously-recorded song, to using a computer

to “rip” an audio track into MP3 format or making a bit-for-bit copy of a

movie on DVD. In most criminal cases, infringing reproduction involves the

production of exact, or nearly-exact, duplicates through digital means, as with

computer programs, e-books, music or movies copied onto digital media (e.g.,

CDs, DVDs, hard drives). Copying need not be so blatant, literal, or complete

to qualify as infringement, but criminal cases rarely involve defendants who

have copied only a small portion of a copyrighted work. Disputes over whether

II. Criminal Copyright Infringement 37

songs sound too similar, or whether a movie screenplay copies dialogue or

characters from an earlier screenplay, are generally best left to civil lawsuits.

Nevertheless, some cases of less-than-wholesale, verbatim copying of an entire

work may warrant criminal prosecution.

• ProofofInfringementbyReproduction

e best evidence of infringement by reproduction is direct evidence that

the defendant copied the victim’s work, including, for example eyewitness

testimony, emails, or computer logs indicating the copying of particular discs

or les. Typically, criminal copyright cases will involve complete, verbatim

copying of many copyrighted works, and defendants are generally unlikely

to challenge this issue credibly. In fact, defendants often even advertise or

otherwise mark the infringing copies as being copies. However, when the

copies alleged to be infringing are not essentially identical to the original work,

prosecutors may need to prove infringement in greater depth.

Direct evidence of copying is best, but circumstantial evidence may suce.

e circumstantial test is whether (1) the defendant had access to the copyrighted

work and (2) that defendant’s work is “substantially” or “probatively” similar to

the copyrighted material. See Taylor Corp. v. Four Seasons Greetings, LLC, 403

F.3d 958 (8th Cir. 2005); Dam ings from Denmark v. Russ Berrie & Co., 290

F.3d 548, 562 (3d Cir. 2002); Kepner-Tregoe, Inc. v. Leadership Software, Inc.,

12 F.3d 527, 532 (5th Cir. 1994).

e test of “substantial” or “probative similarity” is whether, considering

the two works as a whole, and including both the copyrightable elements and

the uncopyrightable ones (such as basic ideas or public-domain expressions

that are not eligible for copyright), a reasonable person would conclude that

the defendant had actually copied the work from the original. See Positive Black

Talk Inc. v. Cash Money Records, Inc., 394 F.3d 357, 370 n.9 (5th Cir. 2004),

abrogated on other grounds by Reed Elsevier, Inc. v. Muchnick, 130 S.Ct. 1237

(2010); McCulloch v. Albert E. Price, Inc., 823 F.2d 316, 318-19 (9th Cir.

1987), disagreed with on other grounds, Fogerty v. Fantasy, Inc., 510 U.S. 517

(1994); Atari, Inc. v. North American Philips Consumer Elec. Corp., 672 F.2d

607, 614 (7th Cir. 1982). is standard focuses on the works’ similarities rather

than their dierences. Cf. United States v. Kim, 307 Fed. Appx. 324 (11th Cir.

2009) (holding comparison of similarities in district court not erroneous, and

rejecting defendant’s arguments on appeal that emphasized several dierences

between infringing copies and originals). us, “[i]t is enough that substantial

38 Prosecuting Intellectual Property Crimes

parts [of a copyrighted work] were lifted; no plagiarist can excuse the wrong

by showing how much of his work he did not pirate.” United States v. O’Reilly,

794 F.2d 613, 615 (11th Cir. 1986) (arming conviction for infringement of

identical to copyrighted original) (quoting Sheldon v. Metro-Goldwyn Pictures

Corp., 81 F.2d 49, 56 (2d Cir. 1936) (L. Hand, J.)).

Note that this test is designed to determine whether copying occurred,

not necessarily whether that copying constituted infringement. If the court

determines that actual copying has occurred, only then does it assess whether

the copying was substantial enough to constitute infringement. Unfortunately,

many courts also refer to this test as one of “substantial similarity,” which

can lead to confusion. See, e.g., Sid & Marty Krot Television Prods., Inc. v.

McDonald’s Corp., 562 F.2d 1157, 1164-65 (9th Cir. 1977) (referring to the test

of whether copying occurred as an “extrinsic” test of substantial similarity, while

calling the test of whether infringement occurred, i.e., whether copyrightable

elements were copied, an “intrinsic” test of substantial similarity). To avoid this

confusion, many courts prefer to use the term “probative” similarities to show

“actual copying,” and “substantial similarity” to show “actionable copying.” See

Positive Black Talk Inc., 394 F.3d at 370; Dam ings from Denmark, 290 F.3d

at 562 & n. 19.

If the copyrighted work and the defendant’s work are “strikingly similar,”

the rst element of access may be presumed (at least in civil copyright cases),

especially when the copyrighted work was widely available. See, e.g., Playboy

Enters. v. Frena, 839 F. Supp. 1552, 1556 (M.D. Fla. 1993) (holding proof

of access unnecessary when defendant made “essentially exact” copies of

copyrighted photos that appeared in nationally-circulated magazine); Bright

Tunes Music Corp. v. Harrisongs Music, Ltd., 420 F. Supp. 177 (S.D.N.Y 1976)

(access may be presumed when a copyrighted work is widely available)

In practice, the government demonstrates “substantial” or “probative”

similarity, as well as infringement, by comparing the suspect copy side-by-

side against an authentic original. Although ideally, this comparison can be

performed against the original maintained on le at the Register of Copyrights

(if available), it is not absolutely necessary—an authenticated duplicate of the

original work will suce. See O’Reilly, 794 F.2d at 615; United States v. Shabazz,

724 F.2d 1536, 1539 (11th Cir. 1984). Victims may assist the government with

these comparisons. See Chapter X of this Manual; cf. United States v. Sherman,

II. Criminal Copyright Infringement 39

576 F.2d 292, 295 (10th Cir. 1978) (mentioning that suspected pirated tapes

were checked by record company before search warrant issued).

• StatutoryExceptionsforReproduction

As noted above, copyright owners’ rights are limited in 17 U.S.C. §§107-

122. Several of these provisions particularly limit the reproduction right,

including §107 (“fair use”), §108 (certain copying by libraries and archives),

§115 (compulsory license for making phonorecords of musical works), and

§117 (certain limited copying of software). See Section C. of this Chapter.

ii. Distribution

Section 106(3) of Title 17 grants copyright owners the exclusive right “to

distribute copies or phonorecords of the copyrighted work to the public by

sale or other transfer of ownership, or by rental, lease, or lending.” 17 U.S.C.

§106(3). e distribution right is implicated by a wide variety of conduct,

such as the sale of books at a bookstore, used CDs at a garage sale, and pirated

DVDs at a ea market; the lending of books by a library; and transferring

pirated software to other users on the Internet without nancial motive.

Distribution also includes other transfers of ownership such as gifts or barter.

Ford Motor Co. v. Summit Motor Prods., Inc., 930 F.2d 277, 299 (3d Cir. 1991)

(citing H.R. Rep. No. 94-1476, at 62, reprinted in 1976 U.S.C.C.A.N. 5659,

5675-76 and 17 U.S.C.A. §106 (West 1997) (historical note)).

Although it is occasionally argued that “distribution” requires the transfer

of a physical, tangible copy and therefore that transmission of electronic les

online cannot infringe the distribution right, it is clear that the right to

“distribute” copies of works includes the right to distribute them in electronic

form, and can be infringed by electronic transfers of copies. See, e.g., 17 U.S.C.

§ 506(a)(1)(C) (dening oense for “distribution” of pre-release works on a

public computer network); N.Y. Times Co. v. Tasini, 533 U.S. 483, 498 (2001)

(discussing distribution of articles through online databases).

• “TothePublic”

Although often referred to merely as “distribution,” the right protected by

§106 is, more specically, the right to distribute copies or phonorecords of the

work “to the public.” 17 U.S.C. §106(3) (emphasis added). Giving a single copy

of a work to a family member or close friend may not qualify as a “distribution”

for copyright purposes, although courts have found under some circumstances

that even the giving of a single copy to one person may constitute “distribution

40 Prosecuting Intellectual Property Crimes

to the public.” Ford Motor Co., 930 F.2d at 299-300. But see Cartoon Network

LP, LLLP v. CSC Holdings, Inc., 536 F.3d 121 (2d Cir. 2008) (concluding that

cable television service’s “remote DVR” system, wherein a copy of a program

was transmitted to an individual customer after being recorded at customer’s

request, did not constitute distribution “to the public” for purposes of § 106).

e Copyright Act does not expressly dene “distribution” or “public,”

except through denitions of other closely-related terms. e term “publication”

is dened in §101, and is often used interchangeably with distribution, and

several courts have noted that the two terms are “for all practical purposes

synonymous” in the context of a rst publication. Ford Motor Co., 930 F.2d

at 299; see also Harper & Row Publishers, Inc. v. Nation Enters., 471 U.S. 539,

552 (1985); Agee v. Paramount Comm’ns, Inc., 59 F.3d 317, 325 (2d Cir. 1995);

Elektra Entm’t Group, Inc. v. Barker, 551 F. Supp. 2d 234, 240-43 (S.D.N.Y.

2008); 2 Nimmer on Copyright §8.11[A], at 8-148 to 8-149. Some courts have

held, however, that “[i]t is not clear that the terms ‘publication’ and ‘distribution’

are synonymous outside the context of rst publication.” Atlantic Recording

Corp. v. Howell, 554 F. Supp. 2d 976, 984 (D. Ariz. 2008) (“the denition of

publication in §101 of the statute makes clear that all distributions to the public

are publications, but it does not state that all publications are distributions”);

London-Sire Records, Inc. v. Doe 1, 542 F. Supp. 2d 153, 168-69 (D. Mass.

2008) (“even a cursory examination of the statute suggests that the terms are

not synonymous.... By the plain meaning of the statute, all ‘distributions ... to

the public’ are publications.But not all publications are distributions to the

public”).

Section 101 also denes the term “publicly,” with respect to performances

and display of works, as referring to “place[s] open to the public or any place

where a substantial number of persons outside of a normal circle of a family

and its social acquaintances is gathered.”

For cases discussing distribution “to the public” in several contexts, such

as computer networks and subscription based services, see Section B.3.c.ii. of

this Chapter.

• Importation

Infringing articles are often manufactured overseas and then shipped into

the United States for distribution. Under 17 U.S.C. § 602, importation of

infringing copies into the United States without permission of the copyright

owner generally constitutes “an infringement of the exclusive right to distribute

II. Criminal Copyright Infringement 41

copies or phonorecords under section 106.” Although § 602 species

that unauthorized importation is a violation of the distribution right (thus

providing a basis for criminal prosecution under § 506), and states further than

unauthorized importation is “actionable under section 501,” § 602 does not

expressly mention criminal actions under § 506. To date, no reported case has

prohibited prosecutors from bringing an action pursuant to § 506 as a result

of a violation of 17 U.S.C. § 602. However, in cases involving importation,

prosecutors alternatively should consider charging the defendant with bringing

goods into the United States by false statements, 18 U.S.C. § 542, or with

smuggling goods, 18 U.S.C. § 545.

• Making Works Available on the Internet Without Transferring

em

In the context of peer-to-peer (“P2P”) le-sharing networks, placing

materials on a website, or other similar methods by which copyrighted

materials might be downloaded online, a question may arise as to whether

a defendant who merely makes copyrighted material available to others to

download copies has infringed the distribution right, in the absence of any

evidence of an actual transfer of infringing works. If a P2P user has made

movies, music, or software available to the public by placing them in a shared

area of his networked desktop computer, but his computer contained no

records of whether or how many times these les were downloaded by others,

and there is no other evidence that the copyrighted works the defendant “made

available” were actually transferred to another computer (or indeed, if there

is evidence that no such transfers actually occurred, despite the defendant’s

having made the les available), has the defendant nevertheless infringed the

distribution right in the works (setting aside for the moment the question of

whether the defendant may have infringed the reproduction right by copying

the les in the rst place, or whether the defendant may be infringing the

public performance or display rights in the work)? ere is no clear answer,

however, as described more below, courts will likely require proof of at least

some form of dissemination to have occurred in order to nd a defendant

guilty of a criminal violation of the distribution right.

Several civil cases addressing online infringement suggest that the

distribution right is infringed at the point when the defendant makes a le

publicly available. See A&M Records v. Napster, Inc., 239 F.3d 1004, 1014 (9th

Cir. 2001) (noting that “Napster users who upload le names to the search

index for others to copy violate plaintis’ distribution rights. Napster users who

42 Prosecuting Intellectual Property Crimes

download les containing copyrighted music violate plaintis’ reproduction

rights.”); Motown Record Co., LP v. DePietro, No. 04-CV-2246, 2007 WL

576284, at *3 n.38 (E.D. Pa. Feb. 16, 2007) (“While neither the United

States Supreme Court nor the ird Circuit Court of Appeals has conrmed

a copyright holder’s exclusive right to make the work available, the Court is

convinced that 17 U.S.C. § 106 encompasses such a right ....”); Elektra Entm’t

Group, Inc. v. Doe, No. 5:08-CV-115-FL, 2008 WL 5111885 (E.D.N.C., Sept.

26, 2008); Warner Bros. Records, Inc. v. Doe, No. 5:08-CV-116-FL, 2008 WL

5111884 (E.D.N.C., Sept. 26, 2008); see also Playboy Enters. v. Chuckleberry

Publ’g, Inc., 939 F. Supp. 1032, 1039 (S.D.N.Y. 1996) (uploading content on

Internet and inviting users to download it violates exclusive publication right);

Playboy Enters. v. Russ Hardenburgh, Inc., 982 F. Supp. 503, 513 (N.D. Ohio

1997) (“Defendants disseminated unlawful copies of PEI photographs to the

public by adopting a policy in which RNE employees moved those copies to

the generally available les instead of discarding them.”); Getaped.Com, Inc. v.

Cangemi, 188 F. Supp. 2d 398, 402 (S.D.N.Y. 2002) (holding that copyrighted

material was published when it was placed on website and available for viewing

or downloading).

A case frequently cited for the proposition that “making available” violates

the distribution right is Hotaling v. Church of Jesus Christ of Latter-Day Saints,

118 F.3d 199 (4th Cir. 1997). At issue in Hotaling was whether a church

library open to the public had distributed the plainti’s work by having it in its

collection and listing it in its card catalog, even though no evidence indicated

that the work had actually been borrowed or viewed by library patrons. e

defendant argued that holding the work in its collection constituted a mere

oer to distribute, at most, not an actual distribution. e court sided with

the plaintis:

When a public library adds a work to its collection, lists the

work in its index or catalog system, and makes the work

available to the borrowing or browsing public, it has completed

all the steps necessary for distribution to the public. At that

point, members of the public can visit the library and use the

work. Were this not to be considered distribution within the

meaning of §106(3), a copyright holder would be prejudiced

by a library that does not keep records of public use, and the

library would unjustly prot by its own omission.

II. Criminal Copyright Infringement 43

Id. at 203. At least one court considering Hotaling focused on the opinion’s

concern with potential prejudice from a library that kept no records, and

suggested that the same logic might apply in online cases where no records are

kept. In Arista Records, Inc. v. MP3Board, Inc., No. 00CIV.4660(SHS), 2002

WL 1997918, at *4 (S.D.N.Y. Aug. 29, 2002) (citing Hotaling, 118 F.3d at

204), the court considered that “a copyright holder may not be required to

prove particular instances of use by the public when the proof is impossible to

produce because the infringer has not kept records of public use,” but declined

to nd that an actual distribution had occurred based on the facts before it (in

which investigators for the record industry had determined only that hyperlinks

on the defendant’s website pointed to infringing audio les). Id.

Many other courts have sought to resolve peer-to-peer lawsuits while

avoiding resolution of “making available” arguments. See, e.g., Arista Records LLC

v. Gruebel, 453 F. Supp. 2d 961, 969 (N.D. Tex. 2006) (“[M]aking copyrighted

works available to others may constitute infringement by distribution in certain

circumstances.”); Maverick Recording Co. v. Goldshteyn, No. 05-CV-4523, 2006

WL 2166870, at *3 (E.D.N.Y. July 31, 2006) (Plainti’s “‘making available’

argument need not be decided here.”); Fonovisa, Inc. v. Alvarez, No. 1:06-CV-

011, 2006 WL 5865272, at *2 (N.D. Tex. July 24, 2006) (“is Court is not

making a determination as to whether ‘making works available’ violates the

right of distribution.”).

e Copyright Oce states that U.S. copyright law includes a “making

available” right that covers making les available on the Internet. See U.S.

available at http://www.copyright.gov/reports/studies/dmca/sec-104-report-

vol-1.pdf. is, however, does not necessarily resolve the issue for criminal

cases because the Copyright Oce characterizes this “making available right”

as resulting from a combination of the distribution, reproduction, public

display, and public performance rights. Id. at 94. Because the felony copyright

provisions apply only to infringement of the distribution and reproduction

rights, it is unclear whether “making available” (as the Copyright Oce

interprets it) can support a felony charge.

More recently, however, most courts confronting the “making available”

issue in civil cases involving either peer-to-peer lesharing or other online

contexts have determined that infringing “distribution” requires the

dissemination of an actual copy, or have at least expressed some skepticism that

mere “making available” is sucient to constitute infringement. See Perfect 10,

44 Prosecuting Intellectual Property Crimes

Inc. v. Amazon.com, Inc., 508 F.3d 1146, 1162 (9th Cir. 2007) (distribution

requires actual dissemination of a copy); Capitol Records, Inc. v. omas, 579

F. Supp. 2d 1210, 1218-19 (D. Minn. 2008) (plain meaning of “distribution”

requires actual dissemination and does not include merely making available);

Elektra v. Barker, supra, 551 F. Supp. 2d 234 (S.D.N.Y. 2008) (mere allegation

of “making available” not sucient to plead infringement, although noting

that an oer to distribute copies for further distribution to others would be

sucient); London-Sire Records, Inc. v. Doe 1, 542 F. Supp. 2d 153, 168-69

(D. Mass. 2008) (“Merely because the defendant has ‘completed all the steps

necessary for distribution’ does not necessarily mean that a distribution has

actually occurred.”); see also Atlantic Recording Corp. v. Brennan, 534 F. Supp.

2d 278, 282 (D. Conn. Feb 13, 2008) (denying plaintis’ entry of default

against defendant, in part, by nding that defendant may have a meritorious

defense against plaintis’ “problematic” make available argument); Atlantic

Recording Corp. v. Howell, 554 F. Supp. 2d 976, 981 (D. Ariz. 2008).

A number of other federal courts have held that distribution requires that

an infringing copy actually be disseminated. See Obolensky v. G.P. Putnam’s Sons,

628 F. Supp. 1552, 1555 (S.D.N.Y. 1986) (directing verdict for defendants after

jury trial because the right to distribute is not violated “where the defendant

oers to sell copyrighted materials but does not consummate a sale” or “where

there is copying, but no sale of the material copied”), a’d, 795 F.2d 1005 (2d

Cir. 1986); accord Paramount Pictures Corp. v. Labus, No. 89-C-797-C, 1990

WL 120642, at *4 (W.D. Wis. Mar. 23, 1990); National Car Rental Sys., Inc.

v. Computer Assocs. Int’l, Inc., 991 F.2d 426, 430 (8th Cir. 1993) (holding

that distribution requires the transfer of an actual copy, as § 106(3) grants

the copyright owner the “exclusive right publicly to sell, give away, rent or

lend any material embodiment of his work”) (quoting 2 Nimmer on Copyright

§8.11[A], at 8-123 (emphasis added by National Car Rental)); cf. In re: Aimster

analysis, that a peer-to-peer user “with copyrighted music les on his hard

drive available for download can [once another user searches for and locates a

le on the rst user’s computer] thereafter become an unauthorized distributor

of that copyrighted music as soon as another Aimster user initiates a transfer of

that le.”), a’d, 334 F.3d 693 (7th Cir. 2003). e leading copyright treatise

also supports this view. See 2 Nimmer on Copyright § 8.11[A], at 8-124.1

(“Infringement of [the right to distribute] requires an actual dissemination of

either copies or phonorecords.”).

II. Criminal Copyright Infringement 45

Only one criminal decision has addressed this question, albeit in the

context of deciding whether state court charges were preempted by federal

and download it is distribution... which is governed by the [federal] copyright

laws.” State v. Perry, 697 N.E.2d 624, 628 (Ohio 1998).

In 2005, Congress created a new oense for infringement of “pre-release”

content (see infra, Sec. B.3.c.) that unfortunately does not appear to have

resolved the “making available” issue. Section506(a)(1)(C) makes it a felony

to willfully infringe “by the distribution of [a pre-release work] by making it

available on a computer network accessible to members of the public ....” To

date, few courts have had the opportunity to address what “making available”

means in the context of §506(a)(1)(C). us far, the only published opinion

to discuss the issue is In re Napster, Inc. Copyright Litig., 377 F. Supp. 2d 796

(N.D. Cal. 2005). In that opinion, the court considered the plaintis’ motion

for summary judgment on their claims that Napster had directly infringed

the plaintis’ copyrights by creating and maintaining an indexing system that

allowed users to upload and download infringing music les. Id. at 802. e

key question was “whether the Copyright Act requires proof of the actual

dissemination of a copy or phonorecord in order to establish the unlawful

distribution of a copyrighted work in violation of 17 U.S.C. §106(3).” Id. e

court concluded that distribution did not include the mere oer to distribute

a copyrighted work, given the plain meaning and legislative history of the

terms “distribution” and “publication.” See id. at 803-04. e court concluded

that “to the extent that Hotaling suggests that a mere oer to distribute

a copyrighted work gives rise to liability under section 106(3), that view is

contrary to the weight of [the] above-cited authorities.” Id. at 803 (citations

omitted). Finally, the court rejected the argument that the “making available”

language in the new oense at 17 U.S.C. §506(a)(1)(C), discussed in Section

B.3.c.ii. of this Chapter, evinced Congress’s intent that “making available” was

a type of distribution, concluding that §506(a)(1)(C) made willful copyright

infringement and “making available” two separate elements. Napster, 377 F.

Supp. 2d at 805.

Given this backdrop, courts deciding criminal cases are likely to require

proof of actual dissemination of copies, as opposed to evidence that the

defendant merely “made [infringing works] available,” if only to satisfy the

rule of lenity. See United States v. Wiltberger, 18 U.S. 76, 95 (1820); Dowling

v. United States, 473 U.S. 207, 213, 228-29 (1985) (applying rule of lenity to

46 Prosecuting Intellectual Property Crimes

construe stolen property laws narrowly in light of copyright law). Moreover,

courts might consider Congress’s choice not to punish attempts in §506 as

further evidence that distribution, in criminal cases, requires an actual transfer

of an infringing copy to the public.

Some of the civil cases in which proof of actual dissemination has not been

required suggest an alternative rule—that where, due to the defendant’s actions,

no records exist of actual transfers, the court may infer or presume that actual

dissemination took place. See Hotaling, 118 F.3d 199; Arista Records, 2002 WL

1997918. at rule, however, might not be adopted in criminal cases, in which

infringing distribution must be proven beyond a reasonable doubt.

As a practical matter, evidence of actual infringing transfers strengthens

other aspects of the case. Even if a theory of distribution without dissemination

were accepted by the court, a jury might nevertheless reject it—either in

sympathy toward a defendant who ostensibly copied nothing, or by concluding

that the defendant could not have understood that his conduct constituted

infringement suciently to establish willful behavior. See the discussion of

willfulness in Section B.2. of this Chapter.

When proving that the defendant actually distributed infringing copies,

distributions to law enforcement ocers or to agents working for the victim

should suce, as a matter of law. See Capitol Records Capitol Records, Inc. v.

omas, 579 F. Supp. 2d 1210, 1216 (D. Minn. 2008) (distribution of copies

to investigator can form the basis for civil claim of infringing distribution

right); Atlantic Recording Corp. v. Howell, 554 F. Supp. 2d 976, 985 (D. Ariz.

2008) (holding that 12 infringing copies downloaded by copyright owner’s

investigators constituted unauthorized distributions); Gamma Audio & Video,

Inc. v. Ean-Chea, No. 91-11615-Z, 1992 WL 168186 at *3 n.5 (D. Mass.

July 3, 1992), rev’d in part on other grounds, 11 F.3d 1106 (1st Cir. 1993);

Paramount Pictures, 1990 WL 120642 at *5. But see London-Sire Records, Inc.,

542 F. Supp. 2d at 166 (stating in dicta that copyright holder’s investigator’s

“own downloads are not themselves copyright infringements because it is acting

as an agent of the copyright holder, and copyright holders cannot infringe their

own rights”). In some cases, a defendant may have evinced a clear intent to share

copyrighted content online in an infringing manner, but sucient evidence of

specic instances of dissemination may be dicult or impossible to obtain.

Prosecutors should consider whether the conduct at issue may be appropriately

characterized as an infringement of the reproduction right. Further, although

attempts to violate § 506 are not criminalized, in appropriate cases a charge

II. Criminal Copyright Infringement 47

of conspiracy to violate § 506 may be an alternative option. e government

need not prove an actual dissemination if the charge is conspiracy to violate the

criminal copyright laws by means of distribution. at is, because conspiracy

is an inchoate crime, the government need not prove that the underlying crime

of distribution was completed.

• FirstSale

Under 17 U.S.C. § 109, it is not an infringement for the owner of a

lawfully-acquired copy or phonorecord of a work to sell or otherwise dispose

of that particular copy. is exception is often referred to as the “rst-sale”

doctrine. For example, a person who purchases a book at a bookstore may later

resell the book at a yard sale or donate it to a library, without the copyright-

holder’s permission. Although rst sale is treated as a defense in civil cases,

some criminal copyright cases have held that the government must plead and

prove the absence of a rst sale as an element of the oense. See Section C.4.c.

of this Chapter.

b. Infringement of at Least 10 Copies of 1 or More Copyrighted Works

With a Total Retail Value Exceeding $2,500 Within a 180-Day

Period

i. Generally

e nal element for felony oenses under 17 U.S.C. §506(a)(1)(A) and

(B) is that the infringement consisted of the “reproduction or distribution,

including by electronic means, during any 180-day period, of at least 10 copies

or phonorecords, of 1 or more copyrighted works, which have a total retail value

of more than $2,500.” 18 U.S.C.§2319(b)(1); see also18 U.S.C.§2319(c)(1)

(alternative felony provision, applying when value is “$2,500 or more”). For

denition of “copies” and “phonorecords,” see Section B.3.a. of this Chapter

(discussing 17 U.S.C. §101).

Congress reserved felony penalties for those who copy or distribute

a minimum of 10 copies to exclude from felony prosecution low-level

infringement such as “children making copies for friends as well as other

incidental copying of copyrighted works having a relatively low retail value,”

and also to avoid having the criminal provisions used as a “tool of harassment”

in business disputes involving issues such as reverse engineering or the scope of

licenses. H.R. Rep. No. 102-997, at 6 (1992), reprinted in 1992 U.S.C.C.A.N.

3569, 3574.

48 Prosecuting Intellectual Property Crimes

Congress used the phrase “of one or more copyrighted works” as a way

“to permit aggregation of dierent works of authorship to meet the required

number of copies and retail value.” Id. Congress gave as an example a defendant

who reproduces 5 copies of a copyrighted word-processing computer program

with a retail value of $1,300 and 5 copies of a copyrighted spreadsheet computer

program also with a retail value of $1,300. Aggregating these reproductions

“would satisfy the requirement of reproducing 10 copies having a retail value

of at least $2,500, if done within a 180-day period.” Id.

ii. Denition of “Retail Value” as an Element of the Oense

Congress left the term “retail value” “deliberately undened since in most

cases it will represent the price at which the work is sold through normal retail

channels.” Id.

Based on both the plain meaning of the statutory text and the legislative

history of the 1992 Copyright Felony Act, the term “retail value” as used

in 17 U.S.C. §506 and 18 U.S.C. § 2319 refers to the retail value of the

infringed item, i.e., the original or genuine item that was infringed, in the

market in which it is sold. By contrast, for sentencing purposes, the Sentencing

Guidelines denes “retail value” to include either the value of the “infringed

item” (the authentic item) or the “infringing item”(the “street” price of a pirated

or counterfeit copy) to compute the sentencing oense level, depending on

the circumstances of the crime. See the discussion of U.S.S.G. §2B5.3 cmt.

n.2(C) in Section C.1.c.iii. of Chapter VIII of this Manual.

For purposes of proving the dollar value element of criminal infringement

under 17 U.S.C. § 506(a)(1) and 18 U.S.C. § 2319(b) or (c), “retail value”

means the retail price of a legitimate or genuine copy of the item infringed at

the time of the defendant’s infringement. See United States v. Armstead, 524

F.3d 442, 443 (4th Cir. 2008) (holding that retail value can be “determined

by taking the highest of the ‘face value,’ ‘par value,’ or ‘market value’ of copies

of the copyrighted material in a retail context”). Calculating a work’s retail

value can be more complicated when the work has been published in multiple

versions—which often occurs with computer software. In civil cases involving

infringement of a new version of a software program that had not yet been

registered with the Copyright Oce, where earlier versions had been registered,

some courts have allowed damages only to the extent that the infringed material

consists of material from the earlier, registered versions. See, e.g., Montgomery

v. Noga, 168 F.3d 1282, 1292 (11th Cir. 1999); Well-Made Toy Mfg. Corp. v.

II. Criminal Copyright Infringement 49

Goa Int’l Corp., 210 F. Supp. 2d 147, 158 (E.D.N.Y. 2002); 2 Nimmer on

jury instruction that permitted the jury to calculate the plainti’s actual

damages by considering the market value of newer, unregistered version).

Although the issue of multiple versions presents more signicant challenges

in the civil context, where registration of the copyright in a particular work is

a prerequisite to ling a lawsuit for infringement of that work, the existence

of multiple versions can substantially aect the “retail value” of a work for

purposes of criminal prosecution as well. For example, where the most recent

version of a business software program (“Program 2.0”) is being sold through

legitimate retail outlets for $200, while legitimate copies of an older version

(“Program 1.0”) are still being sold, albeit for the lower retail price of $100,

a defendant who pirated 20 copies of the new version would be subject to

felony penalties (20 copies at $200 each, totaling $4,000), while a defendant

who reproduced 20 pirated copies of the older version would only meet the

threshold for a misdemeanor (20 X $100= $2,000). In considering whether

and how to charge criminal copyright infringement, prosecutors will want to

make sure to assess charges based on the specic version of a copyrighted work

that was infringed, and if possible, to obtain retail pricing information on the

specic version infringed during the relevant period of the defendant’s conduct.

iii. Retail Value for Pre-release Works

Prosecutors may choose to include pre-release works in charges brought

under 17 U.S.C. § 506(a)(1)(A), (B) and 18 U.S.C. § 2319(b), (c), where, for

example, the defendant engaged in criminal infringement of both pre-release

and non-pre-release works, or where other elements of the “pre-release” oense

may be dicult to prove. Determining the “retail value” of a pre-release work

can be challenging because such works, by denition, are not yet sold on the

legitimate market, and thus their legitimate retail value may not yet be set.

Congress acknowledged the problem and oered several solutions:

At the same time, the Committee recognizes that copyrighted

works are frequently infringed before a retail value has been

established, and that in some cases, copyrighted works are not

marketed through normal retail channels. Examples include

motion pictures [sic] prints distributed only for theatrical

release, and beta-test versions of computer programs. In such

cases, the courts may look to the suggested retail price, the wholesale

50 Prosecuting Intellectual Property Crimes

price, the replacement cost of the item, or nancial injury caused

to the copyright owner.

H.R. Rep. No. 102-997, at 6-7 (1992) (emphasis added), reprinted in 1992

U.S.C.C.A.N. 3569, 3574-75. If the infringed item has no retail value, the

important consideration is the harm to the copyright owner, rather than the

(presumably smaller value of) prots to the infringer. See id. at 6; 138 Cong.

Rec. 34,371 (1992) (statement of Sen. Hatch).

Although the Family Entertainment and Copyright Act (“FECA”) created

a new felony oense to address Internet piracy of “work[s] being prepared for

commercial distribution,” the Act does not specify a particular method for

determining the “retail value” of such works. See Pub. L. No. 109-9 §103,

119 Stat 218, 220-21 (2005) (codied at 17 U.S.C. §506(a)(1)(C)). (One

possible reason: the “pre-release” oense created by the FECA requires no

minimum number or value of infringing copies, in contrast to the 10-copy,

$2500 thresholds in previously-existing copyright felonies. Compare 17 U.S.C.

§506(a)(1)(C) with 17 U.S.C. §506(a)(1)(A), (B) and 18 U.S.C. §2319. e

FECA “pre-release” oense is discussed in more detail in Section B.3.c., below.)

In cases where infringement of pre-release works form the basis of a

§506(a)(1)(A) or (B) charge, requiring proof of a minimum “total retail value,”

prosecutors should consider the alternative methods for valuation discussed in

the legislative history above. Also instructive is the approach taken by the U.S.

Sentencing Commission in formulating Sentencing Guidelines amendments

to address the FECA “pre-release” oense. ose guidelines specify that pre-

release works should be valued, for sentencing purposes, at the anticipated

retail value of legitimate works upon their legitimate commercial release. See

U.S.S.G. §2B5.3 cmt. n.2(A)(vi) (amended Oct. 24, 2005). (e Guidelines

also include a 2-level enhancement for oenses involving pre-release works.

See id. §2B5.3(b)(2); and Section C.1.c.iii. of Chapter VIII of this Manual.)

Where the basis for a §506(a)(1)(A) or (B) charge consists of a mixture of

pre-release and non-pre-release works, the safest course for prosecutors may be

to ensure that the $2500 threshold can be demonstrated based on the value of

non-pre-release works alone.

iv. $2,500 reshold

To charge a criminal copyright violation as a felony in cases not involving

a “pre-release” oense, the government must prove that the total retail value

of the infringing copies exceeded $2,500. is threshold has one minor

II. Criminal Copyright Infringement 51

complication: the felony threshold is “more than $2,500” when the defendant

acted with a prot motive, 18 U.S.C.§2319(b)(1), but only “$2,500 or more”

when the defendant acted without a prot motive, 18 U.S.C.§2319(c)(1).

To be safe, each felony indictment should charge a value greater than $2,500.

v. Within 180 Days

ese technical requirements are sometimes dicult to prove. For example,

if a defendant operated a video store that rented only pirated videos, but kept no

records that describe who did what and at what time, it might be dicult to prove

that the defendant himself reproduced or distributed the videos, or that he did

so within a particular 180-day period. If faced with such a case, the government

may wish to consider alternative charges—such as conspiracy to commit felony

criminal copyright infringement; misdemeanor copyright infringement (which

reduces the number of copies to 1 and the retail value threshold to $1,000; see

Section B.5. of this Chapter); 18 U.S.C. §2318 (counterfeit or illicit labels,

documentation, or packaging for copyrighted works); or 18 U.S.C. §2320

(tracking in goods, services, labels, documentation, or packaging with

counterfeit marks)—that have no numerical or monetary thresholds. Section

2320 also has the advantage of punishing attempts, which can be proved when

the government lacks records of the completed crime

c. Distribution of a Work Being Prepared for Commercial Distribution,

by Making it Available on a Publicly-Accessible Computer Network,

if the Defendant Knew or Should Have Known the Work Was

Intended for Commercial Distribution

In 2005, Congress added an additional felony oense to address the online

infringement of pre-release works. See Family Entertainment and Copyright

Act of 2005 (FECA), Pub. L. No. 109-9 §103 (codied at 17 U.S.C. §506(a)

(1)(C)). (is provision is part of Title I of FECA, also known as the “Artists

Rights and eft Prevention Act of 2005” or the “ART Act.”) Congress enacted

this provision to target two phenomena that it deemed particularly harmful to

piracy (especially peer-to-peer le-sharing). See, e.g., Remarks on Introduction

of Bill in Senate, 151 Cong. Rec. S494 (daily ed. Jan. 25, 2005); Judiciary

Committee Report, H.R. Rep. No. 109-33(I), at 4 (2005), reprinted in 2005

U.S.C.C.A.N. 220, 223. Section 506(a)(1)(C) makes it a felony to willfully

infringe “[i] by the distribution of [ii] a work being prepared for commercial

distribution, [iii] by making it available on a computer network accessible to

52 Prosecuting Intellectual Property Crimes

members of the public, [iv] if such person knew or should have known that

the work was intended for commercial distribution.” 17 U.S.C. §506(a)(1)(C)

(small Roman numerals added for purposes of illustration).

e new oense eliminates the monetary and numeric thresholds for

felony copyright infringement if the defendant distributed pre-release works

on a computer network.

i. Distribution

e oense dened under 17 U.S.C. § 506(a)(1)(C) applies only to

infringement by distribution (as opposed to the copyright felonies in 17 U.S.C.

§506(a)(1)(A),(B) that apply to infringement by distribution or reproduction).

For discussion of proving distribution, see Section B.3.a.ii. of this Chapter.

Section 506(a)(1)(C)’s use of the term “making available” does not

resolve the issue of whether “distribution” requires an actual dissemination of

infringing copies. As of this writing, the only reported case that has discussed

this issue specically in the context of § 506(a)(1)(C), a civil copyright case,

stated that “distribution” and “making available on a computer network” are

two separate elements of the § 506(a)(1)(C) oense. See In re Napster, Inc.

of “making available” did not, according to this court, redene distribution to

include making available. See Section B.3.a.ii and the following Section of this

Chapter.

Regardless of whether “distribution” legally requires actual dissemination

of copies, or is interpreted to include merely oers to provide copies, as a

practical matter, evidence of actual dissemination of pre-release copies will

generally strengthen the government’s case, and should be presented if possible.

ii. Making the Work Available on a Computer Network Accessible

to Members of the Public

e next element is “making [the work] available on a computer network

accessible to members of the public.” See 17 U.S.C. §506(a)(1)(C).

Although the statute does not dene “computer network” or “accessible

to members of the public,” the bill was clearly intended to address piracy over

the Internet. See H.R. Rep. No. 109-33(I), reprinted in2005 U.S.C.C.A.N.

220; 151 Cong. Rec. S499-500 (daily ed. Jan. 25, 2005) (statement of Sen.

Cornyn). Clear examples of “making the work available on a computer network

II. Criminal Copyright Infringement 53

accessible to members of the public” would include posting the work on a

website or placing it in a desktop computer’s shared le directory so that peer-

to-peer users around the world could access and download it.

“[A] computer network accessible to the public” should be read to include

large networks available to substantial numbers of people, even if the network

is not immediately accessible to all members of the public, such as a university’s

campus-wide network, a large but proprietary service like AOL, or a password-

protected site on the Internet. is would be consistent with the right at issue

(“distribution to the public”), and the statutory denition of “publicly” in

the context of displays and performances, which refers to “any place where

a substantial number of persons outside of a normal circle of a family and its

social acquaintances is gathered.” See 17 U.S.C. §101; Playboy Enters., Inc. v.

Frena, 839 F. Supp. 1552, 1557 (M.D. Fla. 1993) (holding that displaying

infringing photographs over a computer bulletin board to audience limited to

paying subscribers constituted display “to the public”); accord Video Pipeline,

Inc. v. Buena Vista Home Entm’t, Inc., 192 F. Supp. 2d 321, 332 (D.N.J. 2002),

a’d on other grounds, 342 F.3d 191 (3d Cir. 2003); Video Pipeline, Inc. v.

Buena Vista Home Entm’t, Inc., 275 F. Supp. 2d 543, 554 (D.N.J. 2003).

See also Section B.3.a.ii. of this Chapter (discussing “to the public”). But cf.

Andersen Consulting LLP v. UOP, 991 F. Supp. 1041, 1042-43 (N.D. Ill. 1998)

(discussing meaning of electronic communications service “to the public” under

the Electronic Communications Privacy Act); Konop v. Hawaiian Airlines, Inc.,

302 F.3d 868, 875 (9th Cir. 2002) (same).

iii. Work Being Prepared for Commercial Distribution

e next element of an oense under §506(a)(1)(C) is that the infringed

work must be a “work being prepared for commercial distribution,” which is

dened as:

(A) a computer program, a musical work, a motion picture or

other audiovisual work, or a sound recording, if, at the time of

unauthorized distribution--

(i) the copyright owner has a reasonable expectation of

commercial distribution; and

(ii) the copies or phonorecords of the work have not been

commercially distributed; or

54 Prosecuting Intellectual Property Crimes

(B) a motion picture, if, at the time of unauthorized distribution,

the motion picture--

(i) has been made available for viewing in a motion picture

exhibition facility; and

(ii) has not been made available in copies for sale to the

general public in the United States in a format intended to

permit viewing outside a motion picture exhibition facility.

17 U.S.C. § 506(a)(3). us, the denition includes only four types of

works: software, musical works, audiovisual works such as movies, and sound

recordings. Although these categories make up most of the works pirated online,

other types that could also be infringed online—such as books, photographs

and other works of visual art—are not included.

When Congress created these provisions, it also created a “preregistration”

process allowing owners to “preregister” their “works being prepared for

commercial distribution” with the Copyright Oce. See 17 U.S.C. §408(f );

37 C.F.R. § 202.16 (eective July 2, 2008); Section B.1.c. of this Chapter

(discussing preregistration). However, prosecutors should be aware that the

scope of the term “works being prepared for commercial distribution” is

narrower for purposes of the criminal oense under § 506(a)(1)(C) than

the scope that term was given by the Copyright Oce in its preregistration

regulations. First, the Copyright Oce’s regulations cover not only movies,

music, and software, but also literary works and advertising or marketing

photographs. See 37 C.F.R. § 202.16. is is broader than the four classes

specied by 17 U.S.C. §506(a)(3), and therefore some works the Copyright

Oce considers “works being prepared for commercial distribution” may not

qualify as “works being prepared for commercial distribution” for purposes of

the criminal “pre-release” oense.

Second, the Copyright Oce allows for the preregistration of a work

that is in the early stages of development: for example, for motion pictures,

lming must have commenced, and for a computer program, at least some

of the computer code must have been xed. See 37 C.F.R. §202.16(b)(2).

Although these standards may suce for preregistration with the Copyright

Oce, prosecutors should exercise caution in evaluating whether to pursue

charges based on works that are substantially incomplete. Cases involving a

mere fragment of a work or a substantially incomplete work are more likely to

II. Criminal Copyright Infringement 55

face diculties in proving copyrightability and infringement, as well as proving

“retail value” and perhaps willfulness as well.

Although the pre-release oense and the preregistration process were

enacted at the same time, the plain language of 17 U.S.C. § 506(a)(1)(C)

does not require that the “work being prepared for commercial distribution”

be preregistered before an infringer can be prosecuted. Nor does the legislative

history indicate that Congress intended § 506(a)(1)(C) to apply only to

“preregistered” works. erefore, the FECA amendments did not alter the

government’s power to prosecute infringement that occurs before preregistration

or registration of a work. See also 17 U.S.C. § 411 (registration only required

to commence civil action).

iv. e Defendant Knew or Should Have Known that the Work Was

Intended for Commercial Distribution

e next element in §506(a)(1)(C) concerning the defendant’s awareness

that the work was “being prepared for commercial distribution,” has a lower

mens rea than the other elements of the oense, which require proof of

“willfulness.” For this element, the government does not have to prove that

a defendant had actual knowledge that the infringed work was a pre-release

work, but rather, the government need only show that the defendant “knew or

should have known” that the work was “intended for commercial distribution,”

which is essentially a negligence standard.

4. Additional Element for Enhanced Sentence: Purpose of Commercial

Advantage or Private Financial Gain

Proving that the defendant acted “for purposes of commercial advantage

or private nancial gain” is often either a primary element of an IP crime or a

secondary element that can enhance the defendant’s maximum sentence. ese

issues are covered in Sections B. of this Chapter (setting out elements) and

C.1.f. (sentencing factors) of Chapter VIII this Manual.

a. History

Before 1997, U.S. law required the government to prove the defendant’s

intent to seek commercial advantage or private nancial gain in every criminal

40 (D. Mass. 1994), the defendant had operated an internet site that invited

users to upload and download pirated software. Presumably recognizing, as the

56 Prosecuting Intellectual Property Crimes

district court later noted, that the defendant could not have been charged with

criminal copyright infringement because he had operated his Internet site for

trading pirated works without a prot motive, the government instead charged

LaMacchia with wire fraud. e court dismissed that charge, suggesting that

applying the broad wire fraud statute to copyright infringement could “subvert

the carefully calculated penalties” and the “carefully considered approach”

Congress had taken in the area of copyright. Id. at 539-40 (quoting Dowling v.

United States, 473 U.S. 207, 225 (1985)).

In direct response to LaMacchia, Congress passed the No Electronic eft

(“NET”) Act, Pub. L. No. 105-147, 111 Stat. 2678 (1997), which, among

other things, closed the “LaMacchia loophole” by eliminating “commercial

advantage or private nancial gain” as an element of felony copyright

infringement. statute. See 143 Cong. Rec. 24,324 (1997) (remarks of Rep.

Coble); H.R. Rep. No. 105-339, at 4-5 (1997). By enacting what was then

17 U.S.C. § 506(a)(2) (renumbered § 506(a)(1)(B) by the Apr. 27, 2005

amendments), Congress created a felony that only requires the government to

prove willful infringement above certain monetary and numerical thresholds.

Congress’s swift response to LaMacchia recognized how the Internet and

then new technology had already dramatically changed the way in which

scale digital piracy with little expense, time, or complexity. e ease of Internet

piracy reduces (and perhaps eliminates) infringers’ need for a nancial return

even as it signicantly aects the market for legitimate goods. See Committee

Report on No Electronic eft Act, H.R. Rep. No. 105-339, at 4-5 (1997).

Willful infringers can act out of a variety of motives unrelated to prot—

including a rejection of the copyright laws, anti-corporate sentiments, or

bragging rights in the piracy community—yet still cause substantial nancial

harm. Id.

Even though a prot motive is not a necessary element of every copyright

oense, it should nonetheless be charged when possible because it increases the

defendant’s maximum statutory sentence, increases the guideline sentencing

range, increases jury appeal, and can help defeat baseless claims of fair use. See

Sections C.5. and E.1 of this Chapter, and Section C.1.f. of Chapter VIII of

this Manual.

II. Criminal Copyright Infringement 57

b. Legal Standard

Essentially, a defendant has acted for “commercial advantage or private

nancial gain” if he sought a prot, nancial or otherwise. Cf. 4 Nimmer on

“Financial gain” is broadly dened to include not only a monetary

transaction, but also the “receipt, or expectation of receipt, of anything of

value, including the receipt of other copyrighted works.” 17 U.S.C. § 101.

Bartering schemes are included, where people trade infringing copies of a work

for other items, including computer time or copies of other works. Congress

added this denition of nancial gain in the NET Act specically to address

bartering. See No Electronic eft Act (NET) Act, Pub. L. No. 105-147,

111 Stat. 2678 (1997); 143 Cong. Rec. 24,421 (1997) (statement of Sen.

Hatch); 143 Cong. Rec. 24,326 (1997) (statement of Rep. Goodlatte). For

example, federal prosecutors have successfully charged “commercial advantage

or private nancial gain” in cases where defendants ran a closed piracy network

that distributed pirated works in exchange for access to other pirated works.

See, e.g., Department of Justice Press Release, California Man Pleads Guilty

for Role in Distributing Pirated Music During Five-year Period (May 2, 2011),

available at http://www.justice.gov/criminal/cybercrime/press-releases/2011/

montejanoPlea.pdf.

Although courts have had few occasions to consider the scope of “commercial

advantage,” the plain meaning of the term and case-law in other areas suggest

that “commercial advantage” includes not only obtaining payment for infringing

products, but also using the infringing products to obtain an advantage over a

competitor. is is true even if the defendant charged nothing for the infringing

copies. See Herbert v. Shanley Co., 242 U.S. 591, 593-94 (1917) (Holmes, J.)

(holding that performing a copyrighted musical composition in a restaurant

or hotel, even without charging for admission, infringes the copyright owner’s

exclusive right to perform the work publicly for prot); A&M Records, Inc. v.

Napster, Inc., 239 F.3d 1004, 1023 (9th Cir. 2001) (holding that “[f ]inancial

benet exists where the availability of infringing material acts as a draw for

customers,” even when the infringing material is oered for free) (internal

quotation marks and citation omitted), a’g in pertinent part 114 F. Supp. 2d

896, 921 (N.D. Cal. 2000) (noting that Napster anticipated deriving revenues

from users by oering copyrighted music for free); Twentieth Century Music

Corp. v. Aiken, 356 F. Supp. 271, 275 (W.D. Pa. 1973) (holding that a business

that merely plays background music to relax its employees so that they will be

58 Prosecuting Intellectual Property Crimes

ecient is infringing for prot), rev’d on other grounds, 500 F.2d 127 (3d Cir.

1974), a’d 422 U.S. 151, 157 (1975) (assuming that restaurant owner acted

for prot); Associated Music Publishers v. Debs Mem’l Radio Fund, 141 F.2d 852

(2d Cir. 1944) (holding that a radio station that without permission broadcasts

a copyrighted work for free in order to get, maintain, and increase advertising

revenue has done so for prot).

Examples of infringement for commercial advantage include an engineering

rm’s use of pirated drafting software to keep overhead low, a website that oers

free pirated software to generate advertising revenue when downloaders visit

the site, and a business that gives away counterfeit goods to draw in customers

to whom it then sells legitimate services. In these cases, although the infringer

may not expect to receive money or other items of value in exchange for the

infringing copies, the infringement saves the business the money it would

have spent on authorized copies or licenses. e savings allow the infringer to

gain a commercial advantage over competitors who use only licensed copies of

copyrighted works.

Whether a defendant actually makes a prot is beside the point: what

matters is that he intended to prot. See 17 U.S.C. §101 (dening “nancial

gain” to include “expectation of receipt” of anything of value); id. §506(a)(1)

(A) (“for purposes of commercial advantage or private nancial gain”) (emphasis

added); 18 U.S.C. §2319(d)(2) (same); United States v. Taxe, 380 F. Supp.

1010, 1018 (C.D. Cal. 1974) (“‘Prot’ includes the sale or exchange of the

infringing work for something of value in the hope of some pecuniary gain. It

is irrelevant whether the hope of gain was realized or not.”), a’d in part and

vacated in part on other grounds, 540 F.2d 961 (9th Cir. 1976); United States

v. Shabazz, 724 F.2d 1536, 1540 (11th Cir. 1984) (same); United States v.

Moore, 604 F.2d 1228, 1235 (9th Cir. 1979) (holding that acting “for prot,”

as required by earlier version of Copyright Act, includes giving infringing work

to a prospective buyer to evaluate for free before purchasing); United States v.

Cross, 816 F.2d 297, 301 (7th Cir. 1987); Herbert, 242 U.S. at 595 (Holmes,

J.) (holding that under the copyright statute the performance of a copyrighted

work at a hotel or restaurant was for prot, even if customers did not pay

specically for the performance, because “[w]hether it pays or not, the purpose

of employing it is prot and that is enough”).

Prosecutors should generally refrain from alleging that a defendant

obtained nancial gain by getting free or discounted infringing works solely as

a result of copying or downloading works for himself. is benet is common

II. Criminal Copyright Infringement 59

to all infringement, and to hold that mere infringement equals private nancial

gain would convert every infringement case into one for private nancial gain

and thus erase important distinctions in the civil and criminal copyright

statutes. Although there are apparently no reported opinions on this question

in criminal copyright cases, a number of courts have followed this reasoning

in interpreting a related statute with criminal and civil penalties for using and

tracking in unauthorized satellite and cable television decoders “for purposes

of commercial advantage or private nancial gain.” 47 U.S.C. § 553(b)(2).

ese courts held that the mere purchase and use of such a device for the

defendant’s own benet and that of his family and friends does not constitute

“gain” within the meaning of that statute. See, e.g., Comcast Cable Commc’ns

v. Adubato, 367 F. Supp. 2d 684, 693 (D.N.J. 2005) (holding that to qualify

as commercial advantage or private nancial gain, the defendant must have

used the device “to further some commercial venture or proted in some way

from the device beyond simply sitting by himself or with his family and friends

around a television set using the illegal device to watch programs for which

payment should have been made”); American Cablevision of Queens v. McGinn,

817 F. Supp. 317, 320 (E.D.N.Y. 1993) (holding that “private nancial gain”

should not be read to encompass defendant’s “gain” from receiving broadcasts

himself: such an interpretation would render “gain” enhancement superuous

because all violations would result in gain). But see Charter Commc’ns Entm’t

I, LLC v. Burdulis, 367 F. Supp. 2d 16, 32 (D. Mass. 2005) (holding that

defendant who violated §553 to receive unauthorized cable broadcasts did so

for purposes of “nancial gain” within the statute); Cablevision Sys. New York

City Corp. v. Lokshin, 980 F. Supp. 107, 114 (E.D.N.Y. 1997) (same).

A prot motive can be proved by circumstantial evidence. See United States

v. Cross, 816 F.2d 297, 301 (7th Cir. 1987) (“[T]he presence of these seventeen

second-generation videocassettes on [the defendant’s] business premises may

rationally give rise to the inference that they were maintained for commercial

advantage or private nancial gain.”).

5. Misdemeanor Copyright Infringement

To obtain a misdemeanor conviction under 17 U.S.C.§506(a) and 18

U.S.C.§2319, the government must demonstrate that:

1. A valid copyright exists;

2. e copyright was infringed by the defendant;

60 Prosecuting Intellectual Property Crimes

3. e defendant acted willfully; and

4. e infringement was done EITHER

(a) for purposes of commercial advantage or private nancial gain, 17

U.S.C. §506(a)(1)(A); 18 U.S.C. §2319(b)(3); OR

(b) by reproduction or distribution of one or more copyrighted works

with a total retail value of more than $1,000 within a 180-day

period, 17 U.S.C. §506(a)(1)(B); 18 U.S.C. §2319(c)(3).

Although the misdemeanor and felony crimes share some elements—

all require proving willful infringement—the need to prove scope or scale is

lessened for misdemeanors. In cases without commercial advantage or private

nancial gain that involve the reproduction or distribution of infringing

copies, the threshold number of copies and monetary value for a misdemeanor

are lower than those required for a felony under 18 U.S.C. §§2319(b)(1) or

(c)(1): all that is required is one or more copies, with a total retail value of

$1,000 or more. And in cases of for-prot infringement, the misdemeanor has

no numerical or monetary prosecutorial thresholds. 18 U.S.C. §2319(b)(3).

us, misdemeanor copyright infringement can be charged when a defendant

clearly proted or intended to prot, but where the government cannot prove

the exact volume or value of the infringement due to a lack of business records

or computer logs.

A misdemeanor charge can also apply to willful, for-prot infringement of

rights other than reproduction or distribution, such as the performance right

or digital audio transmissions. Although the felony penalties are reserved for

infringing reproduction and distribution, the misdemeanor provisions apply

“in any other case,” see 18 U.S.C. §2319(b)(3), such as the infringement of

the other rights.

C. Defenses

1. Statute of Limitations: 5 years

e criminal copyright statute has a ve-year statute of limitations. 17

U.S.C.§507(a). e ve-year limitations period was rst established by the

NET Act, Pub. L. No. 105-147 §2(c), 111 Stat. 2678 (1997), before which

the limitations period had been three years (the same as for civil copyright

claims). See Copyright Act of 1976, Pub. L. No. 94-553, 90 Stat. 2541 (1976).

II. Criminal Copyright Infringement 61

2. Jurisdiction

United States copyright law generally has no extraterritorial eect. Although

many foreign countries protect United States copyrights against infringement

in foreign lands, and domestic law similarly protects foreign copyrighted

works against infringement within the United States, 17 U.S.C. § 411(a),

U.S. law generally “cannot be invoked to secure relief for acts of [copyright]

infringement occurring outside the United States.” Palmer v. Braun, 376 F.3d

1254, 1258 (11th Cir. 2004); see also Subalms, Ltd. v. MGM-Pathe Commc’ns,

24 F.3d 1088, 1091 (9th Cir. 1994) (en banc); Update Art, Inc. v. Modiin Pub’g,

Ltd., 843 F.2d 67, 73 (2d Cir. 1988) (“It is well established that copyright laws

generally do not have extraterritorial application.”).

is means that some copyright cases cannot be brought in the United

States, even when the victims are U.S. companies or nationals and the infringed

works are copyrighted in the United States. For example, U.S. law does not

grant federal courts jurisdiction over a manufacturing plant in southeast Asia

that produces pirated DVDs for sale in Europe, if the infringing conduct occurs

solely abroad. See Palmer, 376 F.3d at 1258.

In addition, in civil copyright cases, most courts hold that a defendant in

the United States who authorizes acts of infringing reproduction or distribution

that occur outside the country, standing alone, does not violate United States

See Subalms, 24 F.3d at 1091; Armstrong v. Virgin Records, Ltd., 91 F. Supp. 2d

628, 634 (S.D.N.Y. 2000) (reviewing cases and concluding that the Subalms

position is more widely accepted). But see Curb v. MCA Records, Inc., 898 F.

Supp. 586, 593 (M.D. Tenn. 1995); Expediters Int’l of Washington, Inc. v. Direct

Line Cargo Mgmt. Servs., Inc., 995 F. Supp. 468, 476 (D.N.J. 1998).

However, these rules do not bar a United States copyright case if an

infringing act doesoccur in the United States in whole or in part. Palmer, 376

F.3d at 1258; Sheldon v. Metro-Goldwyn Pictures Corp., 106 F.2d 45, 52 (2d

Cir. 1939) (holding that court had power over prots made from showing a

copied lm outside the country because negatives from which the lm was

printed were made in the United States); Rundquist v. Vapiano SE, 798 F.

Supp. 2d 102, 123-24 (D.D.C. 2011); P & D Int’l v. Halsey Pub’g Co., 672

F. Supp. 1429, 1432-33 (S.D. Fla. 1987) (nding subject-matter jurisdiction

over copyright action because complaint alleged that defendant copied U.S.-

62 Prosecuting Intellectual Property Crimes

copyrighted lm in Florida and then showed the lm in international waters

aboard cruise ship) (citing 3 Nimmer on Copyright §17.02, at 17-5).

Although to date no reported criminal cases have addressed this issue,

the cases cited above provide a sound legal basis for prosecuting criminal

infringement domestically when at least a part of the defendant’s infringing

conduct occurred within the United States. Charging a conspiracy also allows

for domestic jurisdiction over criminal copyright co-conspirators located

outside the United States, if their co-conspirators act inside the country. See,

e.g., Ford v. United States, 273 U.S. 593, 624 (1927) (holding that a conspiracy

charge need not rely on extraterritorial principles if its object crime is in the

U.S. and a co-conspirator commits an act in the U.S. to further the conspiracy);

United States v. Winter, 509 F.2d 975, 982 (5th Cir. 1975).

Additionally, at least in the context of capturing and retransmitting

broadcast signals so as to infringe a copyright owner’s public performance

right, there appears to be some disagreement between the courts as to whether

it is necessary for a “complete” act of infringement to take place in the

United States for the Copyright Act to apply. e Ninth Circuit has taken

the position that at least one “complete” act of infringement must take place

in the United States. See Allarcom Pay Television, Ltd. v. Gen. Instrument

Corp., 69 F.3d 381, 387 (9th Cir. 1995) (holding that the Copyright Act did

not apply to broadcasts of copyrighted material from the United States into

Canada because the infringement was not completed until the signals were

“received and viewed” in Canada). e Second Circuit, however, has strongly

rejected that view, holding that an act of infringement need only be partially

completed in the United States. See Nat’l Football League v. PrimeTime 24 Joint

Venture, 98 CIV. 3778 (LMM), 1999 WL 163181, at *3 (S.D.N.Y. Mar. 24,

1999) (Copyright Act applied where defendant’s “transmission of the signals

captured in the United States is ‘a step in the process by which a protected

work wends its way to its audience,’ although not the only, or the nal, step,

and an infringement, even though it takes one or more further steps for the

work to reach the public”), a’d 211 F.3d 10, 13 (2d Cir. 2000) (according the

Ninth Circuit law “little weight largely because it contains no analysis of the

693 F.2d 622, 624-25 (7th Cir. 1982) (concluding that an intermediate carrier

is not immune from copyright liability simply because it does not retransmit a

copyrighted signal to the public directly but instead routes the signal to cable

systems, which then retransmit to the public). While Allarcom has generally

II. Criminal Copyright Infringement 63

been limited to its specic facts (and has rarely been applied outside of the

Ninth Circuit), prosecutors can avoid the issue, where possible, by charging an

act of infringement completed within the United States. As discussed above,

prosecutors may also avoid the issue by charging a conspiracy.

For more on the lack of extraterritorial application of U.S. copyright law,

see I. Trotter Hardy, U.S. Copyright Oce, Project Looking Forward: Sketching

the Future of Copyright in a Networked World, Final Report 132 (1998), available

at http://www.copyright.gov/reports/thardy.pdf.

3. Venue

Crimes “begun in one district and completed in another, or committed in

more than one district, may be inquired of and prosecuted in any district in

which such oense was begun, continued, or completed.” 18 U.S.C. §3237(a).

Few reported cases have directly addressed this issue in criminal copyright

prosecutions. See United States v. Tucker, 495 F. Supp. 607, 618 (E.D.N.Y. 1980)

(holding that although defendant resided outside district, venue was proper for

grand jury investigation into defendant’s sales of counterfeit sound recordings

because “middleman” in defendant’s scheme resided, and purchaser was

headquartered, in district). Cases addressing venue in analogous cases suggest

that venue would be proper in any district where reproduction or distribution

occurred, or through which pirated works were shipped. Cf. United States v.

DeFreitas, 92 F. Supp. 2d 272, 276-77 (S.D.N.Y. 2000) (holding in criminal

trademark case involving importation and distribution of counterfeit “Beanie

Babies” that oense was a continuing oense and thus venue was proper in

any district where the oense was begun, continued, or completed, i.e., where

products entered the U.S., were shipped, or sold); United States v. Rosa, 17

F.3d 1531, 1541 (2d Cir. 1994) (holding that in conspiracy to transport stolen

goods, venue was proper where the agreement was entered into, or where any

overt act in furtherance of the conspiracy was committed).

4. e First Sale Doctrine—17 U.S.C. §109

a. Operation of the Doctrine

A common defense to a claim of infringement of the distribution right

is the “rst sale” doctrine, codied at 17 U.S.C. §109, which provides that

“[n]otwithstanding the provisions of section 106(3), the owner of a particular

copy or phonorecord lawfully made under this title, or any person authorized

by such owner, is entitled, without the authority of the copyright owner, to

64 Prosecuting Intellectual Property Crimes

sell or otherwise dispose of the possession of that copy or phonorecord.” In

other words, once a copyright-holder sells or gives a specic copy to another

person, the copyright-holder generally cannot control how that particular copy

is subsequently sold or transferred. See United States v. Moore, 604 F.2d 1228,

1232 (9th Cir. 1979); see also 2 Nimmer on Copyright §8.12[B] (discussing

rst sale); 4 Nimmer on Copyright § 15.01[A][2] (discussing application of

“rst sale” in criminal cases). Putting it in terms of the purchaser’s rights, the

rst purchaser and any subsequent purchaser of that specic copy may further

distribute or dispose of that particular copy without the copyright-holder’s

permission.

e rst sale doctrine does not grant the purchaser or anyone else the

right to make additional copies of the copy he owns. Making unauthorized

copies of a lawfully-obtained work still violates the law. 4 Nimmer on Copyright

§15.01[A][2], at 15-10. Consequently, the rst sale doctrine is a defense only

against an allegation of infringement by means of distribution.

Moreover, the rst sale doctrine may be invoked by a defendant only for

the distribution of lawfully-made copies. If copies were pirated, the rst sale

doctrine does not apply. See United States v. Drum, 733 F.2d 1503, 1507

(11th Cir. 1984) (citing Moore, 604 F.2d at 1232); United States v. Powell,

701 F.2d 70, 72 (8th Cir. 1983). Additionally, a person may not sell or give

away his lawful copy while retaining a backup copy, even a backup copy of

software that is authorized by 17 U.S.C. § 117. See 17 U.S.C. §117(a)(2)

(requiring destruction of archival copies if continued possession of original

copy ceases to be rightful); see also17 U.S.C. §117(b) (allowing transfer of

exact archival copies only with a complete transfer of rights in the original

copy). An unlawfully retained backup copy can be an infringing reproduction.

See Section C.6. of this Chapter for a discussion of the “archival” exception

codied at 17 U.S.C.§117(a)(2).

e rst sale doctrine protects a defendant only if he owned his copy,

not if he merely borrowed or rented it. In fact, the rst sale doctrine does

not “extend to [protect] any person who has acquired possession of the copy

or phonorecord from the copyright owner, by rental, lease, loan, or otherwise,

without acquiring ownership of it.” 17 U.S.C.§109(d) (emphasis added). is is

an important distinction for works such as motion picture lm reels, which are

typically distributed to movie theaters under a lease or similar arrangement, and

computer software, which is often distributed subject to a licensing agreement.

II. Criminal Copyright Infringement 65

It is not always clear, however, whether a commercial transaction of

copyrighted works is legally a sale or a licensing agreement, which can make

or break a rst sale defense. How the parties characterize the transaction to

themselves or others may not be controlling as a matter of law. When a computer

user “purchases” a copy of software through a retail channel or other means, the

licensing agreement may actually assert that the arrangement is not an outright

purchase of a copy but merely a license to use the work. Were these licensing

agreements the last word on the subject, §109 would not allow the licensee to

resell his software. Yet many courts have recharacterized a software publisher’s

shrinkwrap licensing agreement as a sale when the publisher distributes its

software through retail channels. See Softman Prods. Co. v. Adobe Sys., Inc., 171

F. Supp. 2d 1075 (C.D. Cal. 2001); Novell, Inc. v. Network Trade Ctr., Inc.,

25 F. Supp. 2d 1218, 1230 (D. Utah 1997), vacated in part on other grounds,

187 F.R.D. 657 (D. Utah 1999); ProCD, Inc. v. Zeidenberg, 908 F. Supp. 640

(W.D. Wis. 1996), rev’d on other grounds, 86 F.3d 1447 (7th Cir. 1996); see also

Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005); Mark Lemley, Intellectual

Property and Shrinkwrap Licenses, 68 S. Cal. L. Rev. 1239, 1244 n.23 (1995)

(discussing cases). Other courts have taken the opposite position, however,

holding that a copy of software obtained subject to license is not subject to

the rst sale doctrine or other benets of “ownership.” See Apple Inc. v. Psystar

Corp. 658 F.3d 1150, 1155-56 (9th Cir. 2011); Vernor v. Autodesk, Inc., 621

F.3d 1102 (9th Cir. 2010), cert. denied, 132 S. Ct. 105 (2011); Adobe Sys., Inc.

v. Stargate Software Inc., 216 F. Supp. 2d 1051, 1058 (N.D. Cal. 2002); Adobe

Sys. Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d 1086, 1089 (N.D. Cal. 2000);

Microsoft Corp. v. Software Wholesale Club, Inc., 129 F. Supp. 2d 995, 1002

(S.D. Tex. 2000) (citing Microsoft Corp. v. Harmony Computers & Elec., Inc.,

846 F. Supp. 208, 212-14 (E.D.N.Y. 1994)); see also Lemley, 68 S. Cal. L. Rev.

at 1244 n.23.

Although no reported criminal case to date appears to have addressed

the specic issue of whether an unauthorized transfer of a lawfully-obtained

copy of software subject to an end-user license agreement can constitute

criminal copyright infringement, the question may yet arise in cases involving

“repackaged” software, in which some elements of the software package are

genuine, while others are copied or altered. See, e.g., Stargate Software Inc.,

216 F. Supp. 2d at 1058 (rejecting argument that rst sale doctrine should

apply to academic versions of software repackaged and sold as retail versions).

In such cases, prosecutors may wish to consider other charges, such as 18

U.S.C. §2318 (counterfeit or illicit labels, documentation, or packaging for

66 Prosecuting Intellectual Property Crimes

copyrighted works). See United States v. Harrison, 534 F.3d 1371 (11th Cir.

2008) (holding that the rst sale doctrine does not apply to 18 U.S.C. §2318).

An important question concerning rst sale, recently resolved by the

Supreme Court, concerns whether it applies to copies produced abroad and

later imported into the United States. Federal courts had reached diering

conclusions on this issue. See, e.g., Quality King Distribs., Inc. v. L’anza

Research Int’l, Inc., 523 U.S. 135, 145 (1998) (rst sale doctrine under § 109

permits reimportation and resale of copy originally produced legally in the

United States); Omega S. A. v. Costco Wholesale Corp., 541 F. 3d 982, 986

(9th Cir. 2008) (§ 109 permits resale of copies manufactured abroad only if

an authorized rst sale occurs within the United States), a ’d by an equally

divided court, 562 U. S. ___ (2010); Sebastian Int’l, Inc. v. Consumer Contacts

(PTY) Ltd., 847 F. 2d 1093, 1098 n.1 (3rd Cir. 1988) (limitation of the rst

sale doctrine to copies made within the United States “does not t comfortably

within the scheme of the Copyright Act”). In Kirtsaeng v. John Wiley & Sons,

Inc., No. 11-697, __ U.S. __ (Mar. 19, 2013), the Supreme Court held that

the rst sale provision of § 109 applies to copies “lawfully made” outside the

United States, thus permitting purchasers of copies manufactured abroad to

import such copies into the U.S. and sell or otherwise distribute them within

the U.S. without permission from the copyright owner, so long as the copies

were originally produced with the copyright owner’s authorization.

b. Armative Defense or Part of the Government’s Case-in-Chief

Courts disagree as to whether the government must prove absence of “rst

sale” as part of its case-in-chief in a criminal case. See 4 Nimmer on Copyright

§ 15.01[A][2], at 15-8 to 15-9. In civil cases, “rst sale” is an armative

defense. See 2 Nimmer on Copyright §8.12[A]; H.R. Rep. No. 94-1476, at

81 (1976) (“It is the intent of the Committee, therefore, that in an action

to determine whether a defendant is entitled to the privilege established by

section 109(a) and (b), the burden of proving whether a particular copy was

lawfully made or acquired should rest on the defendant.”), reprinted in 1976

U.S.C.C.A.N. 5659, 5695.

e better rule is to apply the civil rule in criminal cases. See, e.g., United

States v. Larracuente, 952 F.2d 672, 673-74 (2d Cir. 1992); United States v.

Goss, 803 F.2d 638, 643-44 (11th Cir. 1986); United States v. Drum, 733

F.2d 1503, 1507 (11th Cir. 1984). ere is no good reason for shifting an

armative defense in civil cases to an element of the oense in criminal cases,

II. Criminal Copyright Infringement 67

given that the government must already prove that the defendant engaged in

infringement willfully. Yet several cases state the opposite, that in criminal cases

the government must negate rst sale as an element of the oense. See, e.g.,

United States v. Cohen, 946 F.2d 430, 434 (6th Cir. 1991); United States v.

Sachs, 801 F.2d 839, 842 (6th Cir. 1986); United States v. Powell, 701 F.2d 70,

72-73 (8th Cir. 1983); United States v. Moore, 604 F.2d 1228, 1232-33 (9th

Cir. 1979); United States v. Wise, 550 F.2d 1180, 1191-92 (9th Cir. 1977);

United States v. Atherton, 561 F.2d 747, 749 (9th Cir. 1977); United States v.

Drebin, 557 F.2d 1316, 1326 (9th Cir. 1977); United States v. Wells, 176 F.

Supp. 630, 633 (S.D. Tex. 1959).

c. Disproving First Sale at Trial

e easiest way to negate the rst sale doctrine is to introduce evidence

of reproduction of unauthorized copies. Two types of circumstantial proof

typically suce. First, the government can introduce evidence that the

defendant obtained his copies illegitimately. See Moore, 604 F.2d at 1232

(holding that government may establish absence of rst sale by circumstantial

evidence, as well as by tracing distribution); United States v. Whetzel, 589 F.2d

707, 711-12 (D.C. Cir. 1978) (holding that tapes’ illicit origin was shown by

labels on tapes listing a manufacturer with a non-existent address, tapes’ low

price, and the circumstances of their sale), abrogated on other grounds, Dowling

v. United States, 473 U.S. 207 (1985). Factors indicating that copies were

obtained illicitly include the sale of copies at a price far below the legitimate

market value, the distribution of copies of inferior quality, the existence of

copies with identical serial numbers, and the presence of false information on

the copies, such as a false address for the manufacturer, ctitious labels, or sales

under suspicious circumstances. See, e.g., Drum, 733 F.2d at 1507 (rebuttal

of rst sale defense included direct and circumstantial evidence concerning

ctitious labels, low prices, and clandestine sale); Whetzel, 589 F.2d at 712 (sale

of copies of tapes from the back of a van in a parking lot).

Second, the government can introduce evidence that the copyright holder

never sold copies of the work at all, which shows that the defendant could

not have obtained ownership of legitimate copies. See United States v. Sachs,

801 F.2d 839 (6th Cir. 1986) (holding that government negated the rst sale

doctrine with respect to movie videotapes with evidence that the original

movies had never been sold legitimately in same format); United States v.

Drebin, 557 F.2d 1316 (9th Cir. 1977) (holding that government proved the

absence of rst sale through evidence that copyrighted movies had never been

68 Prosecuting Intellectual Property Crimes

sold or transferred and that licenses transferring limited rights for distribution

and exhibition of the lms for a limited time were not “sales” for purposes of

the rst sale doctrine). But see United States v. Atherton, 561 F.2d 747 (9th

Cir. 1977) (holding that government failed to prove the absence of rst sale

because, although the copyright owner never “sold” lm copies, it permitted a

major television network to permanently retain copies and sold scrap lm to

salvage company for consideration, all of which fell within the denition of

rst sale and could have been the defendant’s source).

e government need not account for the distribution of every copy of a

work. See, e.g., Moore, 604 F.2d at 1232 (“[T]he Government can prove the

absence of a rst sale by showing that the [copy] in question was unauthorized,

and it can establish this proof ... by circumstantial evidence from which a

jury could conclude beyond a reasonable doubt that the recording was never

authorized and therefore never the subject of a rst sale.”); see also Sachs, 801

F.2d at 843 (holding that the government need not trace every single copy to

its origins, because “[t]he other recognized method of satisfying [the rst sale]

doctrine is for the government to ... show that the copies in question have

illegitimate origins”); Drum, 733 F.2d at 1507 (“e government may prove the

absence of a rst sale by direct evidence of the source of the pirated recordings or

by circumstantial evidence that the recording was never authorized.”) (citations

omitted); Whetzel, 589 F.2d at 711 (“It was not required to disprove every

conceivable scenario in which appellant would be innocent of infringement.”).

d. Special Rules for Rental, Lease, and Lending

Although the rst sale doctrine extends to almost all types of copyrighted

works, it has some limitations with respect to some types of sound recordings

and computer programs, which generally may be resold or given away but

cannot be rented, leased, or loaned without the copyright-owner’s permission.

See 17 U.S.C. § 109(a), (b)(1)-(2) (describing exception and the types of

computer programs that do not qualify for the exception). But see §109(b)

(2)(A) (providing that this does not apply to the rental, lease, or loan of a

phonorecord for nonprot purposes by a nonprot library or educational

institution). Regardless, the unauthorized (and thus infringing) rental or

lending of sound recordings and computer programs is not subject to criminal

penalties. See §109(b)(4).

Although unauthorized rental or leasing of certain types of works is not

directly subject to criminal sanctions, businesses that advertise or engage in

II. Criminal Copyright Infringement 69

this type of conduct might still be subject to criminal copyright infringement

penalties. For example, assume that a business rents CDs containing music

and tells its customers to “burn it and return it,” i.e., to make a copy before

bringing it back. Would the above rules exempt this business from criminal

prosecution? On the one hand, the answer appears to be “yes,” since 17 U.S.C.

§109(b)(4) states that the unauthorized rental of sound recordings “shall not

be a criminal oense.” On the other hand, this conduct may extend beyond

mere “unauthorized rental” to active solicitation, aiding-and-abetting, or

conspiracy to commit criminal copyright infringement. No published case has

yet addressed this issue.

5. Fair Use

e fair use doctrine is an armative defense to copyright infringement. It

allows the unauthorized use of copyrighted material under certain circumstances

generally limited to useful or benecial purposes with minimal impact on the

market for the work. Specically, the fair use doctrine, codied at 17 U.S.C.

§107, allows the unauthorized use of copyrighted works “for purposes such as

criticism, comment, news reporting, teaching..., scholarship, or research” and

other, unspecied, purposes and uses.

Fair use is designed to ensure that the rights of authors are balanced with

the interest of the public in the free ow of information. See, e.g., Pierre Leval,

Toward a Fair Use Standard, 103 Harv. L. Rev. 1105, 1110 (1990) (commentary

by Judge Pierre Leval, United States District Court for the Southern District of

New York). Congress has noted that fair use is the most important limitation

on the exclusive rights granted copyright owners, H.R. Rep. No. 94-1476, at 65

(1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5678, and the Supreme Court

has characterized fair use as one of copyright law’s built-in accommodations

to the First Amendment. See Eldred v. Ashcroft, 537 U.S. 186, 219-20 (2003).

By design, the fair use doctrine is uid and applies not according to denite

rules, but rather according to a multi-factor balancing test. See H.R. Rep. No.

94-1476, at 66 (1976). e statute cites four non-exclusive factors:

(1) the purpose and character of the use, including whether such

use is of a commercial nature or is for nonprot educational

purposes;

(2) the nature of the copyrighted work;

70 Prosecuting Intellectual Property Crimes

(3) the amount and substantiality of the portion used in relation

to the copyrighted work as a whole; and

(4) the eect of the use upon the potential market for or value

of the copyrighted work.

17 U.S.C. §107. Other unspecied factors may be appropriate. It would be

dicult to articulate a more determinate set of fair use rules, given the variety

of copyrighted works, their uses, and the situations in which they can be used.

Consequently, both through case law and statutory codication, fair use has

historically been decided on a case-by-case basis looking at the totality of the

facts at hand. See H.R. Rep. No. 94-1476, at 65-66 (1976). Although the fair

use doctrine has developed primarily in civil cases, those cases have precedential

weight in criminal cases.

e rst factor to consider is the purpose and character of the use. 17

U.S.C. § 107(1). A commercial use is presumptively unfair, whereas for a

noncommercial, nonprot activity, “[t]he contrary presumption is appropriate.”

Sony Corp. of Am. v. Universal Studios, 464 U.S. 417, 449 (1984). Nevertheless,

“the mere fact that a use is educational and not for prot does not insulate it

from a nding of infringement, any more than the commercial character of a

use bars a nding of fairness.” Campbell v. Acu-Rose Music, Inc., 510 U.S. 569,

584 (1994).

Another consideration relevant to the rst factor is whether the use is

“transformative” or, in other words, adds something new or dierent beyond a

mere repackaging or restatement of the original: “Although such transformative

use is not absolutely necessary for a nding of fair use, the goal of copyright,

to promote science and the arts, is generally furthered by the creation of

transformative works.” Id. at 579 (citation omitted); see also Leval, 103 Harv.

L. Rev. at 1111 (“e use must be productive and must employ the quoted

matter in a dierent manner or for a dierent purpose from the original. A

quotation of copyrighted material that merely repackages or republishes the

original is unlikely to pass the test.”). If a work is transformative, other factors

that normally weigh against nding of fair use, such as the commercial nature

of the use, bear less weight. See Acu-Rose, 510 U.S. at 579.

e second factor is the nature of the copyrighted work. See 17

U.S.C.§107(2). “is factor calls for recognition that some works are closer

to the core of intended copyright protection than others.” Acu-Rose, 510 U.S.

at 586. Fair use is more dicult to establish in the use of ctional or purely

II. Criminal Copyright Infringement 71

creative or fanciful works, as opposed to more factual or historical (yet still

copyrightable) works, such as recollections of public gures, or depictions

of newsworthy events. See id. “e law generally recognizes a greater need to

disseminate factual works than works of ction or fantasy.” Harper & Row,

Publishers, Inc. v. Nation Enters., 471 U.S. 539, 563 (1985).

e third factor is the amount and substantiality of the use “in relation to

the copyrighted work as a whole.” See 17 U.S.C.§107(3). A defense of fair

use is less likely to succeed if the portion of the copyrighted material used is

substantial in quantity or importance. See Harper & Row, 471 U.S. at 564-

66 (holding news magazine’s 300-word excerpt of book not to be fair use

because quoted sections were key passages). However, a use can be fair even

if it copies the entire work. See Online Policy Group v. Diebold, Inc., 337 F.

Supp. 2d 1195 (N.D. Cal. 2004) (granting summary judgment to group that

had published voting machine manufacturer’s entire email archive to publicly

expose machines’ aws); Kelly v. Arriba Soft Corp., 336 F.3d 811 (9th Cir.

2003) (holding defendant’s copying of entire images to create online searchable

database of “thumbnails” was fair use).

e fourth factor is how substantially the use aects the potential market

for the copyrighted work or the work’s actual value. See 17 U.S.C.§107(4).

“[T]o negate fair use one need only show that if the challenged use ‘should

become widespread, it would adversely aect the potential market for the

copyrighted work.’ is inquiry must take account not only of harm to the

original but also of harm to the market for derivative works.” Harper & Row,

471 U.S. at 568 (citations omitted). e Supreme Court has emphasized the

importance of this factor in cases of noncommercial use. Sony, 464 U.S. at 451

(“A challenge to a noncommercial use of a copyrighted work requires proof

either that the particular use is harmful, or that if it should become widespread,

it would adversely aect the potential market for the copyrighted work.”). See

Harper & Row, 471 U.S. at 540-41 (nding that harm to potential market was

indicated by fact that magazine cancelled its contract to reprint segment of

book after defendant published article quoting extensively from book).

Again, these are non-exclusive factors that may be supplemented as

technology and circumstances require. See 17 U.S.C. §107.

a. Unpublished Works

A defendant’s use of an unpublished copyrighted work may qualify as a

fair use. In 1992, Congress amended 17 U.S.C. §107 to make explicit that

72 Prosecuting Intellectual Property Crimes

“[t]he fact that work is unpublished shall not itself bar a nding of fair use if

such nding is made upon consideration of all the above factors [in §107(1)-

(4)].” Act of Oct. 24, 1992, Pub. L. No. 102-492, 106 Stat. 3145 (1992); see

also H.R. Rep. No. 102-836, at 7 (1992), reprinted in 1992 U.S.C.C.A.N.

2553, 2559 (legislative history underscores that Congress intended there to be

no per se rule barring the fair use of unpublished works). is was primarily,

but not exclusively, out of concern for the needs of biographers, historians,

and publishers concerned with court decisions that suggested that they could

not use unpublished material of historical interest—such as the unpublished

letters and diaries of major authors or public gures—in books or other serious

treatments of historical gures and events. See id. at 4-9 (citing Salinger v.

Random House, Inc., 650 F. Supp. 413 (S.D.N.Y. 1986), rev’d, 811 F.2d 90 (2d

Cir.), cert. denied, 484 U.S. 890 (1987); New Era Publ’ns Int’l, ApS v. Henry

Holt & Co., 684 F. Supp. 808 (S.D.N.Y. 1988); New Era Publ’ns Int’l, ApS v.

Henry Holt & Co., 695 F. Supp. 1493 (S.D.N.Y. 1988), a’d on other grounds,

873 F.2d 576 (2d Cir. 1989)). Congress heeded this concern and thereafter

amended the fair use statute to include the fair use of unpublished works, not

limiting it to works of historic value.

b. Fair Use in Criminal Cases

Although the fair use doctrine has been developed mainly through civil

cases, it is a defense to a charge of infringement, and thus a legitimate defense in

criminal cases. However, fair use rarely comes up in the criminal context, most

likely because prosecutors are reluctant to prosecute where fair use is a serious

issue. A fair use is not an infringing use, and without an infringement there are

no grounds for copyright prosecution. See17 U.S.C. §107 (“[T]he fair use of a

copyrighted work... is not an infringement of copyright.”); 17 U.S.C. §506(a)

(specifying grounds for prosecuting “[a]ny person who willfully infringes a

faith that he was engaging in fair use has a complete defense to the mens rea

element, which requires the government to prove that the defendant infringed

willfully. See Section B.2.a. of this Chapter. (As indicated in Section B.2.b., a

bad-faith claim of fair use, on the other hand, might help establish willfulness.)

Prosecutors are—and generally should be—reluctant to seek charges where the

defendant acted “for purposes such as criticism, comment, news reporting,

teaching..., scholarship, or research” or any other use with a benecial public

purpose. See 17 U.S.C. §107.

II. Criminal Copyright Infringement 73

When the defendant is charged with violating 17 U.S.C. § 506(a)(1)

(A)—infringement for purposes of commercial advantage or private nancial

gain—fair use will ordinarily not be a defense because commercial uses

are presumptively unfair. Sony, 464 U.S. at 449. On the other hand, some

commercial uses, such as commercial parodies of other works, have been found

to be fair. See Acu-Rose, 510 U.S. at 594.

Because of the fair use doctrine’s concern with noncommercial uses, fair

use is more likely to pose a signicant defense in criminal cases that do not

allege a prot motive, such as large-scale infringement under §506(a)(1)(B)

and certain § 506(a)(1)(C) oenses. However, courts have rejected fair use

arguments in civil cases against peer-to-peer le-traders who had no direct

commercial motive. See BMG Music v. Gonzalez, 430 F.3d 888, 890 (7th Cir.

2005) (nding that a peer-to-peer user who downloaded at least 30 and as

many as 1300 songs, and kept them, did “not engage[] in a nonprot use”

for purposes of fair use analysis); Sony BMG Music Entm’t v. Tenenbaum,

672 F. Supp. 2d 217, 227-28 (D. Mass. 2009) (granting plainti’s motion

for summary judgment as to fair use defense, despite nding that defendant’s

acts of downloading and distributing 30 copyrighted songs did not constitute

“commercial” use, where defendant’s use “was not accompanied by any public

benet or transformative purpose that would trigger the core concerns of the

doctrine”).

at said, there is a wide gulf between the typical criminal copyright case

and the typical case in which fair use is a legitimate defense. In most criminal

cases, the defendant does not even arguably act “for purposes such as criticism,

comment, news reporting, teaching..., scholarship, or research.” See 17 U.S.C.

§107. Furthermore, many criminal prosecutions involve the wholesale piracy

of commercially popular works, in which a fair use defense would be undercut

by the fair use factors concerning “the amount and substantiality of the portion

used in relation to the copyrighted work as a whole,” and “the eect of the use

upon the potential market for or value of the copyrighted work.” §107(3),

(4). e works are generally copied in their entirety, and the wide availability

of the free, pirated copies (which suer no degradation in quality in digital

form) can have a drastic eect on the potential market for legitimate works.

A strong showing on these factors will help overcome the presumption that

noncommercial use is fair.

74 Prosecuting Intellectual Property Crimes

6. “Archival Exception” for Computer Software—17U.S.C.§117

Section 117 of Title 17 provides a limited exception to the blanket rule

against copying, by allowing one who owns a copy of a computer program to

copy the program as necessary to use the program or do machine maintenance

or repair, and as an archival backup, subject to certain limitations. Specically,

§117(a) provides that “it is not an infringement [of copyright] for the owner

of a copy of a computer program to make or authorize the making of another

copy or adaptation of that computer program” under two circumstances. e

rst is if the making of the copy or adaptation is “an essential step in the

utilization of the computer program in conjunction with a machine, and that

[the copy] is used in no other manner.” 17 U.S.C. §117(a)(1). Essentially, this

allows the lawful owner of a piece of software to install it on his machine, even

if doing so requires copying the program from a CD-ROM to the hard drive

or loading it from the hard drive into RAM, both of which are considered

reproduction under copyright law. See Micro-Sparc, Inc., v. Amtype Corp., 592

F. Supp. 33 (D. Mass. 1984) (holding that purchasers of programs sold in

printed form do not infringe copyright by typing code into computer in order

to use the programs); Summit Tech., Inc. v. High-Line Med. Instruments Co., 922

F. Supp. 299 (C.D. Cal. 1996) (holding that owners of ophthamological laser

system did not infringe copyright by turning on system to use it, causing copy

of manufacturer’s data table to be loaded into system RAM); cf. MAI Sys. Corp.

v. Peak Computer, Inc., 991 F.2d 511 (9th Cir. 1993) (holding that loading of

copyrighted software into RAM by service company constitutes reproduction).

e second circumstance in which §117 allows copying is if the copy is

“for archival purposes only and that all archival copies are destroyed in the

event that continued possession of the computer program should cease to be

rightful.” 17 U.S.C. §117(a)(2). is provision allows one who owns a piece

of software to make a backup copy for safekeeping, but requires him to destroy

his backup copies if he sells or otherwise transfers his original copy or if his

ownership otherwise ceases to be rightful.

A third subsection of § 117 provides it is not an infringement for a

machine’s owner or lessee to make or authorize the making of a copy of a

computer program if the copy is made solely as a result of the activation of a

machine containing a lawful copy of the software, and the copy is used solely

to repair or maintain the machine, and is destroyed immediately thereafter.

17 U.S.C. §117(c); see also Storage Tech. Corp. v. Custom Hardware Eng’g &

Consulting, Inc., 431 F.3d 1374, 1375 (Fed. Cir. 2005).

II. Criminal Copyright Infringement 75

Section 117’s exceptions benet the “owner of a copy of a computer

program” or, in the case of machine repair and maintenance, “the owner or

lessee of a machine.” 17 U.S.C. §117(a), (c). However, because most computer

software is distributed subject to a license, rather than a conventional outright

sale, the question arises (in much the same way as it does in the context of

“rst sale” under §109) whether §117 allows copying by a person who has

legally obtained a copy of a computer program, but licenses rather than “owns”

the software. See the discussion of rst sale in Section C.4. of this Chapter. As

with the analogous rst sale question, courts are split on the issue. Compare

Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005) (holding client to be

an “owner,” for § 117(a) purposes, of copies of computer programs written

for it by consultant despite lack of formal title in copies, because it had paid

consultant to develop programs for its sole benet, copies were stored on client’s

server, and client had right to use or discard copies as it saw t) with CMAX/

Cleveland, Inc. v. UCR, Inc., 804 F. Supp. 337 (M.D. Ga. 1992) (holding that

licensee of copyrighted computer software system and its employees were not

entitled to computer program owner’s defense to copyright-holder’s copyright

infringement action, because the licensee and employees never “owned” copy

of the program, and there was evidence that the licensee was going to market

its program); cf. ISC-Bunker Ramo Corp. v. Altech, Inc., 765 F. Supp. 1310

(N.D. Ill. 1990) (holding defendant not entitled to §117 exception because it

acquired copy from competitor and possession was unauthorized).

Some sellers of pirated software display a disclaimer or other notice claiming

that their distribution of unauthorized copies is somehow permitted under 17

U.S.C. §117. Such claims are baseless. Although there are no reported criminal

cases addressing this defense, courts have interpreted §117 narrowly. See, e.g.,

Micro-Sparc, Inc., 592 F. Supp. at 35 (while §117 allowed owners of written

copy of source code to type it in to their own computers, it did not permit third-

party business to type in source code and sell it on diskette). Moreover, the fact

that a defendant was suciently aware of copyright issues to make a frivolous

or bad-faith claim of compliance with §117 may help establish willfulness.

Cf. United States v. Gardner, 860 F.2d 1391, 1396 (7th Cir. 1988) (holding

“Notice of Warning” by seller of “black boxes” for receiving unauthorized cable

television, disclaiming liability for any illegal uses, “establish[es] that he was

well aware that his actions were unlawful”); United States v. Knox, 32 F.3d 733,

754 (3d Cir. 1994) (rejecting argument that disclaimers in brochure stating

that child pornography videos were legal disproved the mens rea element

and because “[i]f anything, the need to profess legality should have alerted

76 Prosecuting Intellectual Property Crimes

[defendant] to the lms’ dubious legality”); Rice v. Paladin Enters., Inc., 128

F.3d 233, 254 (4th Cir. 1997) (holding that jury could nd the “For academic

study only!” disclaimer in promotional sales catalog for “Hit Man” book “to be

transparent sarcasm designed to intrigue and entice”).

D. Emerging and Special Issues

Most of the special issues in criminal copyright law concerning registration,

Internet piracy, and pre-release piracy have been addressed throughout this

chapter. Additional emerging areas involving streaming and linking sites are

briey highlighted below. Prosecutors who encounter emerging and special

issues involving streaming, linking sites or others not addressed in this chapter

should contact CCIPS at (202) 514-1026 for further advice or to suggest them

for an update to be published in the electronic edition of this Manual.

1. Internet Streaming

e past decade has seen a rapid rise in the use of Internet “streaming”

technology as a means to disseminate content online. “Streaming” generally

refers to the delivery of digital media content in real time, so that it may be

watched, listened to, or played contemporaneously with the transfer of the

media data to a recipient’s device. Popular streaming media sites and services

currently include YouTube, Hulu, Vimeo, Pandora, and Spotify. Netix and

Amazon, for instance, oer online streaming of movies in addition to oering

copies of movies for sale or rental, and (in the case of Amazon) oering

downloads of music les for a fee. ere are also a large and growing number of

Internet sites that oer infringing content via streaming, many of which derive

substantial revenues through advertising or user subscription fees.

In contrast to a “download” model, in which a recipient receives a complete

and permanent copy of a media le, when media content is delivered solely

for streaming, the recipient will generally not retain a complete or permanent

copy of the media le on the receiving device (although pieces of the media le

being received may be buered or stored temporarily as part of the streaming

process). Streaming is also comparatively resource intensive, as playing media

les to many dierent users in real time, without pauses or gaps, requires

powerful servers and signicant amounts of Internet bandwidth. Widespread

use of streaming has become an increasingly viable option to disseminate media

content both legitimately and illegitimately as costs for data storage processing

power and bandwidth have fallen signicantly.

II. Criminal Copyright Infringement 77

Although currently unsettled, existing criminal copyright laws (as of this

writing) are not ideally suited to address serious cases of infringing streaming.

e penalty provisions in 18 U.S.C. §2319 were drafted in an era when the vast

majority of online infringement involved the creation and transfer of complete

and permanent electronic copies. As a result, existing criminal copyright law

provides felony penalties only for infringements that involve the “reproduction”

or “distribution” of a minimum number of copies above a threshold value. To

the extent that streaming of copyrighted works does not involve creating or

transferring complete or permanent copies of a work, it is generally viewed as

implicating copyright’s “public performance” and “public display” rights in a

work, rather than the “reproduction” or “distribution” rights. See, e.g., United

States v. Am. Soc’y of Composers, Authors, and Publishers, 485 F. Supp. 2d 438,

442-47 (S.D.N.Y. 2007) (distinguishing between distribution and performance

of digital music); 3 William F. Patry on Copyright § 8:23 (2012). Accordingly,

an illegal streaming site that willfully infringes copyrighted works by streaming

may not violate the reproduction or distribution rights to a sucient degree to

be eligible for felony copyright penalties.

As of this writing, there have been several legislative proposals to

amend criminal copyright penalties to address signicant cases involving

Internet streaming. See, e.g., Administration’s White Paper on Intellectual

Property Enforcement Legislative Recommendations at 10 (March 2011),

available at http://www.whitehouse.gov/sites/default/les/ip_white_paper.

pdf; Commercial Felony Streaming Act, S. 978 112th Cong. (2011). In

general, these proposals would expand copyright felony penalties to apply to

infringements of the “public performance” or “public display” rights under

certain circumstances.

Setting aside possible legislative changes, prosecutors have other options

to pursue signicant cases involving Internet streaming. For example, even

though a site may be primarily engaged in Internet streaming, the site may

also be engaged in related conduct that involves felony reproduction or

distribution. Some sites that oer streaming of infringing content also allow

users to download complete copies, typically for an additional fee. Assembling

a pirate streaming site also requires the infringing content to be copied onto

the site’s servers. is copying, if sucient to meet the numeric and monetary

thresholds (and other elements) of 18 U.S.C. § 2319, may form a sucient

basis for a felony charge.

78 Prosecuting Intellectual Property Crimes

Existing law also provides misdemeanor penalties for willful infringements

involving any of the exclusive rights protected by copyright (not just reproduction

and distribution) when committed for purposes of commercial advantage or

private nancial gain. See 17 U.S.C. § 506(a)(1)(A); 18 U.S.C. 2319(b)(3).

Because streaming is relatively resource intensive, major infringing streaming

sites are generally supported by advertising or subscriber fees, and, therefore,

one option for pursuing a site willfully engaged in infringing streaming is to

charge one or more misdemeanors.

2. Cyberlockers and Linking Sites

Although remote storage of data les has long been a staple use of the

internet and other online services (see, e.g., Electronic Communications Privacy

Act (ECPA) of 1986, Pub. L. No. 99-508, 100 Stat. 1848 (1986) (creating

denition, at 18 U.S.C. § 2711(2), of “remote computing service”)), the past

several years have witnessed a rapid rise in the use of a new generation of online

le storage services, referred to generically by such terms as “cloud storage” or

“web storage” services, “webhards,” or “cyberlockers.” A wide range of sites

and services fall into this category, including Amazon’s Cloud Drive, Apple’s

iCloud, Microsoft’s SkyDrive, Google Drive, Dropbox, Rapidshare, MediaFire,

and Filesonic. e specic features, intended uses, and target markets for these

services vary widely; some are designed and marketed primarily for data backup

or for access to personal les while traveling, while some are focused more

on facilitating transfers of large data les to others. Many provide substantial

amounts of storage for free. e capability of cyberlocker services to disseminate

large media les has led to their use in large scale piracy of movies, music,

software, and other copyrighted works.

Although the use of cyberlockers to infringe copyright is a relatively recent

trend, the same principles apply to cyberlockers as to other types of online

infringement. Individual users of cyberlockers who make use of cyberlockers

to reproduce, distribute, or otherwise infringe copyright willfully may be

prosecuted criminally, provided the other elements of the criminal copyright

statute (e.g., minimum numeric and monetary thresholds; commercial

advantage or private nancial gain; online distribution of pre-release works)

are met. Operators of cyberlockers may also be subject to prosecution for

criminal copyright infringement where they willfully distribute or disseminate

infringing content, or under theories of aiding and abetting or conspiracy to

commit criminal copyright infringement. See 18 U.S.C. §§ 2, 371.

II. Criminal Copyright Infringement 79

To the extent that cyberlockers are used to distribute large media les

to a group or to the public, they function much like popular user-generated

content (“UGC”) sites like YouTube or Vimeo. However, a common feature

that generally distinguishes cyberlockers from UGC sites is that cyberlockers

are generally not designed to be searchable by outside users or the web-crawlers

used by search engines to index publicly-available content on the Internet. On

many cyberlocker sites, the only way to access a particular le is to know the

specic URL or address where the le is located (e.g., a complex and dicult-

to-guess address such as, “http://www.cyberlocker.com/xyzcvbRT1908973”).

Partly as a result, an ecosystem of “linking sites” has developed that compile and

categorize links to media les located on cyberlocker sites (as well as BitTorrent

or other links to P2P networks), enabling users to search for and locate

particular les, including pirated media content. Many of these linking sites

are supported by advertising, and some may also receive aliate commissions

in exchange for driving trac to a cyberlocker or other content-hosting site.

e fact that a “pure” linking site does not host infringing content itself

may present additional challenges to criminal prosecution. Most courts that

have addressed the issue in civil cases have held that merely providing links

to infringing content does not violate the distribution right or otherwise

constitute direct copyright infringement (although such conduct may still

result in secondary liability under a theory of contributory or vicarious

infringement). See, e.g., Perfect 10, Inc. v. Amazon.com, Inc., 508 F.3d 1146

(2007); Online Policy Grp. v. Diebold, Inc., 337 F. Supp. 2d 1195, 1202 n.12

(N.D. Cal. 2004) (“[H]yperlinking per se does not constitute direct copyright

infringement because there is no copying.”); Arista Records, Inc. v. MP3Board,

Inc., No. 00 CIV 4660 (SHS), 2002 WL 1997918, at *4 (S.D.N.Y. Aug. 29,

2002) (linking to content does not violate the distribution right or constitute

direct infringement). e extent to which merely linking to infringing content

hosted by other sites may constitute criminal copyright infringement under 17

U.S.C. § 506 has not been conclusively resolved by the courts. Regardless of

whether linking itself amounts to a substantive violation of § 506, however,

defendants who facilitate infringement by others by providing links to

infringing material online may nevertheless by prosecuted under theories of

aiding and abetting (18 U.S.C. §2) or conspiracy (18 U.S.C. §371), provided

that the other requisite elements of criminal infringement (e.g., willfulness,

numeric and monetary thresholds, online distribution of pre-release work) can

be shown.

80 Prosecuting Intellectual Property Crimes

E. Penalties

1. Statutory Penalties

Whereas the substantive crime of copyright infringement is set forth at 17

U.S.C. §506(a), the penalties for that conduct are set forth at 18 U.S.C.§2319.

See 17 U.S.C. §506(a) (“Any person who willfully infringes a copyright shall

be punished as provided under section 2319 of title 18.”).

A misdemeanor carries a sentence of up to one year of imprisonment and

a $100,000 ne or twice the monetary gain or loss. See 18 U.S.C.§§2319(b)

(3),(c)(3), 3571(b)(5), (d). For the crimes that qualify as misdemeanors, see

Section B.5. of this Chapter.

A rst-time felony conviction under 17 U.S.C.§506(a)(1)(A) carries a ve-

year maximum sentence of imprisonment and a ne up to $250,000 or twice

the monetary gain or loss; repeat oenders face the same ne and ten years of

imprisonment. 18 U.S.C. §§2319(b)(1),(2), 3571(b)(3),(d) (specifying nes

for Title 18 oenses where the ne is otherwise unspecied).

A rst-time felony conviction under 17 U.S.C. §506(a)(1)(B) carries a

three-year maximum sentence of imprisonment and a ne up to $250,000

or twice the monetary gain or loss; repeat oenders face the same ne and six

years’ imprisonment. 18 U.S.C. §§2319(c)(1),(2), 3571(b)(3),(d).

A rst-time felony conviction under 17 U.S.C. §506(a)(1)(C) carries a

three-year maximum sentence—ve years if the oense was committed for

purposes of commercial advantage or private nancial gain—and a ne of

$250,000 or twice the monetary gain or loss; repeat oenders face the same

ne and twice the jail time (six or ten years, depending on whether the oense

was committed for purposes of prot). 18 U.S.C. §§2319(d), 3571(b)(3), (d).

2. Sentencing Guidelines

All sentencing guideline issues concerning the criminal copyright statute

are covered in Chapter VIII of this Manual.

II. Criminal Copyright Infringement 81

F. Other Charges to Consider

Prosecutors may wish to consider the following crimes in addition to or in

lieu of criminal copyright charges.

• Aiding-and-abetting,inducement,andconspiracy

Prosecutors may, for strategic reasons, wish to bring accessory charges,

such as aiding-and-abetting or inducement, 18 U.S.C. §2, or conspiracy, 18

U.S.C. §371. See, e.g., United States v. Sachs, 801 F.2d 839 (6th Cir. 1986)

(arming conviction for aiding-and-abetting and conspiring to infringe in

motion picture copyright infringement case); United States v. Allan, No. 95-

CR-578-01, 2001 WL 1152925 (E.D. Pa. Sept. 18, 2001) (denying motion to

vacate sentence on defendant’s convictions for, among other things, copyright

infringement, aiding-and-abetting, and conspiracy).

Aiding-and-abetting and inducement of criminal copyright infringement

under 18 U.S.C. § 2 are similar to the “inducement” theory of secondary

liability the Supreme Court recently endorsed in Metro Goldwyn-Mayer Studios,

Inc. v. Grokster, 545 US 913 (2005). Although Grokster was a civil case, further

decisions in the case on remand, as well as subsequent civil litigation on the

same topic, will likely provide further guidance on how an inducement theory

may be applied in criminal copyright cases.

• Trackinginrecordingsoflivemusicalperformances,

18U.S.C.§2319A

As discussed in Section B.1.a.i. of this Chapter, a work must be xed in

a tangible medium in order to enjoy copyright protection. us, live musical

performances are not protected by copyright unless they are “xed” by an audio

recording authorized by the performer. However, the law provides copyright-

like protections for live musical performances by prohibited unauthorized

recordings of such performances, and tracking in such recordings. See 17

U.S.C. § 1101 (providing civil remedies); 18 U.S.C. § 2319A (criminal

sanctions). ese protections were enacted in 1994 in part to comply with

obligations under international copyright treaties that require protection for

musical performances. See Uruguay Round Agreements Act, Pub. L. No. 103-

465, 108 Stat. 4809 (1994). Specically, 18 U.S.C. § 2319A(a) subjects to

criminal sanctions:

[w]hoever, without the consent of the performer or performers

involved, knowingly and for purposes of commercial advantage

82 Prosecuting Intellectual Property Crimes

or private nancial gain - (1) xes the sounds or sounds and

images of a live musical performance in a copy or phonorecord,

or reproduces copies or phonorecords of such a performance

from an unauthorized xation; (2) transmits or otherwise

communicates to the public the sounds or sounds and images

of a live musical performance; or (3) distributes or oers to

distribute, sells or oers to sell, rents or oers to rent, or tracs

in any copy or phonorecord xed as described in paragraph

(1), regardless of whether the xations occurred in the United

States.

Although some unauthorized recordings or trade in unauthorized recordings

might be prosecuted as infringement of the underlying musical composition

performed in the recording, § 2319A specically targets the making and

distribution of these so-called “bootlegged” musical recordings.

Each of § 2319A’s three subsections protects a dierent right of the

performing artist. Paragraph (a)(1) prohibits xing the sounds or images of a

live musical performance in a tangible medium. See 17 U.S.C. §101 (dening

xation). But see United States v. Moghadam, 175 F.3d 1269, 1274 (11th Cir.

1999) (declining to decide whether a live performance is xed at the time of

performance). Paragraph (a)(2) prohibits transmitting the sounds or images

of a live musical performance to the public. is subsection was intended

to apply to the unauthorized transmission of bootleg performances through

radio or television, and not to the unauthorized reproduction of previously

recorded but unreleased performances, i.e., studio out-takes. e latter should

be considered for prosecution as criminal copyright infringement or, if labeled,

tracking in counterfeit labels, documentation, or packaging. See Chapter

VI of this Manual. Paragraph (a)(3) prohibits distributing to the public or

tracking in any xed recording of a live musical performance.

Under each subsection, the government must also prove that the defendant

acted: (1) without authorization from the performer involved; (2) knowingly;

and (3) for purposes of commercial advantage or private nancial gain. See

Section B.4. of this Chapter for a detailed discussion of the commercial

motivation element.

Section 2319A is a ve-year felony (ten years for repeat oenders) with a

ne of $250,000 or twice the monetary gain or loss, see 18 U.S.C. §§2319A(a),

3571(b)(3),(d), and is sentenced under the same guideline as are copyright

II. Criminal Copyright Infringement 83

crimes, U.S.S.G. §2B5.3. e statute provides for mandatory forfeiture and

destruction of all infringing items upon a defendant’s conviction. See 18 U.S.C.

§2319A(b),(c). Further, a violation of §2319A is listed in 18 U.S.C. §1961(1)

(B) as a RICO predicate. It was inserted into RICO by the Anticounterfeiting

Consumer Protection Act, Pub. L. No. 104-153 §3, 110 Stat. 1386 (1996).

e constitutionality of 18 U.S.C. §2319A (and the related civil statute,

17 U.S.C. §1101) has been challenged several times on the grounds that in the

area of copyright Congress may regulate only “writings” and only for “limited

times,” see U.S. Const., art. I, § 8, cl. 8, and that § 2319A (which has no

time limit and applies to live performances) exceeds those limits. Although

these challenges have occasionally prevailed at the district court level, the

constitutionality of the statute has ultimately been upheld upon rehearing or

by the Courts of Appeals. See United States v. Martignon, 492 F.3d 140 (2d

Cir. 2007); Moghadam, 175 F.3d at 1274-77; Kiss Catalog, Ltd. v. Passport Int’l

Prods., Inc., 405 F. Supp. 2d 1169 (C.D. Cal. 2005).

Many states also criminalize tracking in bootleg recordings.

• Unauthorized recording of motion pictures in a motion picture

exhibitionfacility(“Camcording”),18U.S.C.§2319B

e Family Entertainment and Copyright Act of 2005, Pub. L. No. 109-

9, 119 Stat. 218 (enacted April 27, 2005), created a criminal oense that

targets “camcording,” the use of camcorders and similar devices to record

movies playing in public movie theaters. “Camcorded” copies of movies are a

signicant source of pirated movies, and sales of camcorded copies of movies

can be especially harmful to copyright owners, because they typically are

created and distributed when the movie is available only in theaters and not

on DVD or other formats. H.R. Rep. No. 109-33(I) (2005), reprinted in 2005

U.S.C.C.A.N. 220. In addition to the federal camcording oense in §2319B,

most states and the District of Columbia also provide criminal penalties for

unauthorized camcording.

e elements of an oense under 18 U.S.C. §2319B are that the defendant

(1) knowingly, and (2) without the authorization of the copyright owner, (3)

used or attempted to use an audiovisual recording device, (4) to transmit or

make a copy of a motion picture or other audiovisual work protected under

Title 17, (5) from a performance of such work in a motion picture exhibition

facility. 18 U.S.C. §2319B(a). e maximum punishment for the oense is

three years (six years for repeat oenders). Id.

84 Prosecuting Intellectual Property Crimes

Section 2319B’s mens rea requirement is lower than the “willfulness”

requirement for criminal copyright oenses: a §2319B defendant need only

act “knowingly.” Additionally, it is not necessary to show infringement of a

transmitting or copying (or attempting to transmit or copy) a copyrighted

motion picture without the copyright owner’s permission. Although the defenses

to infringement set forth in Title 17 would not apply to a prosecution under

18 U.S.C. § 2319B, the statute’s legislative history indicates that Congress

intended prosecutors to avoid prosecuting cases that would be deemed “fair

use” under copyright law. See H.R. Rep. No. 109-33(I), at 4.

An “audiovisual recording device” is dened as a “digital or analog

photographic or video camera, or any other technology or device capable of

enabling the recording or transmission of a copyrighted motion picture or

other audiovisual work, or any part thereof, regardless of whether audiovisual

recording is the sole or primary purposes of the device.” 18 U.S.C. §2319B(g)

(2). is would appear to apply to camera-phones, PDA phones, and digital

cameras (especially those capable of recording video). Congress, however,

intended that the oense should not cover incidental uses of these devices

in a theater, even though such uses could violate other statutes (such as the

e oense applies only to camcording in a “motion picture exhibition

facility,” which is dened by reference to that same term in 17 U.S.C. §101:

“a movie theater, screening room, or other venue that is being used primarily

for the exhibition of a copyrighted motion picture, if such exhibition is open

to the public or is made to an assembled group of viewers outside of a normal

circle of a family and its social acquaintances.” e term includes commercial

movie theaters and may also apply to generally non-public or quasi-public

spaces such as a university auditorium, but only when such a venue is being

used as a “public” exhibition facility at the time of the oense. See H.R. Rep.

No. 109-33(I), at 3, reprinted in 2005 U.S.C.C.A.N. 222 (stating that “open

to the public” is intended to refer to the particular exhibition rather than the

venue generally).

• Tracking in counterfeit and illicit labels, and counterfeit

documentationandpackaging,18U.S.C.§2318

is is covered in Chapter VI of this Manual.

II. Criminal Copyright Infringement 85

• Tracking in goods and services with counterfeit trademarks,

servicemarks,andcerticationmarks,18U.S.C.§2320

See Chapter III of this Manual.

• DigitalMillenniumCopyrightAct(DMCA),17U.S.C.§§1201-

1204

e DMCA provides criminal penalties for dismantling the electronic locks

that are intended to prevent people from accessing or copying copyrighted

works without permission, for tracking in “electronic lockpicks,” and for

falsifying or removing copyright management information. See Chapter V of

this Manual.

• Unauthorized reception of cable and satellite service,

47U.S.C.§§553,605and18U.S.C.§2511

• EconomicEspionageAct,18U.S.C.§§1831-1839

For stealing trade secrets, whether copyrighted or not, see Chapter IV of

this Manual.

• Mailandwirefraud, 18U.S.C.§§1341,1343,1346

Although fraud schemes can involve copyrighted works, prosecutors

should be wary of charging mail or wire fraud as a substitute for a criminal

scheme to defraud. In one copyright case, in which a wire fraud charge was

brought because the facts were insucient to support a criminal copyright

charge, no misrepresentation was alleged, and the district court dismissed the

charge. See United States v. LaMacchia, 871 F. Supp. 535 (D. Mass. 1994). e

judge in LaMacchia reasoned that the bundle of rights conferred by copyright

is unique and carefully dened, precluding prosecution under the general

wire fraud statute, at least when there is no fraudulent conduct on the part

of the defendant. Id. at 544-45. e court in LaMacchia relied heavily on the

Supreme Court’s decision in Dowling v. United States, 473 U.S. 207 (1985).

In Dowling, the Court overturned the defendant’s conviction for interstate

transportation of stolen property under 18 U.S.C. §2314 because it found

Congress’ actions to be preemptive. See Dowling, 473 U.S. at 207; see also 4

Nimmer on Copyright §15.05[A] at 15-34 (1999) (“Dowling’s lesson is that

Congress has nely calibrated the reach of criminal copyright liability, and

therefore, absent clear indication of Congressional intent, the criminal laws of

the United States do not reach copyright-related conduct.”).

86 Prosecuting Intellectual Property Crimes

While LaMacchia suggests that courts are unlikely to be receptive to a wire

or mail fraud charge brought as a substitute for a criminal copyright charge in

a case where some element of the criminal copyright charges is missing, wire

or mail fraud charges may still be viable and appropriate in infringement cases

that involve actual misrepresentations or schemes to defraud. Cf. United States

v. Manzer, 69 F.3d 222, 226 (8th Cir. 1995) (holding that sale to a third party

of illegal cable television descrambling devices violated federal fraud statutes);

United States v. Coyle, 943 F.2d 424, 427 (4th Cir. 1991) (holding sale of cable

television descramblers to be a scheme to defraud “because it wronged the

cable companies in their ‘property rights by dishonest methods or schemes’”)

(quoting United States v. McNally, 483 U.S. 350, 358 (1987)). Nevertheless, in

the absence of strong evidence of misrepresentation, prosecutors should avoid

a wire or mail fraud charge if an infringement crime can be proved.

For a more detailed discussion of 18 U.S.C.§§1341 and 1343, refer to

USAM Chapter 9-43.000. e Criminal Division’s Fraud Section at (202)

514-7023 can provide further information and guidance.

• Interstatetransportationandreceiptofstolenpropertyorgoods,

18U.S.C.§§2314-2315

e Interstate Transportation of Stolen Property Act (“ITSP”) punishes

“[w]hoever transports, transmits, or transfers in interstate or foreign commerce

any goods, wares, merchandise, securities or money, of the value of $5,000 or

more, knowing the same to have been stolen, converted or taken by fraud,” 18

U.S.C. § 2314, and “[w]hoever receives, possesses, conceals, stores, barters,

sells, or disposes” stolen property that has crossed a state or federal boundary,

18 U.S.C.§2315.

Although ITSP can be used under certain circumstances to prosecute

theft of proprietary information or other types of intellectual property, the

Supreme Court has rejected the use of the ITSP statute to prosecute copyright

infringement cases, at least when the infringement does not involve the actual

theft of a tangible good. Dowling v. United States, 473 U.S. 207 (1985). In

Dowling, the Court reversed a conviction for the interstate transportation

of infringing copies of Elvis Presley records, holding that Congress did not

intend §2314 to criminalize copyright infringement. e Court reasoned that

a copyright infringer neither assumed physical control over the copyright nor

wholly deprived the owner of its use. e statute “seems clearly to contemplate

a physical identity between the items unlawfully obtained and those eventually

II. Criminal Copyright Infringement 87

transported, and hence [requires] some prior physical taking of the subject

goods.” Id. at 216.

Despite Dowling, an ITSP charge may be appropriate for acts of infringement

that involve the actual transportation of tangible objects across state lines. For

more on these issues, see Section F. of Chapter IV of this Manual.

• RacketeerInuencedandCorruptOrganizationsAct(RICO),18

U.S.C.§§1961-1968

e criminal copyright and bootleg recordings of live music performances

oenses are RICO predicates. See 18 U.S.C. § 1961(1)(B). RICO charges

must be approved by the Department’s Organized Crime and Gang Section,

which can be reached at (202) 514-3594.

• Moneylaundering,18U.S.C.§1956

Criminal copyright infringement is a specied unlawful activity for

purposes of the money laundering statute. See 18 U.S.C. §1956(c)(7)(D).

88 Prosecuting Intellectual Property Crimes

III.

Tracking In

Counterfeit Trademarks,

Service Marks, and

Certication Marks—

18 U.S.C. §2320

A. Introduction

1. Overview

Trademarks and service marks are part of the fabric of American society.

ey are on our clothes, our cars, and nearly everything else we buy; they are

advertised on the street, in magazines, on television and websites, and especially

in stores. ey are protected not only by civil law, but also by the criminal

counterfeit marks statute rst enacted in 1984, 18 U.S.C. §2320.

A trademark is “any word, name, symbol, or device, or any combination

thereof... used by a person... to identify and distinguish his or her goods...

from those manufactured or sold by others and to indicate the source of the

goods.” 15 U.S.C. §1127. A service mark, by contrast, identies the source of

services rendered or oered, such as athletic events, television shows, restaurant

services, telecommunications services, or retail business services, rather than

goods. Id. Examples of well-known trademarks include Kodak®, Apple®,

Microsoft®, Coca-Cola®, GE®, Life-Savers®, USA Today®, KLEENEX®, the

color pink for Owens Corning berglass, and the NBC chime. Well-known

service marks include Merry Maids®, Greyhound®, Wal-Mart®, Taco Bell®,

Burger King®, and McDonald’s®.

Two other types of marks are protected by 18 U.S.C. §2320: certication

and collective marks. A certication mark is used to certify characteristics

of goods or services, including regional or other origin, material, mode of

manufacture, quality, and accuracy. Certication marks are also used to certify

that the work or labor on the goods or services was performed by members of

90 Prosecuting Intellectual Property Crimes

a union or other organization. 15 U.S.C. § 1127. Examples of certication

marks include Underwriters Laboratories’ UL® mark, which certies the safety

standards of electrical cable equipment, and the Woolmark® symbol, which

certies that certain laundry products can wash and dry wool and wool-blend

products without damage. ese marks indicate that authorized persons will

manufacture the products in accordance with the mark-holder’s processes. A

collective mark is a trademark or service mark used by an association, union,

or other group either to identify the group’s products or services, or to signify

membership in the group. Id. PGA®, Realtor®, and AFL-CIO® are examples of

collective marks.

As is discussed in more detail below, the law protects marks from

infringement because they are important to businesses and for consumer

protection. Americans rely on the brands these marks represent when deciding

which goods and services to purchase and use. is gives companies a strong

incentive to control the quality of their goods and services and to invest heavily

in their brands. One who infringes a mark often misleads consumers, diverts

sales from the mark’s owner, and misrepresents to the public the quality of

the marked products and services. Criminal prosecution is appropriate for the

most egregious infringers.

is Chapter rst discusses the functions protected by trademarks, service

marks, and certication marks. It then discusses the criminal counterfeiting

statute and the elements of the crime, as well as common defenses, issues

unique to this crime, and related statutory penalties. Sample indictments and

jury instructions are provided in Appendix C.

e criminal counterfeit marks statute, 18 U.S.C. §2320, and its associated

statutes, have undergone several signicant amendments since 2005. e Stop

Counterfeiting in Manufactured Goods Act, Pub. L. No. 109-181, §1, 120

Stat. 285, 285-88 (2006) and the Protecting American Goods and Services

Act of 2005, Pub. L. No. 109-181, §2, 120 Stat. 285, 288 (2006) (the “2006

amendments”), eective March 16, 2006, expanded and claried the denition

of “tracking,” and added language criminalizing tracking in labels and

packaging bearing counterfeit marks, even where those labels are unattached

to actual goods.

e Prioritizing Resources and Organization for Intellectual Property

(PRO-IP) Act, Pub. L. No. 110-403, 122 Stat. 4256, 4261-63 (2008), eective

October 13, 2008, further amended §2320 and associated statutes addressing

III. Trafcking In Counterfeit Marks 91

counterfeiting, by (i) enhancing penalties for knowingly or recklessly causing

or attempting to cause serious bodily injury or death, 18 U.S.C. §2320(a)(2)

(A) and (B) [now § 2320(b)(2)(A) and (B)]; (ii) prohibiting transshipment or

exportation of goods or services, the tracking of which was already prohibited

by 18 U.S.C. § 2320(h) [now § 2320(i)]; and (iii) harmonizing forfeiture and

restitution provisions under 18 U.S.C. §§ 2323 and 2320(b) [now § 2320(c)].

Most recently, the National Defense Authorization Act (NDAA) for Fiscal

Year 2012, Pub. L. No. 112-81, 125 Stat. 1298 (2011), H.R. 1540, S. 1867,

enacted December 31, 2011, and the Food and Drug Administration Safety

and Innovation Act (FDASIA), Pub. L. No. 112-144, 126 Stat. 993, S. 3197,

enacted July 9, 2012, included a number of substantial amendments to §2320.

For example, the NDAA, in § 818, amended § 2320 to include new, enhanced

penalties for certain oenses involving “counterfeit military goods,” a new

category also dened in the NDAA. Section 2320 also now provides an express

conspiracy provision, so that conspiracies to trac in counterfeit goods may

be prosecuted under §2320 alone, rather than in conjunction with 18 U.S.C.

§371. In addition to these substantive changes to §2320, the NDAA also

restructured the oense language in §2320(a). e FDASIA amended § 2320

to create a new oense for “tracking in counterfeit drugs,” and included new,

enhanced penalties for this oense. See FDASIA § 717. Prosecutors should

consult the text of §2320 carefully to ensure that they are applying the law in

eect at the time of the oense. Particularly in light of the recent restructuring

of § 2320(a), prosecutors should be mindful that previously-used charging

instruments, jury instructions, and other documents drafted prior to 2012

may use slightly dierent statutory language or numbering than is currently

applicable. For example, the denition of “counterfeit mark” previously found

in §2320(e)(1) is now found in §2320(f)(1).

In addition to this Chapter, prosecutors may refer to the leading treatise

on trademark law, J. omas McCarthy, McCarthy on Trademarks and Unfair

Competition (4th ed. 2012), as well as other helpful law review articles and

treatises such as Ronald D. Coenen Jr. et. al., Intellectual Property Crimes, 48

Am. Crim. L. Rev. 849 (2011); Louis Altman & Malla Pollack, Callmann on

Unfair Competition, Trademarks and Monopolies, 4 Callmann on Unfair Comp.,

T. & Mono. §22:33 (4th ed. 2012); and David J. Goldstone & Peter J. Toren,

e Criminalization of Trademark Counterfeiting, 31 Conn. L. Rev. 1 (1998).

Although § 2320 criminalizes the infringement of trademarks, service

marks, and certication marks, for ease of discussion this Manual often refers

92 Prosecuting Intellectual Property Crimes

primarily to trademarks and sales of goods. e legal analysis should, however,

apply equally to service and certication marks as well.

2. Why Criminal Law Protects Trademarks, Service Marks, and

Certication Marks

Trademarks and service marks serve at least four functions:

1. ey identify a particular seller’s goods or services and distinguish them

from those sold by others.

2. ey signify that all goods or services bearing the mark come from or

are controlled by a single source.

3. ey signify that all goods or services bearing the same mark are of an

equal level of quality.

4. ey serve as a primary method to advertise and sell goods and services.

See 1 J. omas McCarthy, McCarthy on Trademarks and Unfair Competition

§3:2 (4th ed. 2012). A trademark or service mark also serves as an important

“objective symbol of the good will that a business has built up. Without the

identication function performed by trademarks, buyers would have no way

of returning to buy products that they have used and liked.” Id. Certication

marks are intended to “certify regional or other origin, material, mode of

manufacture, quality, accuracy or other characteristics of such person’s goods

or services.” 15 U.S.C. §1127.

Because “penalties under [the civil Lanham] Act have been too small, and

too infrequently imposed, to deter counterfeiting signicantly,” much of the

conduct that formerly had been subject only to civil penalties was criminalized

through the enactment of the Trademark Counterfeiting Act of 1984, Pub. L.

No. 98-473, 98 Stat. 2178 (1984), (codied at 18 U.S.C. §2320). See S. Rep.

No. 98-526, at 5 (1984), reprinted in 1984 U.S.C.C.A.N. 3627, 3631.

e criminalization of trademark counterfeiting serves at least four

important purposes:

a. Protecting a mark-holder’s intellectual property from theft or dilution

Stealing a company’s name or brand name is a type of corporate identity

theft. SeeH.R. Rep. No. 109-68, at 8 n.2 (2005) (“Congress was concerned...

that counterfeiters can earn enormous prots by capitalizing on the reputations,

development costs, and advertising eorts of honest manufacturers at little

expense to themselves.”) (alterations in original and internal quotation marks

omitted) (legislative history to Stop Counterfeiting in Manufactured Goods

III. Trafcking In Counterfeit Marks 93

Act, Pub. L. No. 109-181, § 1, 120 Stat. 285 (2006)) (citing United States v.

Hon, 904 F.2d 803, 806 (2d Cir. 1990) and S. Rep. No. 98-526, at 4-5 (1984),

reprinted in 1984 U.S.C.C.A.N. 3627, 3630-31). A counterfeiter should no

more be able to steal a company’s good name (and the prots associated with

its name) than the company’s money or other assets. Diane Kiesel, Battling the

Boom in Bogus Goods, 71-MAR A.B.A.J. 60 (1985). Also, by selling inferior

products, the counterfeiter may devalue a mark-holder’s good name even while

proting from it. Id. at 61.

b. Protecting consumers from fraud

When consumers decide what goods to buy, they should be able to rely on

individual goods’ trademarks and the quality those marks purport to represent.

See H.R. Rep. No. 109-68, at 8 n.2 (“Congress was concerned not only that

trademark counterfeiting defrauds purchasers, who pay for brand-name quality

and take home only a fake...”) (alterations in original and internal quotation

marks omitted) (citing Hon, 904 F.2d at 806 and S. Rep. No. 98-526, at 4-5);

Note, Badwill, 116 Harv. L. Rev. 1845 (2003). Counterfeit marks can mislead

consumers. ey give the ring of authenticity to goods of lower quality. ey

can even mask serious health or safety risks to consumers, as in the cases of

counterfeit food products, batteries, prescription drugs, or automotive parts.

S. Rep. No. 98-526, at 4-5. Trademark counterfeiting can also be dicult

to regulate civilly. With a large number of victims across a potentially large

geographic region—especially in the case of goods oered online—and small

losses per victim, a large-scale counterfeiter can often evade civil sanctions.

c. Protecting the safety of non-purchasing users

Sales of counterfeit products can hurt not only the trademark holder and

the initial purchaser, but also third parties who use the goods or services after

the initial purchase. For example, airline passengers are victims of counterfeit

airplane parts, coronary patients are victims of counterfeit heart pumps, and

children are victims of counterfeit infant formula, even though in each case

the counterfeit goods were purchased for those consumers’ benet by another

person. ese are some of the types of situations that Congress sought to

eradicate by criminalizing trademark infringement. See H.R. Rep. No. 104-

556, at 3 (1996), reprinted in 1996 U.S.C.C.A.N. 1074, 1076; S. Rep. No.

98-526, at 4-5.

94 Prosecuting Intellectual Property Crimes

d. Enforcing market rules

Just as counterfeiting money and forging nancial instruments undermine

fundamental rules of the marketplace, counterfeiting trademarks weakens

modern commercial systems. David J. Goldstone & Peter J. Toren, e

Criminalization of Trademark Counterfeiting, 31 Conn. L. Rev. 1, 17-19 (1998).

B. Elements

1. e Trademark Counterfeiting Crime in General

e Trademark Counterfeiting Act, 18 U.S.C. §2320(a), states:

(a) Oenses.— Whoever intentionally—

(1) tracs in goods or services and knowingly uses a

counterfeit mark on or in connection with such goods or

services,

(2) tracs in labels, patches, stickers, wrappers, badges,

emblems, medallions, charms, boxes, containers, cans,

cases, hangtags, documentation, or packaging of any type

or nature, knowing that a counterfeit mark has been applied

thereto, the use of which is likely to cause confusion, to

cause mistake, or to deceive,

(3) tracs in goods or services knowing that such good

or service is a counterfeit military good or service the

use, malfunction, or failure of which is likely to cause

serious bodily injury or death, the disclosure of classied

information, impairment of combat operations, or other

signicant harm to a combat operation, a member of the

Armed Forces, or to national security, or

(4) tracs in a counterfeit drug,

or attempts or conspires to violate any of paragraphs (1)

through (4) shall be punished as provided in subsection (b).

In contrast to criminal copyright thresholds, selling just one counterfeit

item can be a felony. United States v. Foote, 413 F.3d 1240, 1246 (10th Cir.

2005). ere is no misdemeanor provision.

III. Trafcking In Counterfeit Marks 95

us, to establish a criminal oense under 18 U.S.C.§2320(a)(1)-(3), the

government must prove the following elements:

1. e defendant intentionally tracked or attempted or conspired to trac

in goods or services (or labels, documentation or packaging for goods

or services); and

2. e defendant knowingly used a counterfeit mark on or in connection

with those goods or services, or a counterfeit mark was applied to

labels, documentation, or packaging for those goods or services.

e elements above apply to all oenses under § 2320, whether under

subsection (1), (2), or (3). To prove an oense under the military counterfeits

provision, §2320(a)(3), the government must also prove the following two

elements:

3. e good or service bearing a counterfeit mark is a “counterfeit military

good or service,” meaning that the good or service is:

a. falsely identied or labeled as meeting military specications, or

b. intended for use in a military or national security application; and

4. e use, malfunction, or failure of the good or service is likely to cause

one or more of the following:

a. serious bodily injury or death,

b. the disclosure of classied information,

c. impairment of combat operations, or

d. other signicant harm to a combat operation, a member of the

Armed Forces, or to national security.

With respect to the counterfeit drug provision, § 2320(a)(4), this provision

makes it an oense to intentionally trac or attempt or conspire to trac in a

“counterfeit drug”; “counterfeit drug” is dened in § 2320(f)(6) as a drug “that

uses a counterfeit mark on or in connection with the drug.” Congress, however,

inadvertently did not include the requirement that the government must prove

that the defendant knowingly used a counterfeit mark on or in connection

with the drug. As of this writing, Congress has not amended this provision to

correct the omission of this requirement. If prosecutors seek to bring a case

under § 2320(a)(4), it would be prudent for prosecutors to prove that the

defendant knowingly used a counterfeit mark on or in connection with the

drug, just as they would prove the mens rea for § 2320(a)(1)–(3). is approach

is consistent with the legislative intent. Alternatively, prosecutors can continue

to use § 2320(a)(1) to charge cases involving the knowing use of a counterfeit

mark on drugs as such drugs still constitute “goods.” Prosecutors can contact

96 Prosecuting Intellectual Property Crimes

CCIPS at (202) 514-1026 to obtain the latest guidance with respect to the

counterfeit drug provision.

In addition to the elements of the oense, the government must also show

in all cases that the counterfeit mark meets the denition of a counterfeit mark

as set forth in § 2320(f). To meet the denition of a counterfeit mark, the

government must show that:

1. e counterfeit mark was not genuine or authentic;

2. e counterfeit mark was identical to or substantially indistinguishable

from a genuine mark owned by another;

3. e genuine mark was registered on the principal register in the United

States Patent and Trademark Oce;

4. e genuine mark had been in use by the mark-holder or its licensee;

5. e counterfeit mark was used “on or in connection with” the

defendant’s goods or services (or in the case of labels and packaging, the

counterfeit mark was “applied to or used in connection with” the goods

or services or was “applied to or consist[ed] of ” labels, documentation,

or packaging “of any type or nature”);

6. e counterfeit mark was used “in connection with” the type of goods

or services for which the protected mark was registered, (or in the case

of labels and packaging, the counterfeit labels, documentation, or

packaging were “designed, marketed, or otherwise intended to be used

on or in connection with the goods or services for which the mark

[was] registered”); and

7. e counterfeit mark was used in a manner “likely to cause confusion, to

cause mistake, or to deceive.”

ese elements and denition are discussed in detail below.

2. Relevance of Civil Trademark Law in Criminal

Counterfeiting Cases

When Congress drafted §2320, it relied on the “concepts and denitions

of the Lanham Act,” the civil trademark statute codied at 15 U.S.C. §§1051-

1127. See H.R. Rep. No. 98-997, at 4-5 (1984). e Lanham Act’s defenses and

limitations on remedies are specically incorporated into §2320, see 18 U.S.C.

§2320(d), (f)(3), and are discussed in Section C.4. of this Chapter. Moreover,

Congress repeatedly indicated that the Lanham Act was the background against

which §2320 should be interpreted. See, e.g., Joint Statement on Trademark

Counterfeiting Legislation, 130 Cong. Rec. 31,675 (1984) (hereinafter “Joint

III. Trafcking In Counterfeit Marks 97

Statement”) (“No conduct will be criminalized by this act that does not

constitute trademark infringement under the Lanham Act.”).

Given this legislative history, courts deciding criminal cases under §2320

have often turned to civil opinions decided under the Lanham Act. For example,

the Ninth Circuit armed a defendant’s § 2320 conviction by relying not

only on the criminal statute’s legislative history, but also on two civil Lanham

Act cases. e court noted that the “denition of the term ‘counterfeit mark’

in the Lanham Act is nearly identical to the denition [of counterfeit mark]

in Section2320, suggesting that Congress intended to criminalize all of the

conduct for which an individual may be civilly liable.” United States v. Petrosian,

126 F.3d 1232, 1234 (9th Cir. 1997); see also 15 U.S.C. §§1116(d) (dening

“counterfeit mark” in civil actions), 1127 (dening “counterfeit”). Similarly, the

Eleventh Circuit held that the “likely to cause confusion, mistake or deceive”

test within the denition of counterfeit mark at 18 U.S.C. §2320(f )(1)(A)

(iii) extends beyond direct purchasers to encompass the purchasing public and

potential purchasers based on the “identical language” in the Lanham Act and

the legislative history. United States v. Torkington, 812 F.2d 1347, 1352 (11th

Cir. 1987) (“Congress... manifested its intent that [§2320] be given the same

interpretation as is given the identical language in [§]1114(1) of the Lanham

Act”).

Despite the civil and criminal laws’ many similarities, some courts have

held that their dierences sometimes merit distinction. See United States v.

Hanafy, 302 F.3d 485, 488 (5th Cir. 2002) (holding that Lanham Act cases

“should not be used as authoritative in interpreting a criminal statute”); United

States v. Giles, 213 F.3d 1247, 1249-50 (10th Cir. 2000) (declining to follow a

civil case in part because §2320, as a criminal statute, must be construed more

narrowly); Torkington, 812 F.2d at 1350 (noting that §2320 is “narrower in

scope” than the Lanham Act).

3. Intentionally Tracked in Goods or Services (or Labels,

Documentation, or Packaging for Goods or Services)

Section 2320(a) requires the government to prove that the defendant

“intentionally” tracked in goods or services or in “labels, patches, stickers,

wrappers, badges, emblems, medallions, charms, boxes, containers, cans, cases,

hangtags, documentation, or packaging of any type or nature,” or attempted or

conspired to do so. 18 U.S.C. §2320(a)(1), (2).

98 Prosecuting Intellectual Property Crimes

a. Intentionally

e term “intentionally” modies “tracs.” See Stop Counterfeiting in

Manufactured Goods Act, Pub. L. No. 109-181, §1, 120 Stat. 285, 285-87

(2006); United States v. Baker, 807 F.2d 427, 429 (5th Cir. 1986) (quoting

legislative history’s breakdown of §2320’s two mens rea elements). It means

“that the defendant tracked in the goods or services in question deliberately,

or ‘on purpose.’” See Joint Statement, 130 Cong. Rec. 31,674 (1984).

As a general intent crime, the government need not prove that the defendant

specically intended to violate 18 U.S.C. §2320 or even that he knew his

conduct was illegal. Baker, 807 F.2d at 427-30; United States v. Gantos, 817

F.2d 41, 42-43 (8th Cir. 1987) (arming district court’s refusal to instruct jury

that §2320 required proof that defendant knew that his act violated the law).

b. Tracked

i. General Denition

“Trac” is broadly dened in § 2320(f)(5) to mean “to transport, transfer,

or otherwise dispose of, to another, for purposes of commercial advantage or

private nancial gain, or to make, import, export, obtain control of, or possess,

with intent to so transport, transfer, or otherwise dispose of.” e current

denition resolves some diculties that arose from earlier denitions used in

the statute, which turned on the meaning of “consideration.”

Prior to March 16, 2006, “trac” was dened somewhat more narrowly,

in what was then subsection (e)(2) of 18 U.S.C. §2320 to mean “transport,

transfer, or otherwise dispose of, to another, as consideration for anything of

value, or make or obtain control of with intent so to transport, transfer, or

dispose of.” at denition was intended to be broad, covering all aspects of

commercial activity from initial manufacture to distribution and sale, but it

was not intended to cover purchases for personal use. See Joint Statement, 130

Cong. Rec. 31,675 (1984); S. Rep. No. 98-526 (1984), reprinted in 1984

U.S.C.C.A.N. 3627; David J. Goldstone & Peter J. Toren, e Criminalization

of Trademark Counterfeiting, 31 Conn. L. Rev. 1 (1998). A defendant who did

not personally “transport[], transfer[], or otherwise dispose[]” of the goods but

who aided and abetted a co-conspirator who did trac could be convicted as

an aider-and-abettor. See United States v. Guerra, 293 F.3d 1279, 1287 (11th

Cir. 2002) (arming §2320 conspiracy and aiding-and-abetting convictions

III. Trafcking In Counterfeit Marks 99

for defendants who made labels that a co-conspirator attached to fake Cuban

cigars he sold).

Yet the pre-2006 denition arguably covered too narrow a swath of

commercially-motivated conduct, and it generally did not explain how to deal

with cases in which the defendant was caught possessing counterfeits with the

intent to trac in them. See Sections B.3.b.ii.-iii. of this Chapter.

ese problems were xed by the Protecting American Goods and Services

Act of 2005, enacted March 16, 2006. e statute modied the denition

of the term “trac” to (1) clarify that it includes tracking committed for

commercial purpose or nancial gain (which includes the receipt or expected

receipt of anything of value); (2) applies to importing or exporting counterfeit

goods; and (3) includes possession with intent to transport, transfer or otherwise

dispose of. See Pub. L. No. 109-181, §2, 120 Stat. 285, 288 (2006) (amending

the former 18 U.S.C. §2320(e)(2), (3) (now numbered 2320(f)(5), (f )(2),

respectively). ese issues are discussed below.

ii. Consideration vs. Commercial Advantage

and Private Financial Gain

Under the pre-2006 denition of “trac,” the thing “of value” that a

defendant had to receive as consideration for the counterfeit goods did not

need to be a nancial payment, but rather could be anything that had value.

See United States v. Koehler, 24 F.3d 867, 870-71 (6th Cir. 1994) (arming

§2320 conviction based on acceptance of air conditioner compressors in lieu

of nancial payment). at rule survived the 2006 amendments, in which

“consideration” was replaced with “for purposes of commercial advantage or

private nancial gain,” §2320(e)(2) (as amended), and “nancial gain” was

dened as including “the receipt, or expected receipt, of anything of value,”

§2320(e)(3) (as amended) (emphasis added) (now numbered 2320(f)(5), (f )

(2), respectively).

e “consideration” requirement may have been too narrow to capture

some types of commercially-motivated counterfeiting conduct. For example,

at least one court held that the term “consideration” must be interpreted in

the contractual sense as the product of a bargained-for exchange between

parties. See United States v. Habegger, 370 F.3d 441, 444-45 (4th Cir. 2004).

In Habegger, the Fourth Circuit held that a free sample of counterfeit goods

sent to a potential customer did not constitute “tracking” under what was

then §2320(e)(2) (now §2320(f)(2)), even if the samples had been sent to

100 Prosecuting Intellectual Property Crimes

maintain the customer’s good will, because there had been no agreement to

purchase goods. Id. at 445. e court might have decided dierently, however,

had there been “more than a mere hope on the part of the sender that the

recipient [would] purchase goods in the future,” such as if the recipient had

“promised to pay for the socks, to buy additional socks if he found the samples

acceptable, or even to examine the socks and consider purchasing more.” Id.

To avoid problems like this, Congress replaced “consideration” with “for

purposes of commercial advantage or nancial gain,” a phrase which has a long-

standing meaning within the copyright and criminal codes. It covers a wider

variety of prot-related infringement, regardless of whether the defendant

infringed for a direct quid pro quo or actually made a prot. For a detailed

discussion of how to apply the commercial advantage or nancial gain element,

see Section B.4. of Chapter II of this Manual.

e post-2006 denition of “trac” in § 2320 is suciently broad to

cover virtually all types of commercial transactions, but does not extend to a

consumer’s acquisition of a counterfeit item solely for personal use. is was

also true under the prior version of “trac.” See Joint Statement, 130 Cong.

Rec. 31,675 (1984).

iii. Making and Obtaining Counterfeits vs. Possession with Intent to

Trac

At rst glance, possession of contraband with intent to trac—which the

old denition did not explicitly cover—appears coextensive with making or

obtaining control of contraband with intent to trac—both of which the old

and new denitions explicitly included. See 18 U.S.C. §2320(f )(5); United

States v. DeFreitas, 92 F. Supp. 2d 272, 277 (S.D.N.Y. 2000) (holding that

purchasing counterfeit items in China for transportation to and sale in the

United States constituted an illegal act of “obtaining control” for purposes of

§2320).

Yet there is a subtle—but important—distinction between “obtaining

control” with intent to trac and “possession” with intent to trac. Consider a

warehouse full of counterfeits, with no records indicating when the counterfeits

were made, obtained, or transported. Under the old denition of tracking,

the defendant might argue that although the government could show that

he possessed counterfeits in commercial quantities, it could not prove when

he made or obtained control of them—the old denition’s operative verbs.

In the same vein, the defendant might argue that without records to prove

III. Trafcking In Counterfeit Marks 101

when the defendant made or obtained control of the counterfeits, a fortiori the

government could not prove that these events occurred within the statute of

limitations. If, however, the government need only prove that the defendant

possessed the contraband with the intent to trac in it, then the government

can establish that that action occurred on the date it found the warehouse full

of counterfeits; it need not prove when the defendant acquired or produced the

contraband. us, Congress amended the denition of tracking explicitly to

include possession with intent to trac.

iv. Importing and Exporting Related to Transporting

Congress added importing and exporting to the new denition of tracking

in 2006 to make clear that both acts violate §2320. e pre-2006 denition

of “trac” covered both importing and exporting counterfeits: importing and

exporting are forms of transporting goods, and the old denition explicitly

covered transportation. See 18 U.S.C. §2320(e)(2) (2000) (“[T]he term ‘trac’

means to transport, transfer, or otherwise dispose of, to another...”) (emphasis

added) (pre-2006 amendments); DeFreitas, 92 F. Supp. 2d at 276-77 (holding

that importing counterfeit items from China into the United States for sale

constituted tracking under §2320). e 2006 amendments make it even

clearer that the acts of importing and exporting counterfeits violate §2320.

c. Goods and Services (and Labels, Patches, Stickers, Wrappers, Badges,

Emblems, Medallions, Charms, Boxes, Containers, Cans, Cases,

Hangtags, Documentation, or Packaging of Any Type or Nature)

Before the 2006 amendments, § 2320 only criminalized tracking in

counterfeit “goods” or “services” (which continue to be criminalized under

§2320(a)(1) and (a)(3)). In the 2006 amendments, Congress expanded §2320

to criminalize tracking in labeling and packaging components designed to be

applied to accompany goods or services.

Neither §2320 nor the Lanham Act dene the terms “goods or services.”

Section 2320’s legislative history, however, provides some guidance regarding

the meaning of “goods.” In the legislative history, Congress’s focus was on the

damage caused by various types of counterfeit goods such as drugs, automobile

parts, cosmetics, fertilizers, computer parts, and medical devices. H.R. Rep.

No. 98-997, at 5 (1984). With regard to “services,” however, the legislative

histories for §2320 and the Lanham Act are silent. See In re Advertising &

Marketing Dev., Inc., 821 F.2d 614, 618 (Fed. Cir. 1987) (discussing Lanham

Act’s legislative history). Although courts have not dened “services” under

102 Prosecuting Intellectual Property Crimes

§2320, in Lanham Act cases, courts have dened the term broadly to include

“the performance of labor for the benet of another.” In re Canadian Pac. Ltd.,

754 F.2d 992, 994 (Fed. Cir. 1985) (emphasis omitted); Morningside Group

Ltd. v. Morningside Capital Group, L.L.C., 182 F.3d 133, 137-38 (2d Cir.

1999).

e diculty with punishing defendants for using counterfeit marks only in

connection with goods and services for which the genuine mark was registered

was that it created a potential loophole for tracking in labels, documentation,

and packaging with counterfeit marks. Labels, documentation, and packaging

that bore counterfeit trademarks but which were unattached to other goods or

services ran the possibility of not being considered “goods” under §2320 if the

mark-holder had not registered the marks for use on labels, documentation,

and packaging.

is was the holding of the Tenth Circuit in United States v. Giles, 213

F.3d 1247, 1253 (10th Cir. 2000) (“Section 2320 does not clearly penalize

tracking in counterfeit labels which are unattached to any goods.”). In Giles,

the defendant sold patches bearing counterfeit Dooney & Burke trademarks.

e patches could be attached to generic handbags and luggage to make them

counterfeit, but Dooney & Burke had registered the marks for use on handbags

and luggage, not on patches, and the defendant did not sell the fake handbags

and luggage to which the patches were to be attached. e Tenth Circuit

concluded that the patches were labels, not goods, and that the defendant

could not be convicted under §2320 for tracking in unattached labels. e

court indicated, however, that the case might have been decided dierently

had the marks been registered for use on patches or if the defendant had been

charged with aiding-and-abetting tracking in counterfeit goods. Id. at 1251

n.6, 1252 & n.7. us, a defendant who used a counterfeit mark but did not

provide the good or service himself generally had to be charged under §2320

in conjunction with conspiracy or aiding-and-abetting. Id. at 1251 n.6; United

States v. Guerra, 293 F.3d 1279, 1286-87 & n.4 (11th Cir. 2002) (arming

conviction on these grounds).

Congress directly addressed the Giles decision by amending § 2320 to

expressly criminalize tracking in counterfeit labels, documentation, and

packaging directly:

Whoever intentionally tracs or attempts to trac in goods

or services and knowingly uses a counterfeit mark on or in

III. Trafcking In Counterfeit Marks 103

connection with such goods or services[, or intentionally tracs

or attempts to trac in labels, patches, stickers, wrappers,

badges, emblems, medallions, charms, boxes, containers, cans,

cases, hangtags, documentation, or packaging of any type or

nature, knowing that a counterfeit mark has been applied

thereto, the use of which is likely to cause confusion, to cause

mistake, or to deceive,] shall, if an individual, be ned not

more than $2,000,000 or imprisoned not more than 10 years,

or both, and, if a person other than an individual, be ned not

more than $5,000,000.

18 U.S.C. § 2320(a) (2006) (bracketed language inserted by the Stop

Counterfeiting in Manufactured Goods Act, Pub. L. No. 109-181, §1(b)(1),

120 Stat. 285, 285 (2006)); see H.R. Rep. No. 109-68, at 7 (“is modication

is intended to overrule the holding in the case United States v. Giles....”). us,

beginning in 2006, defendants could be charged with tracking in labels,

documentation, and packaging with counterfeit marks under §2320 without

resort to aiding-and-abetting or conspiracy charges.

Despite the focus on labels, documentation, or packaging that bear

inauthentic marks, repackaging authentic goods with inauthentic labels is

criminal only in a limited set of circumstances. See Sections C.3. and D.4. of

this Chapter.

A defendant can be convicted for tracking in a single good, service, label,

piece of documentation or packaging. See United States v. Foote, 413 F.3d 1240,

1246-47 (10th Cir. 2005) (holding that §2320’s use of “goods” in the plural

does not preclude prosecution of a person who tracs in a single counterfeit

good).

Whether the things that the defendant tracked in consist of “goods” or

“services”—or as labels, documentation, or packaging intended to be used with

goods or services—is governed by the victim’s certicate of registration with

the United States Patent and Trademark Oce. e certicate of registration

will indicate whether the mark in question had been registered for goods or for

services and, if so, for what class of good or service. See Section B.4.c. of this

Chapter.

104 Prosecuting Intellectual Property Crimes

4. e Defendant Used a “Counterfeit Mark”: Denition of a

Counterfeit Mark

e government must prove that the defendant knowingly used a

“counterfeit mark” on or in connection with goods or services, or that a

counterfeit mark was applied to the labels, documentation, or packaging. 18

U.S.C. §2320(a). To prove this element, the government must also demonstrate

that the counterfeit mark in question meets the statutory denition of a

counterfeit mark in 2320(f)(1)(A).

a. Not Genuine or Authentic

“Counterfeit mark” is a term of art that is dened as follows:

(A) a spurious mark—

(i) that is used in connection with tracking in any

goods, services, labels, patches, stickers, wrappers, badges,

emblems, medallions, charms, boxes, containers, cans,

cases, hangtags, documentation, or packaging of any type

or nature;

(ii) that is identical with, or substantially indistinguishable

from, a mark registered on the principal register in the

United States Patent and Trademark Oce and in use,

whether or not the defendant knew such mark was so

registered;

(iii) that is applied to or used in connection with the goods

or services for which the mark is registered with the United

States Patent and Trademark Oce, or is applied to or

consists of a label, patch, sticker, wrapper, badge, emblem,

medallion, charm, box, container, can, case, hangtag,

documentation, or packaging of any type or nature that

is designed, marketed, or otherwise intended to be used

on or in connection with the goods or services for which

the mark is registered in the United States Patent and

Trademark oce; and

(iv) the use of which is likely to cause confusion, to cause

mistake, or to deceive.

18 U.S.C. §2320(f)(1)(A).

III. Trafcking In Counterfeit Marks 105

A “spurious” mark is one that is “not genuine or authentic.” Joint Statement,

130 Cong. Rec. 31,675 (1984).

Although this denition appears to indicate that the mark itself must be

counterfeit, rather than the goods or services (or, in a labels case, the labels,

documentation, or packaging), it is well-settled that a genuine or authentic

mark becomes counterfeit when it is used in connection with something else

that is counterfeit. See 4 J. omas McCarthy, McCarthy on Trademarks and

Unfair Competition § 25:15 (4th ed. 2012); United States v. Petrosian, 126

F.3d 1232 (9th Cir. 1997). In Petrosian, the defendant, who lled genuine

Coca-Cola bottles with a substitute carbonated beverage and sold it as Coca-

Cola, contended that his Coca-Cola marks were not counterfeit because his

genuine bottles bore genuine marks. 126 F.3d at 1233. e Ninth Circuit

disagreed, holding that “[w]hen a genuine trademark is axed to a counterfeit

product, it becomes a spurious mark.... e Coca-Cola mark became spurious

when [defendant] axed it to the counterfeit cola because the mark falsely

indicated that Coca-Cola was the source of the beverage in the bottles and

falsely identied the beverage in the bottles as Coca-Cola.” Id. at 1234. See

also Section C.3. of this Chapter concerning the repackaging of authentic

goods. is rule should apply equally to services, labels, documentation, and

packaging.

e denition of “counterfeit mark” in § 2320(f)(1)(B) also includes

designations protected by the Olympic Charter Act. See Section D.8. of this

Chapter.

Separate laws punish the counterfeit use of emblems, insignias, and names

of:

• militarymedalsanddesignations;

• veterans’organizations;

• cremationurnsformilitaryuse;

• thesealsoftheUnitedStatesPresident,VicePresident,Senate,House

of Representatives, and Congress;

• federalagencies;

• theDepartmentofInterior’sgoldeneagleinsignia;

• policebadges;

• theRedCross;

• the4-Hclub;

• theSwissConfederation;

• SmokeytheBear;and

106 Prosecuting Intellectual Property Crimes

• WoodsytheOwl.

See 18 U.S.C. §§700-716.

b. e Counterfeit Mark Must Be Identical to or Indistinguishable

from a Genuine Mark Owned by Another

Under 18 U.S.C. §2320(f )(1)(A), a counterfeit mark is a spurious mark

that is “identical with, or substantially indistinguishable from,” a federally

registered mark. is standard is based on the same standard set forth in the

Lanham Act, 15 U.S.C. §1127. e legislative history suggests that the civil

and criminal standards should be interpreted the same. See Joint Statement, 130

Cong. Rec. 31,675-76 (1984) (noting that the civil and criminal standards

“dier slightly in their terms, but [] are identical in substance,” and citing civil

cases to explain both standards). To the extent the criminal and civil standards

diverge at all, the criminal standard should be interpreted more narrowly only

in cases at the outer margins. United States v. Guerra, 293 F.3d 1279, 1288 (11th

Cir. 2002) (citing Joint Statement, 130 Cong. Rec. 31,675 (stating that §2320

is not intended to criminalize what would have been “arguable” cases of civil

trademark infringement before the criminal act’s passage)). Note, however, that

although the criminal and civil standards are virtually identical with respect

to what constitutes a “counterfeit,” civil law also prohibits the unauthorized

use of a “colorable imitation of a registered mark,” see 15 U.S.C. §1114(1)

(a), which by its terms falls short of being a counterfeit mark that is “identical

with, or substantially indistinguishable from” a genuine mark. Nevertheless,

“[b]ecause of the similarity between this denition and the § 2320 denition

of ‘counterfeit mark,’ we nd Lanham Act civil counterfeiting cases helpful to

our analysis of criminal counterfeiting cases brought under § 2320(a).” United

States v. Lam, 677 F.3d 190, 199 n.8 (4th Cir. 2012)

Whether a defendant has used a mark that is “substantially indistinguishable”

from a federally registered mark is a fact question that must be determined on a

case-by-case basis. See Joint Statement, 130 Cong. Rec. 31,675 (“the denition

of ‘substantially indistinguishable’ will need to be elaborated on a case-by-

case basis”); cf. Colgate-Palmolive v. J.M.D. All-Star Import and Export Inc.,

486 F. Supp. 2d 286, 291 (S.D.N.Y. 2007) (“Cases applying the ‘substantially

indistinguishable’ test are inherently fact intensive.”). Nevertheless, Congress did

give the following guidance on the scope of the substantially indistinguishable

standard:

III. Trafcking In Counterfeit Marks 107

Obviously, a mark need not be absolutely identical to a

genuine mark in order to be considered “counterfeit.” Such an

interpretation would allow counterfeiters to escape liability by

modifying the registered trademarks of their honest competitors

in trivial ways. However, the sponsors do not intend to treat as

counterfeiting what would formerly have been arguable, but

not clear-cut, cases of trademark infringement.

Joint Statement, 130 Cong. Rec. 31,676 (1984); accord Lam, 677 F.3d at

199 (quoting United States v. Guerra, 293 F.3d 1279, 1288 (11th Cir. 2002)

(quoting Joint Statement, 130 Cong. Rec. 31,675)); Pepe (U.K.) Ltd. v. Ocean

View Factory Outlet, 770 F. Supp. 754, 758 (D.P.R. 1991) (same); Colgate-

Palmolive, 486 F. Supp. 2d at 289 (same). For example, in Pepe, the court

held that a defendant uses a mark that is substantially indistinguishable from a

registered mark when the similarities between the marks presents “more than

an arguable case of infringement.” 770 F. Supp. at 759 (emphasis in original).

In Montres Rolex, S.A. v. Snyder, a case that pre-dates the enactment of §2320

but was cited with approval in the statute’s legislative history (130 Cong. Rec.

at 31,675-76), the Second Circuit acknowledged that the dierence between

the “likely to cause confusion” and “substantially indistinguishable” standards

“may be more theoretical than real” in some cases. 718 F.2d 524, 531 (2d

Cir. 1983). More recently, in reviewing a jury’s nding that two marks are

substantially indistinguishable from one another, the Fourth Circuit held that

“a good displaying an allegedly counterfeit trademark must possess pronounced

dierences from a legitimate trademarked good for us to declare that no rational

jury could nd that it was a counterfeit.” Lam, 677 F.3d at 199 (emphasis

added).

“In general, however, [word] marks that are similar to the registered mark,

but dier by two or more letters, are not likely to be considered counterfeit,”

Colgate-Palmolive, 486 F. Supp. 2d at 291, suggesting that marks that dier in

only one letter may be considered counterfeit. For example, use of the mark

“Prastimol” for a medication that is the functional equivalent of the product

sold under the trademark “Mostimol” would not be a crime. Joint Statement,

130 Cong. Rec. 31,676. Nor would a ‘P’ superimposed over a ‘V’ on a eur-

de-lis pattern be substantially indistinguishable from an ‘L’ superimposed over

a ‘V’ over the same pattern, or using “Amazonas” rather than “Amazon,” or

“Bolivia” rather than “Bulova.” See Montres Rolex, 718 F.2d at 531-32 (noting

that these examples might create a likelihood of confusion without being

108 Prosecuting Intellectual Property Crimes

substantially indistinguishable, in case interpreting Customs’s power to seize

counterfeits).

A counterfeiter who sells a look-alike with an altered brand name can still

be convicted, however, if his look-alike reproduces other registered trademarks.

See United States v. Yi, 460 F.3d 623, 627 n.1, 629 n.4 (5th Cir. 2006) (holding

that even though defendant’s batteries were named “Dinacell” rather than

“Duracell,” the batteries were still counterfeit because they used Duracell’s

copper-top and black-body trademark). Likewise, a counterfeiter who sells a

look-alike with an altered trademarked design can still be convicted if the look-

alike reproduced another registered design mark. Lam, 677 F.3d at 198-99

(rejecting defendant’s argument that “[n]o rational jury would conclude that

a mark with a knight integrated onto it was a counterfeit of a mark without

a knight” and holding that a rational jury could nd that defendant’s mark

bearing a plaid and an equestrian knight was substantially indistinguishable

from Burberry’s federally registered plaid or “Check” mark without a knight,

“especially in light of the evidence demonstrating that Burberry often sells

goods displaying the Burberry Check mark and the Burberry Equestrian mark

together”) (internal quotation marks omitted).

Prosecutors should pay special attention to word marks. A trademark can

consist of a symbol, a picture, or a stylized depiction of a word (such as the

distinctive Coca-Cola® cursive mark). A trademark can also consist of a simple

word. A word mark registered in a neutral font and all capital letters “covers all

design features and is not limited to any special form or lettering.” Sally Beauty

Co. v. Beautyco, Inc., 304 F.3d 964, 970 (10th Cir. 2002) (emphasis added)

(citations omitted); 3 J. omas McCarthy, McCarthy on Trademarks and Unfair

Competition §19:58 (4th ed. 2012) (“‘Registrations with typed drawings are

not limited to any particular rendition of the mark and, in particular, are not

limited to the mark as it is used in commerce.’”) (quoting Cunningham v. Laser

Golf Corp., 222 F.3d 943, 950 (Fed. Cir. 2000)); see also Cunningham, 222 F.3d

at 949-50; 37 C.F.R. §2.52 (2012). In other words, there is a strong argument

that a mark registered in this manner is counterfeited by any infringing use

of the mark, whether in the font used by the mark-holder or not, because the

infringing word mark is substantially indistinguishable from the word mark

itself.

When trying to determine which trademarks the defendant infringed,

prosecutors and agents should consult with the victim. Although the

government itself can search for trademarks on the United States Patent and

III. Trafcking In Counterfeit Marks 109

Trademark Oce’s website, these searches can be cumbersome. Given the

range of perceptible elements that can be registered as marks—witness the

color pink for Owens Corning berglass, the NBC chime, the Burberry plaid,

and the shape of the Coca-Cola bottle (respectively U.S. Trademark Reg. Nos.

1439132 and 2380742, 0916522, 2022789, and 1057884)—the victim is

best suited to identify which elements were registered as marks and which may

have been counterfeited.

Section 2320 does not specify the procedure for establishing at trial that the

counterfeit mark is identical to or substantially indistinguishable from a genuine

registered mark. See Guerra, 293 F.3d at 1288. In Guerra, the Eleventh Circuit

rejected the defendant’s contention at trial that the government must 1) introduce

genuine trademarks axed to genuine goods, 2) introduce the testimony of a

representative from the mark-holder, and 3) rely on investigative agents who

are experts in the counterfeited product or service. Id.; see also United States v.

Able Time, Inc., 545 F.3d 824, 836 (9th Cir. 2008) (rejecting the proposition

that a factnder must compare the alleged counterfeit mark with the registered

mark as it appears on actual merchandise and holding that “[o]n remand, the

factnder may compare the oending mark to the mark on the registration

certicate”). Instead, the Eleventh Circuit ruled that introducing registered

trademark designs and labels produced by authorized licensees was sucient.

Guerra, 293 F.3d at 1288. Other courts have approved the government’s use

of expert testimony and a comparison between counterfeit and genuine goods.

See United States v. Yamin, 868 F.2d 130, 135 (5th Cir. 1989); United States v.

McEvoy, 820 F.2d 1170, 1172 (11th Cir. 1987) (same). Prosecutors should note

that courts have declined to adopt the point of view of experts in determining

whether defendants used marks that are substantially indistinguishable from

federally registered marks. Montres Rolex, 718 F.2d at 531 (holding that the

same “average purchaser test” for the “likely to cause confusion” infringement

standard applies to the “substantially indistinguishable” standard); Pepe, 770

F. Supp. at 758 (“e court in the Rolex case made the determination whether

a mark was a substantially indistinguishable counterfeit, as opposed to a mere

infringement, from the standpoint of an average purchaser rather than from

the standpoint of an expert.”).

In civil cases, courts have also allowed evidence of actual confusion, such

as customers who were fooled, and trademark surveys. 4 J. omas McCarthy,

McCarthy on Trademarks and Unfair Competition §§23:2, 13, 17, 63 (4th ed.

2012). Market surveys are often used in civil cases, but can raise evidentiary

110 Prosecuting Intellectual Property Crimes

issues. See, e.g., 6 McCarthy on Trademarks and Unfair Competition §§32:158,

170; Citizens Fin. Group v. Citizens Nat’l Bank of Evans City, 383 F.3d 110

(3d Cir. 2004). As of the writing of this Manual, no reported cases address the

admissibility of market surveys in criminal trademark prosecutions.

e procedures and analysis for comparing counterfeit and legitimate

marks are also addressed in Section B.4.g. of this Chapter, which discusses how

to prove likelihood of confusion. See Montres Rolex, 718 F.2d at 531.

Proving that two marks are likely to be confused is not always sucient to

prove that they are identical or substantially indistinguishable. Likelihood of

confusion is a lower hurdle. See id. at 531-32 (noting examples of marks that were

likely to cause confusion, but which were not substantially indistinguishable

from the real thing: a ‘P’ superimposed over a ‘V’ on a eur-de-lis pattern

vs. an ‘L’ superimposed over a ‘V’ over the same pattern; “Amazonas” vs.

“Amazon”; and “Bolivia” vs. “Bulova”). For actual comparisons of marks that

were alleged to be confusingly similar, see 3 McCarthy on Trademarks and

Unfair Competition §§23:21-40, keeping in mind the potential dierences

between civil and criminal cases (see Section B.2. of this Chapter) and the

dierence between “likelihood of confusion” and marks being “substantially

indistinguishable.”

c. e Genuine Mark Must Be Federally Registered on the U.S. Patent

and Trademark Oce’s Principal Register

e victim’s mark must have been registered on the principal register in the

United States Patent and Trademark Oce (“USPTO”), 18 U.S.C. §2320(f)

(1)(A)(ii), unless the case involves the Olympic symbols (see Section D.8. of

this Chapter).

Federal registration is a jurisdictional element. us, §2320 cannot be

charged if the victim’s mark was only registered on the USPTO’s supplemental

common law. However, if a §2320 charge is unavailable because the mark was

not registered on USPTO’s principal register, alternate charges such as mail

fraud, wire fraud, or state or local trademark charges may still be available. See

Section F. of this Chapter.

Proving the mark’s registration is usually straightforward. Generally, the

government will simply oer a certied copy of the certicate of registration.

e court may take judicial notice of registration certicates. See Fed. R. Evid.

III. Trafcking In Counterfeit Marks 111

201(b); Duluth News-Tribune v. Mesabi Publ’g Co., 84 F.3d 1093, 1096 n.2

(8th Cir. 1996); Omega S.A. v. Omega Eng’g, 228 F. Supp. 2d 112, 120 & n.26

(D. Conn. 2002); cf. Island Software and Computer Serv. v. Microsoft Corp.,

413 F.3d 257, 261 (2d Cir. 2005) (approving judicial notice of copyright

registration certicates). Unocial registration information can be searched on

the USPTO’s website: http://www.uspto.gov/main/trademarks.htm. Formal,

certied copies of the registration certicates can be obtained directly from

USPTO. e Department of Justice has no special method for expediting

delivery of certicates from USPTO, beyond perhaps a grand jury or trial

subpoena, which should be discouraged. e usual method is to obtain certied

copies of certicates from the victims themselves.

Registration may also be proved through other means, such as testimony

of the mark-holder and other circumstantial evidence. For example, in United

States v. DeFreitas, 92 F. Supp. 2d 272, 278 (S.D.N.Y. 2000), the court allowed

the jury to conclude that a mark was registered based on testimony of the mark-

holder for Beanie Babies along with samples of genuine Beanie Babies with tags

bearing registered tags, the mark-holder’s catalogue containing a statement that

the trademark was registered, and testimony of the mark-holder’s CEO. In

United States v. Park, 164 Fed. Appx. 584, 585-86 (9th Cir. 2006), the Ninth

Circuit found that the government had proved registration by introducing a

civil complaint against the defendant in a prior suit that she had settled, in

which the complaint stated that the trademarks were registered; by introducing

testimony of the defendant’s civil attorney in that case, who testied that the

victims were trademark owners at the time of the prior civil action; and by

introducing testimony of an agent who testied that the items seized at the

defendant’s business were identical to items registered as trademarks in the

USPTO.

Prosecutors who intend to prove registration by alternate means, however,

must take care to ensure that the evidence presented is suciently detailed

and precise. For example, in United States v. Xu, 599 F.3d 452, 455 (5th Cir.

2010), the Fifth Circuit vacated the defendant’s conviction for tracking

in a counterfeit version of a pharmaceutical drug called Zyprexa because it

concluded the government failed to prove the registration of the drug’s

trademark. During trial, an employee of the drug’s manufacturer was shown

a counterfeit container of the medication and was asked about the symbol

that appeared next to the drug’s name; the employee responded that it was

the “registered trademark symbol.” Id. at 454. e court concluded this

112 Prosecuting Intellectual Property Crimes

testimony was insucient to prove registration because, as an initial matter,

“the symbol being discussed was on a package of allegedly counterfeit goods,

not authentic drugs, and no eort was made to demonstrate that authentic

Zyprexa carried the same symbol.” Id. Furthermore, the court explained that

the mere statement that the trademark was “registered” was insucient due to

the fact that it did not specify that the registration appeared on the USPTO’s

principal register, as opposed to on its supplemental register, with Customs, or

perhaps with a state agency. Id. at 455; see also United States v. Xu, No. H-07-

362, 2008 WL 5122125, at *3-4 (S.D.Tex. Dec. 4, 2008) (explaining district

court’s reasoning for granting judgment of acquittal with regard to additional

counts of tracking in other counterfeit drugs due to government’s failure to

prove mark registration), vacated, 599 F.3d 452 (5th Cir. 2010).

Registration is prima facie evidence that the registrant owns the mark and

that the registration is valid. 15 U.S.C. §1057(b). In criminal prosecutions,

the genuine mark is usually treated as “incontestable” if it has been registered

on the principal register for more than ve consecutive years. See 15 U.S.C.

§ 1065 (setting out conditions for “incontestability”). A federal trademark

registration may, however, be canceled in whole or part in a civil judicial or

administrative proceeding. See 15 U.S.C. §1064.

e government need not prove that the defendant was aware that the

mark was registered. 18 U.S.C. §2320(f )(1)(A)(ii) (stating that a counterfeit

mark is one that is “identical with, or substantially indistinguishable from”

a registered mark “whether or not the defendant knew such mark was so

registered”). See also United States v. Guerra, 293 F.3d 1279, 1287 (11th Cir.

2002) (holding that “it is irrelevant that [the defendant] did not know the

marks were registered in the United States”); United States v. Sung, 51 F.3d 92,

93-94 (7th Cir. 1995) (holding that §2320’s denition of “counterfeit mark”

imposes on defendants “the duty to inquire into the [registration] status of the

mark”) (citations omitted).

d. e Genuine Mark Must Have Been in Use by the Mark-Holder or

Its Licensee

e genuine mark must also be “in use,” presumably by the mark holder

or his licensee, 18 U.S.C. §2320(f)(1)(A)(ii). See Section A.1. of this Chapter,

except in cases involving protected Olympic symbols, as discussed in Section

D.8. of this Chapter.

III. Trafcking In Counterfeit Marks 113

e term “in use” is not dened or explained in the statute, its legislative

history, or in case law. e Lanham Act, however, denes a trademark’s “use

in commerce” as “the bona de use of a mark in the ordinary course of trade,

and not made merely to reserve a right in a mark.” 15 U.S.C. §1127. See also

ConAgra, Inc. v. George A. Hormel, & Co., 990 F.2d 368, 371-72 (8th Cir.

1993) (arming district court’s nding that the trademark application was

based on actual sales and not a “sham use”). Civil cases have held that “in use”

means use in the United States, not in other nations. See Marshak v. Treadwell,

240 F.3d 184 (3d Cir. 2001); Rivard v. Linville, 133 F.3d 1446, 1448-49 (Fed.

Cir. 1998); see also United States v. Penton, 303 Fed. Appx. 774, 780-81 (11th

Cir. 2008) (stating that defendant was correct when he argued that because

products bearing particular marks were not sold in the United States they

could not be “in use” for the purposes of § 2320).

To prove that the genuine mark was in use during the oense, the government

may not rely solely on a certication of registration that shows that the victim

registered the trademark before the date of the oense. Registration merely

requires a mark-holder to have a bona de intent to use the mark, which does

not translate into actual use. United States v. Foote, 238 F. Supp. 2d 1271, 1278

(D. Kan. 2002), a’d, 413 F.3d 1240, 1248 (10th Cir. 2005); United States

v. Guerra, 293 F.3d 1279, 1290 (11th Cir. 2002). Nor may the government

establish use by relying on the jurors’ probable experience with the trademark

at issue, since the jurors’ experience is not legal evidence. Foote, 238 F. Supp.

2d at 1279 n.11.

Evidence that will suce to demonstrate a mark is “in use,” however,

includes proof of registration in conjunction with evidence of the rst use by

the mark-holder and testimony by a representative of the mark-holder that the

mark appears on every good produced; Foote, 413 F.3d at 1248, a’g 238 F.

Supp. 2d at 1279; a magazine showing the genuine trademarked goods for sale

at the time of oense, Guerra, 293 F.3d at 1291; or a civil complaint from a

civil action alleging that the victim used the mark before the criminal oense

in conjunction with testimony that the trademark owners had protected their

marks during the criminal oense, United States v. Park, 164 Fed. Appx. 584,

585-86 (9th Cir. 2006).

Although § 2320(f)(1)(A)(ii) does not specify when the registered

mark must have been “in use,” courts have held that it must have been in

use during the defendant’s alleged oense. See Park, 164 Fed. Appx. at 585

(stating that “registration and use at the time of [a trademark] conspiracy can

114 Prosecuting Intellectual Property Crimes

be indirectly established if the government provides evidence that trademarks

for the relevant items were registered and used prior to and after the conspiracy

was formed, as long as the evidence of preceding and subsequent registration

and use is reasonably close to the time of the actual conspiracy”); Foote, 238

F. Supp. 2d at 1278 n.8 (holding that without a temporal limit “the statute

would allow a prosecution for tracking in products with trademarks that the

trademark owner did not begin to use until trial”); Guerra, 293 F.3d at 1291.

e government should prove that the victim used his genuine mark as early as

when the defendant rst used his counterfeit mark, if not earlier, and that the

victim continued using the genuine mark throughout the oense. Foote, 238 F.

Supp. 2d at 1274 n.4, 1277-79. Proving that the mark was in use at the time of

trial may not suce to prove that it was in use during the oense. Id. at 1278.

e. Use of the Counterfeit Mark “On or In Connection With” Goods

or Services

For cases involving goods or services under 18 U.S.C. §2320(a)(1), the

government must prove that the defendant used the counterfeit mark “on or

in connection with” goods or services. Similarly, in proving that a good or

service is a “counterfeit military good or service” for oenses involving military

counterfeits charged under § 2320(a)(3), the government must prove that the

good or service “uses a counterfeit mark on or in connection with such good or

service.” 18 U.S.C. §2320(f )(4).

In a case involving labels or packaging under 18 U.S.C. §2320(a)(2), as

of the 2006 amendments, the government must show that the counterfeit

mark “is applied to” a label, documentation, packaging, or the like that is

“designed, marketed, or otherwise intended to be used on or in connection with

the goods or services for which the mark is registered.” §2320(f )(1)(A)(iii)

(emphasis added). e 2006 amendments addressing labels also recognized

that a counterfeit mark might not just be applied to or used in connection with

labels, documentation, and packaging, but might even “consist[] of” a label,

documentation, or packaging component, as was discussed in United States

v. Giles, 213 F.3d 1247, 1252 n.7 (10th Cir. 2000). See Section B.3.c. of this

Chapter.

e term “in connection with” has a broader meaning than “on.” For

example, a defendant who uses a counterfeit mark to advertise a name-brand

good or service and then provides an unmarked, o-brand or no-brand good

or service can be said to have used a counterfeit mark “in connection with” the

III. Trafcking In Counterfeit Marks 115

good or service, even if he did not use it “on” the good or service. is conduct

should therefore be covered by §2320.

Even before the 2006 amendments addressing counterfeit labeling, a person

who tracked in labels, documentation, or packaging—unattached to the

underlying goods—may have been prosecuted under a theory of conspiracy or

aiding-and-abetting a substantive counterfeit goods oense. See Section B.3.c.

of this Chapter. e 2006 amendments, however, allow such a defendant to

be charged under §2320 directly and without resort to theories of secondary

liability and in cases where the defendant acted alone. Now, the government

need only show that the labels, documentation, or packaging were “designed,

marketed, or otherwise intended to be used on or in connection with the goods

or services.” §2320(f )(1)(A)(iii).

Because the statute does not dene what constitutes “use” of a counterfeit

mark by a defendant, defendants may argue that this term should be given

a restrictive meaning that does not reach their activities. e ird Circuit

rejected this kind of challenge in United States v. Diallo, 575 F.3d 252 (3d

Cir. 2009). In Diallo, law enforcement conducted a trac stop and found

counterfeit Louis Vuitton handbags sealed in plastic bags in the defendant’s

vehicle. Id. at 253-54. Citing Bailey v. United States, 514 U.S. 137 (1995), a

Supreme Court opinion interpreting the meaning of “uses” in the context of

a rearms statute, the defendant asserted that “use” of the counterfeit mark

“require[s] active employment of the mark by showing or displaying the goods”

bearing that mark. Diallo, 575 F.3d at 254. e ird Circuit disagreed, noting

that Congress intended to “reach[] a stream of illegal commerce [in counterfeit

items] and not simply its point of sale.” Id. at 260. e court concluded that “use”

should be given its “ordinary and natural meaning”; the defendant therefore

could be said to have “used” the Louis Vuitton mark because possession of the

handbags bearing the counterfeit mark “enabled him to represent to others -

falsely - that he owned genuine Louis Vuitton handbags” and to enjoy having

such bags in his store’s inventory, even if they had not yet been oered for sale.

Id. at 260-61.

f. e Counterfeit Mark Must Have Been Used for the Same Class of

Goods or Services for Which the Genuine Mark Was Registered

Section2320’s denition of a “counterfeit mark” requires the government

to show that the defendant’s mark is “used in connection with tracking in

any goods [or] services,” “identical with, or substantially indistinguishable

116 Prosecuting Intellectual Property Crimes

from, a mark registered on the principal register in the [USPTO],” and “used

in connection with the goods or services for which the mark is registered with

the [USPTO].” 18 U.S.C. §2320(f)(1)(A)(i)-(iii) (but see Section D.8. of this

Chapter concerning cases involving Olympic symbols). Congress intended this

requirement to be an important and explicit distinction between criminal and

civil trademark infringement cases. “[A] plainti with a Federal registration

for... [a mark] on typewriters might have a [civil] Lanham Act remedy against

a defendant who used that mark to identify typing paper, even though the

plainti had not registered that mark for use in connection with typing paper.

Under [§2320], however, the use of the mark... on typing paper would not

count as the use of a ‘counterfeit mark.’” Joint Statement, 130 Cong. Rec.

31,676 (1984). Prosecutors therefore should be careful to ensure that the class

of goods and services in which the defendant tracked match the class of

goods and services for which the victim’s mark was registered.

But what about when the defendant uses the mark on labels, documentation,

or packaging that are for—but unattached to—the class of goods or services

indicated on the registration certicate, and not directly on the underlying

goods or services themselves? e 2006 amendments addressed this issue by

amending §2320 to allow the prosecution of trackers in counterfeit labels,

documentation, and packaging directly under §2320. See Section B.3.c. of

this Chapter for a discussion of the 2006 amendments and United States v.

Giles, 213 F.3d 1247, 1253 (10th Cir. 2000). In doing so, Congress did not

relax the requirement of matching the defendant’s goods and services to the

class of goods and services on the registration certicate. Instead, Congress

adapted the requirement for labels, documentation, and packaging cases so

that the government must prove that those items were “designed, marketed, or

otherwise intended to be used on or in connection with the goods or services

for which the mark is registered in the United States Patent and Trademark

Oce.” §2320(f)(1)(A)(iii).

e class of goods or services for which a particular mark was registered can

be found on the mark’s registration certicate. For information on obtaining

these certicates, see Section B.4.c. of this Chapter.

g. Likelihood of Confusion, Mistake, or Deception

e government must prove that the counterfeit mark is “likely to cause

confusion, to cause mistake, or to deceive.” 18 U.S.C. § 2320(f)(1)(A)(iv).

(For the standards in cases involving protected Olympic symbols, see Section

III. Trafcking In Counterfeit Marks 117

D.8. of this Chapter.) Because this requirement is included in the denition

of a “counterfeit mark,” it is not necessary for prosecutors to separately charge

that the counterfeit mark is “likely to cause confusion, to cause mistake, or to

deceive” in the indictment, particularly with respect to charges under 18 U.S.C.

§ 2320(a)(1) and (3). Prosecutors may, however, want to consider including

the language when charging tracking in labeling components in violation

of 18 U.S.C. §2320(a)(2), because that subsection expressly incorporates the

language “likely to cause confusion, to cause mistake, or to deceive” in the

statutory provision. Although courts and commentators routinely focus only

on the counterfeit mark’s propensity to confuse, the statute also allows for proof

of mistake or deception, and all three should be charged in the indictment.

e government does not have to prove that the defendant’s conduct

resulted in actual confusion because “[t]he statute expressly requires only

likelihood of confusion.” United States v. Yamin, 868 F.2d 130, 133 (5th Cir.

1989) (emphasis added).

Defendants often argue that their conduct raised no likelihood of confusion

because the purchaser knew that the goods were counterfeit, for example

because the fake goods were oered at an unusually low price, or because the

defendant specically told the purchaser that the goods were counterfeit. Courts

have uniformly rejected these arguments under the theory of “secondary” or

“post-sale” confusion (i.e., the confusion of the direct purchaser’s downstream

customers or even of non-purchasers who could be confused by seeing the

counterfeit merchandise on the street). See, e.g., United States v. Foote, 413 F.3d

1240, 1245-6 (10th Cir. 2005); United States v. Hon, 904 F.2d 803, 808 (2d

Cir. 1990); Yamin, 868 F.2d at 133; United States v. Torkington, 812 F.2d 1347,

1352 (11th Cir. 1987); United States v. Gantos, 817 F.2d 41, 43 (8th Cir. 1987);

United States v. Gonzales, 630 F. Supp. 894, 896 (S.D. Fla. 1986) (denying

motion to dismiss §2320 indictment because defendants’ low price did not

preclude nding that they could cause confusion, mistake or deception). For

example, in Foote, the defendant argued that because he “openly advertised

that he sold counterfeit merchandise” and “informed each customer that his

merchandise was fake,” his actions did not meet the confusion requirement

in §2320. Foote, 413 F.3d at 1245. e Tenth Circuit rejected this argument

because the confusion requirement is “not restricted to instances in which direct

purchasers are confused or deceived by the counterfeit goods.” Id. (internal

quotation marks omitted) (citing Yamin, 868 F.2d at 132). Rather, the plain

language of the statute indicates that it is “the defendant’s use of the product

118 Prosecuting Intellectual Property Crimes

in commerce (i.e., the sale of the counterfeit product) that is likely to cause

confusion, mistake, or deception in the public in general.” Foote, 413 F.3d at

1246; see also Torkington, 812 F.2d at 1353 (“A trademark holder’s ability to

use its mark to symbolize its reputation is harmed when potential purchasers of

its goods see unauthentic goods and identify these goods with the trademark

holder.”) (emphasis added) (citations omitted); S. Rep. No. 98-526 (1984),

reprinted in 1984 U.S.C.C.A.N. 3627.

e post-sale confusion doctrine was originally developed by courts in

interpreting the identical confusion provision in the Lanham Act. See 4 J. omas

McCarthy, McCarthy on Trademarks and Unfair Competition §23:7 (4th ed.

2012). Courts adopted the doctrine in criminal cases because to hold otherwise

would undermine the goals of trademark protection. Section 2320 was “not

just designed for the protection of consumers,” but also for “the protection of

trademarks themselves and for the prevention of the cheapening and dilution

of the genuine product.” Hon, 904 F.2d at 806; see also Torkington, 812 F.2d at

1352-53; Stop Counterfeiting in Manufactured Goods Act, H. R. Rep. 109-

68, at 8 n.2 (2005), reprinted in 2006 U.S.C.C.A.N. 211, 216 (“Congress was

concerned not only that trademark counterfeiting defrauds purchasers,... but

also that counterfeiters can earn enormous prots by capitalizing on the...

eorts of honest manufacturers at little expense to themselves.”) (citations,

alterations in original, and internal quotation marks omitted). e Second

Circuit interpreted “section 2320’s confusion requirement to include the non-

purchasing public advances the important purpose underlying the trademark

laws of protecting the trademark owner’s investment in the quality of the mark

and his product’s reputation, one that is independent of the goal of preventing

consumer deception.” Hon, 904 F.2d at 806; see also United States v. Farmer,

370 F.3d 435, 441 (4th Cir. 2004) (Congress intended to give trademark

owners “the ‘right to control the quality of the goods manufactured and sold’

under that trademark”) (citations omitted). is is the same reason why the

government need not demonstrate that the counterfeit product is of lesser

quality than the genuine product. E.g., Farmer, 370 F.3d at 441. Even if the

consumer is not defrauded, the counterfeiter is still trading o another’s name

without authorization. See Section D.1. of this Chapter.

Because the government need only prove the likelihood of confusion, it

need not prove that the defendant intended to defraud or mislead purchasers.

See United States v. Brooks, 111 F.3d 365, 372 (4th Cir. 1997) (rejecting defense

that defendants did not use counterfeit marks “for the purpose of deception

III. Trafcking In Counterfeit Marks 119

or to cause confusion or mistake”); Yamin, 868 F.2d at 132 (holding that the

statute’s application is not restricted to instances in which direct purchasers

are confused or deceived by the counterfeit goods); Gantos, 817 F.2d at 42-

43 (arming conviction even though defendant disclosed to his immediate

customers that Rolex watches were copies); Torkington, 812 F.2d at 1353 n.7

(noting that Congress eliminated from §2320 a mens rea element consisting of

an intent to deceive or defraud).

Likelihood of confusion can be proved with a variety of evidence, such as

the testimony of customers who mistakenly bought fakes, experts on market

confusion, or victim representatives who can discuss the fake and real goods’

similarities. See, e.g., 4 J. omas McCarthy, McCarthy on Trademarks and

Unfair Competition §§23:2, 13, 17, 63 (4th ed. 2012); see also United States

v. Penton, 303 Fed. Appx. 774, 781-82 (11th Cir. 2008). Although evidence

of actual confusion is not necessary, it can often be very persuasive. See United

States v. McEvoy, 820 F.2d 1170, 1172 (11th Cir. 1987) (arming conviction

based on, inter alia, expert testimony that customers often confuse fake and

genuine watches and on a defense witness’s inability to distinguish between

fake and genuine watches).

It is worth noting that in civil counterfeiting cases, where two marks are

identical or substantially indistinguishable and are used on the same good,

confusion is presumed. E.g., Polo Fashions, Inc. v. Craftex, Inc., 816 F.2d 145,

148 (4th Cir. 1987) (“Where, as here, one produces counterfeit goods in

an apparent attempt to capitalize upon the popularity of, and demand for,

another’s product, there is a presumption of a likelihood of confusion.”). In

such civil counterfeiting cases, federal courts do not consider the “Polaroid”

factors set forth in Polaroid Corp. v. Polarad Elecs. Corp., 287 F.2d 492, 495 (2d

Cir. 1961), commonly associated with civil trademark infringement cases. Id.

(test used in civil cases to determine likelihood of confusion unless goods are

identical and directly competitive); Colgate-Palmolive v. J.M.D. All-Star Import

and Export Inc., 486 F. Supp. 2d 286, 289 (S.D.N.Y. 2007) (“When counterfeit

marks are involved, it is not necessary to consider the factors set out in Polaroid

[], which are used to determine whether a mark is a colorable imitation of a

registered mark that creates a likelihood of confusion about it source, because

counterfeit marks are inherently confusing.”) (internal quotation marks and

citations omitted).

Unlike civil counterfeit trademark law, and as already noted, §2320(f)’s

denition of “counterfeit mark” expressly requires the government to prove

120 Prosecuting Intellectual Property Crimes

likelihood of confusion in a criminal counterfeiting case. Congress included

this requirement “to ensure that no conduct will be criminalized by this act

that does not constitute trademark infringement under the Lanham Act.”

Joint Statement, 130 Cong. Rec. 31,675 (1984). Nevertheless, prosecutors

should resist defendants’ attempts to require the government to prove the civil

Polaroid factors to determine likelihood of confusion because of the heightened

requirements already imposed by the other elements of § 2320. Where those

heightened elements are met, likelihood of confusion is all but certain. For

instance, the government can only bring a case under § 2320 where the class

of goods are identical. See § 2320(f )(1)(A)(i)-(iii). Section2320’s denition

of a “counterfeit mark” requires the government to show that the defendant’s

mark is “used in connection with tracking in any goods [or] services,”

“identical with, or substantially indistinguishable from, a mark registered on

the principal register in the [USPTO],” and “used in connection with the

goods or services for which the mark is registered with the [USPTO].” Id. In

other words, the government already must meet a requirement not present in

civil counterfeiting cases – that a defendant used their counterfeit mark on the

same class of goods on which the trademark owners use their genuine, federally

registered marks. “Where the products are identical and the jury has concluded

that the defendant has met the two-pronged mens rea standard of section 2320,

a requirement that confusion among actual or potential purchasers be shown is

unnecessary.” United States v. Hon, 904 F.2d 803, 808 (2d Cir. 1990); United

States v. Torkington, 812 F.3d 1347, 1351 n.4 (11th Cir. 1987) (the likelihood

of confusion “element should be easily satised if the other elements of a ‘counterfeit

mark’ have been proven – since a counterfeit mark is the most egregious example of a

mark that is likely to cause confusion”) (quoting Joint Statement, 130 Cong. Rec.

31,675 (1984)) (emphasis in original).

For the same reasons, prosecutors should also oppose attempts to compel

courts to incorporate the “Polaroid factors” in jury instructions regarding

§ 2320’s likelihood of confusion requirement. Hon, 904 F.2d at 808, 809

(rejecting defendant’s appeal for failure to instruct on Polaroid factors because

“the non-exclusive Polaroid factors themselves ... are designed to assess

infringement ‘[w]here the products are dierent’” and that “[a] defendant is not

entitled to a jury charge simply to create a reasonable doubt when on the facts

and the law as correctly applied there should be none”) (quoting Polaroid, 287

F.2d at 495); United States v. McEvoy, 820 F.2d 1170, 1172, 1172 n.1 (11th Cir.

1987) (rejecting appeal for failure to “give an instruction which listed factors

to be considered in determining” likelihood of confusion and expressing “no

III. Trafcking In Counterfeit Marks 121

opinion as to whether the district court would have abused its discretion if it

had given the requested instruction”). In any event, criminal jury instructions

need not set forth the Polaroid multi-factor test because it is not contained in

the statute. See McEvoy, 820 F.2d at 1172.

As to how the comparison should be made between the counterfeit and

legitimate products at trial, civil law suggests three principles. First, counterfeit

and genuine marks should “be compared in their entireties” and “should

not be dissected or split up into [] component parts [with] each part then

compared with corresponding parts” because “[i]t is the impression that the

mark as a whole creates on the average reasonably prudent buyer and not

the parts thereof, that is important.” 4 J. omas McCarthy, McCarthy on

Trademarks §23:41 (4th ed. 2012) (footnote omitted); see also id. §23:42.

Second, because the average purchaser focuses on two marks’ similarities rather

than their dierences, the fact nder should do the same. Id. §23:41. ird,

whether the counterfeit and genuine marks should be compared side by side

or serially depends on how the average consumer would encounter them in the

market: “Where products in the relevant market are not typically displayed in

the same locations, centering on whether they are likely to be distinguished

when viewed simultaneously is incorrect, and will result in a faulty likelihood-

of-confusion analysis.” Louis Vuitton Malletier v. Burlington Coat Factory

Warehouse Corp., 426 F.3d 532, 534 (2d Cir. 2005) (Calabresi, J.) (discussing

likelihood of confusing handbags); see also 4 McCarthy on Trademarks §23:58-

59. But see Louis Vuitton Malletier v. Dooney & Bourke, Inc., 454 F.3d 108, 117

(2d Cir. 2006) (suggesting that side-by-side comparison may be acceptable to

determine whether goods are identical). Finally, in a criminal case, even if some

of the markings on the defendant’s goods deviate from those on the original

and his goods are of noticeably poor quality, they are counterfeit so long as his

goods bear at least one trademark identical to or substantially indistinguishable

from the original. See United States v. Yi, 460 F.3d 623, 627 n.1, 629 n.4, 637

n.14 (5th Cir. 2006).

5. e Defendant Used the Counterfeit Mark “Knowingly”

e nal element required for a § 2320 oense is that the defendant

“knowingly” used the counterfeit mark on or in connection with the tracked

goods or services. In cases involving labels, documentation, or packaging, the

government must prove that the defendant tracked in such items “knowing

that a counterfeit mark has been applied thereto, the use of which is likely to

cause confusion, to cause mistake, or to deceive.” §2320(a) (as amended by the

122 Prosecuting Intellectual Property Crimes

Stop Counterfeiting in Manufactured Goods Act, Pub L. No. 109-181, §1,

120 Stat. 285 (2006)).

To prove this element, the government must present evidence that

the defendant had “an awareness or a rm belief” that the mark used was

counterfeit. See Joint Statement, 130 Cong. Rec. 31,674 (1984).

Knowledge can also be proved with evidence that the defendant acted with

willful blindness, conscious avoidance, or deliberate ignorance, which means

the defendant “deliberately closed his eyes to what otherwise would have been

obvious to him concerning the fact in question.” See United States v. Brodie,

403 F.3d 123, 132 (3d Cir. 2005) (quotation and citation omitted). “[I]f the

prosecution proves that the defendant was ‘willfully blind’ to the counterfeit

nature of the mark, it will have met its burden of showing ‘knowledge.’” Joint

Statement, 130 Cong. Rec. 31,674 (1984) (citing United States v. Jewell, 532

F.2d 697 (9th Cir. 1976) (other citations omitted)); see also United States v.

Hiltz, 14 Fed. Appx. 17, 19 (1st Cir. 2001); United States v. Hamamoto, No.

99-10019, 2000 WL 1036199, *2 (9th Cir. July 27, 2000); cf. Tal S. Benschar

et al., Proving Willfulness in Trademark Counterfeiting Cases, 27 Colum. J.L.

& Arts 121, 125 (2003). Although certain circuits may be generally reticent

to allow proof of willful blindness to satisfy actual knowledge in criminal

cases, Congress’s specic intent with respect to §2320(a) should trump that

reluctance in these cases.

On the other hand, “a manufacturer who believes in good faith that he or

she has a prior right to use a particular mark, or that a mark does not infringe a

registered mark, could not be said to ‘know’ that the mark is counterfeit.” Joint

Statement, 130 Cong. Rec. 31,674 (1984).

e government may prove the defendant’s knowledge or willful blindness

of a counterfeit mark through direct or circumstantial evidence. Circumstantial

evidence could include evidence that:

• the defendant purchased or sold goods after notice of potential

infringement;

• thedefendantknewthatthevictimdistributeditsgoodsonlythrough

authorized dealers, when the defendant and his supplier were not

authorized dealers;

• thegoodscamefromaquestionablesupplier;

• the defendant or his source used coded invoices for branded

merchandise;

III. Trafcking In Counterfeit Marks 123

• thegoodswereofinferiorquality;or

• thegoodswereboughtorsoldforanunusuallylowprice.

Cf. Tal S. Benschar et al., Proving Willfulness in Trademark Counterfeiting Cases,

27 Colum. J.L. & Arts 121, 130-35 (2003) (discussing civil cases).

For more case examples, see United States v. Lam, 677 F.3d 190, 200 n.10

(4th Cir. 2012) (nding that “[t]he government presented ample evidence at

trial to allow a reasonable jury to conclude that Appellants were aware that

the marks on their handbags and wallets were counterfeit, including evidence

of: their use of multiple shell companies and multiple ports to import the

counterfeit goods, the manner in which they transported and concealed the

counterfeit merchandise, the civil lawsuit Burberry instituted against them,

and the multiple seizure notices they received from CBP”); United States v.

Barry, 390 Fed. Appx. 949, 950-51 (11th Cir. 2010) (per curiam); United

States v. Garrison, 380 Fed. Appx. 423, 426 (5th Cir. 2010) (per curiam)

(sucient evidence of deliberate indierence existed where defendant was

previously notied that the merchandise he was selling was counterfeit, he

knew he did not have necessary license to sell trademarked merchandise, and

cost of merchandise was very low); United States v. Hatem Abu Hassan, 280 Fed.

Appx. 271, 274 (4th Cir. 2008) (per curiam) (defendant knew pills sold to an

undercover ocer were counterfeit because defendant assured the undercover

ocer the pills were “eective” and provided the undercover ocer with a

free sample of the pills, the packaging of the counterfeit pills did not indicate

their source, and defendant had an “abundant supply” of the pills); United

States v. George, 233 Fed. Appx. 402, 404-05 (5th Cir. 2007) (per curiam)

(evidence was sucient to prove willful blindness where, inter alia, licensed

pharmacist knew prices he was paying for drugs were far below market rate and

he failed to inquire about the legitimacy of the medication); United States v.

Park, 164 Fed. Appx. 584, 585-86 (9th Cir. 2006) (holding that government

demonstrated knowing use of a counterfeit mark by introducing settlement

agreement from an earlier civil action between defendant and victim in which

she had agreed not to sell identical merchandise with which she was caught in

criminal case) (unpublished); United States v. Yi, 460 F.3d 623, 629-30 (5th Cir.

2006) (jury could conclude that defendant knew the marks were counterfeit,

notwithstanding his numerous factual counterarguments, in light of the

defendant’s admissions, attempt to bribe a Customs agent, receipt of cease-and-

desist letters, and the counterfeit goods’ poor quality); United States v. Guerra,

293 F.3d 1279, 1287-88 (11th Cir. 2002) (citing defendant’s knowledge that

124 Prosecuting Intellectual Property Crimes

the counterfeit labels he produced were not all being sold to authorized dealers

of Cuban cigars and that the purchasers of defendant’s counterfeit labels did

not purport to be authorized dealers themselves); United States v. Jewell, 532

F.2d 697, 699-702 (9th Cir. 1976) (upholding willful blindness instruction

when defendant had declined to buy drugs from a stranger but then agreed to

drive the stranger’s car from Mexico to the United States for $100, while he

suspected there was something wrong or illegal with the car and examined the

car but avoided investigating an apparently hidden compartment in the trunk

that was later found to contain drugs) (cited in §2320’s legislative history);

United States v. Hamamoto, No. 99-10019, 2000 WL 1036199, at *1 (9th

Cir. July 27, 2000) (reasoning that knowledge element satised by evidence

that defendant, a customs agent in Guam, received bribes to clear airway

bills for goods imported from Korea, a primary source of counterfeit goods

to Guam); United States v. Sung, 51 F.3d 92, 93-94 (7th Cir. 1995) (holding

that although the victim’s genuine mark was not always identied with the

® symbol, defendant’s knowledge that the “marks were on the bottles, caps,

and boxes” of the counterfeit shampoo he sold suced because §2320(f)(1)

(A)(ii) imposes on the defendant “the duty to inquire about the status of the

mark”); United States v. Rodriguez, Nos. 88-1125, 88-1127, 1989 WL 69934,

at *2 (9th Cir. June 23, 1989) (citing defendant’s own distinction between

“phony” and “real” Rolex watches, defendant’s inability to sell the counterfeits

at work, and defendant’s admission that she had to be quiet about selling them);

United States v. McEvoy, 820 F.2d 1170, 1172-73 (11th Cir. 1987) (rejecting

defendants’ contention that § 2320 was unconstitutionally vague because

defendants appeared to know “that their actions in selling the watches violated

the law,” particularly when defendants admitted that the watches seized by the

government contained trademarks virtually identical to registered trademarks

for Rolex, Piaget, and Gucci).

For a case in which circumstantial evidence was insucient, consider

United States v. Sultan, 115 F.3d 321 (5th Cir. 1997). In Sultan, the defendant

shared a warehouse with an auto parts dealer who obtained re-manufactured

auto parts and altered them to make them look new. Id. at 323-24. Although

the two businesses were kept separate, the defendant purchased a large

amount of merchandise from the auto parts dealer. Id. at 324. In holding

that the government failed to show that the defendant knew that he was

selling counterfeit parts, the Fifth Circuit largely rejected the government’s

circumstantial evidence of knowledge, including:

III. Trafcking In Counterfeit Marks 125

• e defendant’s penchant for thriftiness and knowledge of market

prices. Id. at 326.

• e defendant’s inconsistent statements to investigators (because he

may have made these statements for non-criminal reasons). Id.

• edefendantsharedthewarehousespacewiththeautopartsdealer

(which alone was not sucient because the defendant’s mere presence

in a climate of criminal activity could not serve as a basis for conviction).

Id. at 328.

• e counterfeit parts’ low prices (which alone were not sucient

evidence of knowledge when there were legal ways to obtain goods

at this price range and the defendant was paying 80% to 90% of the

market price for legitimate distributors). Id. at 329.

• Evidenceofthedefendant’sknowledgeregardinglegitimatepackaging

(because there was no evidence that the defendant was aware that the

packaging materials stored by the auto parts dealer were counterfeit,

particularly when one witness never saw the defendant in the

counterfeit room and another witness testied that the defendant kept

his inventory separate from the auto parts dealer). Id. at 329-30.

Holding that this circumstantial evidence required the jury to go “beyond

making reasonable inferences” by “making unreasonable leaps,” the court

reversed the conviction on the ground that there was insucient evidence to

support the jury’s nding that the defendant knowingly used a counterfeit

mark beyond a reasonable doubt. Id. at 330.

e government need not prove that the defendant knew that the mark

he counterfeited was registered with the United States Patent and Trademark

Oce. See Section B.4.c. of this Chapter. Nor must the government prove that

the defendant knew that his conduct constituted a crime. Hamling v. United

States, 418 U.S. 87, 123 (1974); United States v. Baker, 807 F.2d 427, 428-

30 (5th Cir. 1986); United States v. Yu Chunchai, No. 10-50540, 2012 WL

1332404, at *1 (9th Cir. Apr. 18, 2012) (unpublished) (“e statute does not

require that the government prove that the defendant knew that his conduct

was illegal ....”). And at least one unpublished Ninth Circuit opinion has held

that the government need not prove that the defendant “knew that the mark

was likely to cause confusion.” Yu Chunchai, 2012 WL 1332404, at *1.

Finally, in Lam, the Fourth Circuit held that defendants waived their right

to raise for the rst time on appeal a suciency challenge to a jury’s nding

that defendants knowingly used a counterfeit mark where defendants failed

126 Prosecuting Intellectual Property Crimes

to raise that challenge in an earlier Rule 29(c) motion raising other specic

grounds for challenging their §2320 conviction. 677 F.3d at 200.

6. Tracking in Counterfeit Military Goods or Services

e National Defense Authorization Act for FY 2012 (“NDAA”), Pub. L.

No. 112-81, 125 Stat. 1298 (2011), amended §2320 to create a new oense

for tracking in “counterfeit military goods or services.” Specically, the new

oense provides enhanced criminal penalties for anyone who:

tracs in goods or services knowing that such good or service is

a counterfeit military good or service the use, malfunction, or

failure of which is likely to cause serious bodily injury or death,

the disclosure of classied information, impairment of combat

operations, or other signicant harm to a combat operation, a

member of the Armed Forces, or to national security....

18 U.S.C. §2320(a)(3). e amendments also dene the new term “counterfeit

military good or service”:

the term “counterfeit military good or service” means a good or

service that uses a counterfeit mark on or in connection with

such good or service and that—

(A) is falsely identied or labeled as meeting military specications, or

(B) is intended for use in a military or national security application...

18 U.S.C. §2320(f)(4).

Although the new “counterfeit military good” oense is located in a

separate subsection (§ 2320(a)(3)) from the preexisting counterfeit goods

oense (§2320(a)(1)), a charge under the “counterfeit military” provision will

require proving essentially all the same elements of a traditional counterfeit

goods charge under § 2320(a)(1), plus several additional elements. at

is, a § 2320(a)(3) charge requires that the defendant “trac” in “goods or

services,” and must act “knowing[ly],” just as in § 2320(a)(1). Whereas

§2320(a)(1) requires that the defendant “knowingly use a counterfeit mark

on or in connection with such good or service,” § 2320(a)(3) requires that

the defendant act “knowing that such good or service is a counterfeit military

good or service.” A “counterfeit military good or service” is dened as a good

or service “that uses a counterfeit mark on or in connection with such good

or service,” as well as meeting certain other criteria. 18 U.S.C. §2320(f)(4).

III. Trafcking In Counterfeit Marks 127

e counterfeit military good or service oense can thus be thought of as an

enhancement of the traditional §2320(a)(1) “counterfeit goods” charge, where

certain additional elements are met. Some of those elements are set forth in the

denition of “counterfeit military good or service,” while other elements are

included in the oense language in §2320(a)(3).

a. “Counterfeit Military Good or Service”

As noted above, to qualify as a “counterfeit military good or service” the

good or service must “use[] a counterfeit mark on or in connection with such

good or service.” 18 U.S.C. §2320(f)(4). In addition, the good or service must

also be either (A) falsely identied or labeled as meeting military specications,

or (B) intended for use in a military or national security application.

To date no courts have had the opportunity to interpret the meaning of

“counterfeit military good or service” in §2320 and there is minimal legislative

history regarding the specic language of the NDAA amendments to § 2320.

e plain language of the statutory denition, however, indicates that to

prove a violation of the “counterfeit military good or service” provision, the

government will need to show either that the defendant knew the goods (or

services) in question were falsely identied as meeting a military specication

(such as a consumer semiconductor chip that is falsely represented or labeled as

being a military grade chip), or alternatively, that the defendant intended that

the goods or services be used in a military or national security application, or at

least knew that the goods or services in which the defendants were tracking

were intended by others (e.g., the ultimate purchasers) for use in a military or

national security application.

Issues involving counterfeit parts in the military supply chain, which

prompted the NDAA amendments, have been the subject of investigation

by several government and Congressional bodies. See, e.g., U.S. Gov’t

Accountability Oce, GAO-12-375, Suspect Counterfeit Electronic Parts Can

Be Found on Internet Purchasing Platforms (2012), available at http://gao.gov/

products/GAO-12-375 and GAO-10-389; U.S. Gov’t Accountability Oce,

GAO-10-389, DOD Should Leverage Ongoing Initiatives in Developing Its

Program to Mitigate Risk of Counterfeit Parts (2010), available at http://www.gao.

gov/products/GAO-10-389; U.S. Dep’t of Commerce, Defense Industrial Base

Assessment: Counterfeit Electronics (2010), available at http://www.bis.doc.gov/

defenseindustrialbaseprograms/osies/defmarketresearchrpts/nal_counterfeit_

electronics_report.pdf; S. Rep. No. 112-167 (2012) (Report of the Senate

128 Prosecuting Intellectual Property Crimes

Committee on Armed Services); e Committee’s Investigation Into Counterfeit

Electronic Parts in the Department of Defense Supply Chain: Hearing Before the

Senate Committee on Armed Services, 112th Cong. (2011), available at http://

www.gpo.gov/fdsys/pkg/CHRG-112shrg72702/pdf/CHRG-112shrg72702.

pdf.

b. “Use, Malfunction, or Failure” is Likely to Cause Specied Harms

To prove an oense under 18 U.S.C. § 2320(a)(3), the government must

also demonstrate “the use, malfunction, or failure of [the counterfeit military

good or service] is likely to cause” one of several specied harms:

1. serious bodily injury or death;

2. the disclosure of classied information;

3. impairment of combat operations, or;

4. other signicant harm to a combat operation, a member of the Armed

Forces, or to national security.

Note that the government need not prove that such harms actually

occurred, or that the use or failure of a counterfeit would necessarily cause one

of the specied harms, but only that such harm would be “likely” to occur.

7. Tracking in Counterfeit Drugs

e Food and Drug Administration Safety and Innovation Act (“FDASIA”),

Pub. L. No. 112-144, 126 Stat. 993 (2012) amended §2320 to create a new

oense for tracking in “counterfeit” drugs. e amendments increase the

criminal penalties for anyone who “tracs in a counterfeit drug.” 18 U.S.C.

§2320(a)(4).

e amendments also create a new denition for the term “counterfeit

drug”:

the term “counterfeit drug” means a drug, as dened by section

201 of the Federal Food, Drug, and Cosmetic Act, that uses a

counterfeit mark on or in connection with the drug.

18 U.S.C. § 2320(f)(6). e term “drug” is dened by reference to the

denition used in the Food, Drug, and Cosmetic Act (FDCA), 21 U.S.C. §

321(g)(1). e FDCA broadly denes the term “drug” to include any articles

recognized in ocial formularies or pharmacopoeia (§ 321(g)(1)(A)), any

articles intended for use to treat or prevent disease (§ 321(g)(1)(B)), or any

articles intended to aect the structure or any function of human or animal

III. Trafcking In Counterfeit Marks 129

bodies (§ 321(g)(1)(C)), but generally does not include dietary supplements or

food (§ 321(g)(1)(C)-(D)). Note that although 21 U.S.C. § 321(g) includes

its own denition of “counterfeit drug” (see § 321(g)(2)),—the FDASIA’s

new denition of “counterfeit drug” in 18 U.S.C. § 2320(f)(6) governs cases

charged under §2320(a)(4).

As explained previously in Section B.1. of this Chapter, with respect to the

new “counterfeit drug” oense, § 2320(a)(4), Congress failed to include the

mens rea requirement—which exists for § 2320(a)(1)-(3)—that the government

must prove that the defendant knowingly used a counterfeit mark. As of this

writing, Congress has not yet amended this provision to correct the omission.

However, in order to prove a charge under § 2320(a)(4), it is recommended

that prosecutors prove the same elements of a traditional counterfeit goods

charge under § 2320(a)(1) plus additional elements set forth in the denition

of “counterfeit drug.” A “counterfeit drug” is dened as a drug, as dened by

the FDCA in 21 U.S.C. § 321(g)(1), that “uses a counterfeit mark on or in

connection with the drug.” 18 U.S.C. § 2320(f)(6). Just as the “counterfeit

military good” oense discussed in the previous subsection, the counterfeit

drug oense can be thought of as an enhancement of the traditional § 2320(a)

(1) “counterfeit goods” charge.

8. Venue

Venue is proper in any state through which counterfeit goods travel after

the defendant obtains control over the goods. See United States v. DeFreitas,

92 F. Supp. 2d 272 (S.D.N.Y. 2000). In DeFreitas, the defendant imported

counterfeit Beanie Babies from China to New Jersey via New York for eventual

sale in New Jersey. Id. at 276. e defendant challenged his conviction under

§§2320 and 371 (conspiracy) on the basis of improper venue in New York,

arguing that the substantive oense under § 2320 did not begin until he

received the counterfeit goods in New Jersey. e court rejected his argument

by holding that tracking is a continuing oense beginning with obtaining

control over the counterfeit goods, continuing with transport, and ending with

the transfer or disposal of the goods. Id. at 277. Because the oense began

when the defendant purchased the counterfeit goods in China and directed

that they be shipped to New Jersey, venue was proper at any point through

which the goods traveled after they entered the United States, including the

Southern District of New York. Id.

130 Prosecuting Intellectual Property Crimes

C. Defenses

Many general defenses, such as the absence of proper venue or jurisdiction,

are available in every criminal case and their application needs no further

elaboration here. e following discussion addresses defenses specic to §2320.

1. Authorized-Use Defense: Overrun Goods

e authorized-use defense excludes from the denition of counterfeit

mark any mark that is

used in connection with goods or services[, or a mark or

designation applied to labels, patches, stickers, wrappers,

badges, emblems, medallions, charms, boxes, containers, cans,

cases, hangtags, documentation, or packaging of any type or

nature used in connection with such goods or services,] of

which the manufacturer or producer was, at the time of the

manufacture or production in question[,] authorized to use

the mark or designation for the type of goods or services so

manufactured or produced, by the holder of the right to use

such mark or designation.

18 U.S.C. §2320(f )(1)(B). e bracketed language was inserted by the Stop

Counterfeiting in Manufactured Goods Act, Pub. L. No. 109-181, §1(b)(3),

120 Stat. 285, 287 (2006), and thus applies only to oenses arising after that

time.

e authorized-use defense applies to “overrun” goods or services, that

is, goods or services that an otherwise authorized manufacturer or producer

makes and sells on the side without the mark-holder or licensor’s knowledge or

approval. For instance, consider a trademark licensee who is authorized to make

500,000 umbrellas bearing the licensor’s trademark but who manufactures

without authorization an additional 500,000 umbrellas bearing that mark

during the course of the license. Joint Statement, 130 Cong. Rec. 31,676 (1984).

Because the trademark owner in this situation can protect himself through

“contractual and other civil remedies,” Congress felt that it was “inappropriate

to criminalize such practices.” Id. us, “[i]f a licensee manufactures overruns

during the course of the valid license, the marks on those goods will remain

noncounterfeit for purposes of this act.” Id.

III. Trafcking In Counterfeit Marks 131

e overrun goods defense attaches to the overrun goods themselves, not

just to the party who produced them. is follows from § 2320(f)(1)(B)’s

specication that overrun goods are not counterfeit. Consequently, any overrun

goods that are produced and completed during the course of the license remain

noncounterfeit even after the license runs out, Joint Statement, 130 Cong.

Rec. 31,676 (1984), and the defense is available to any party who tracs in

overrun goods downstream of the manufacturer. e legislative history behind

§2320(f)(1)(B) shows Congress’ intent that the overrun goods defense be an

armative defense; “the burden [is] on the defendant to prove that the goods

or services in question fall within the overrun exclusion.” Joint Statement, 130

Cong. Rec. 31,676 (1984).

e overrun goods defense does not, however, allow counterfeiters to escape

criminal liability by attaching real or overrun labels to counterfeits. As discussed

in Section B.4.a. of this Chapter (citing 4 McCarthy on Trademarks and Unfair

Competition §25:15 (4th ed. 2012) and United States v. Petrosian,126 F.3d

1232, 1234 (9th Cir. 1997)), it is standard trademark law—both civil and

criminal—that a genuine or authentic mark becomes counterfeit when it is

used in connection with something else that is counterfeit. As revised, the

authorized-use exception provides that a counterfeit mark “does not include

any mark or designation used in connection with goods or services, or a mark or

designation applied to labels,... documentation, or packaging of any type or

nature used in connection with such goods or services, of which the manufacturer

or producer was, at the time of the manufacture or production in question,

authorized to use the mark or designation for the type of goods or services

so manufactured or produced, by the holder of the right to use such mark or

designation.” 18 U.S.C. §2320(f )(1)(B) (emphasis added) (numbered § 2320(e)

(1) prior to Dec. 31, 2011). e 2006 amendments reworded the authorized-

use exception to retain its focus on whether the goods and services are overrun,

rather than whether the labels, documentation, or packaging themselves are

overrun. As before, the text focuses on the authorization of the manufacturer

or producer of the goods and services, not the manufacturer or producer of the

labels, documentation, or packaging. Interpreting the amendment dierently

would cause a major change in trademark law, one which Congress would

have signaled in much clearer terms had the change been intended. Given

that the 2006 amendments were intended to strengthen the government’s

ability to prosecute cases concerning counterfeit labels, documentation, and

packaging, and the legislative history indicates nothing to the contrary, the

authorized-use exception should still allow the government to prosecute those

132 Prosecuting Intellectual Property Crimes

who use or trac in real or overrun labels, documentation, or packaging to

turn inauthentic goods into counterfeits.

e overrun defense does have a few limitations. First, “the overrun

exemption does not apply if a licensee produces a type of goods in connection

with which he or she was not authorized to use the trademark in question.”

Joint Statement, 130 Cong. Rec. 31,676-77 (1984). For example, “if a licensee

is authorized to produce ‘Zephyr’ trench coats, but without permission

manufactures ‘Zephyr’ wallets, the overrun exception would not apply.” Id. at

31,677. In this example, the licensee could be prosecuted for producing the

wallets only if the ‘Zephyr’ mark was registered for use on wallets as well as

trench coats. See also Section B.4.f. of this Chapter.

Second, the overrun goods defense is limited to goods or services for which

authorization existed “during the entire period of production or manufacture.”

United States v. Bohai Trading Co., 45 F.3d 577, 580 (1st Cir. 1995). In Bohai,

Stride Rite authorized the defendant to arrange for the manufacture of 200,000

pairs of its KEDS trademarked sneakers in China in 1987 and 1988. Id. at 578.

Stride Rite terminated the defendant’s license in the spring of 1989, after which

the defendant arranged for the Chinese factory to manufacture an additional

100,000 pairs of KEDS and to backdate the shoes as being produced in 1988.

Id. at 578-79. e defendant then imported the shoes to the United States and

sold them as genuine KEDS. Id. at 579. On appeal from its conviction, the

defendant argued that §2320 was unconstitutionally vague because it did not

dene the meaning of “production” within the authorized-use exception, and

thus the defendant could not discern whether its conduct was illegal. e First

Circuit disagreed, holding that the statute’s plain language clearly indicates that

the licensee must have a valid trademark license at all stages of manufacture

or production. Id. at 580-81. Stride Rite’s permission to assemble materials

and train Chinese factory workers in 1988 (which the defendant argued was

“production” within the meaning of §2320) did not authorize him to apply

the KEDS trademark to shoes in 1989 after his license was terminated. Id.

e use of a licensee’s rejected irregular goods was addressed in United States

v. Farmer, 370 F.3d 435 (4th Cir. 2004). In Farmer, the defendant purchased

irregular garments without trademarks from legitimate manufacturers’

authorized factories, and had dierent companies sew or silk-screen on the

manufacturers’ trademarks. Id. at 437-38. On appeal, the defendant argued

that he had not “confuse[d] customers about the source of his goods” because

the garments had been manufactured to the trademark holders’ specications

III. Trafcking In Counterfeit Marks 133

by factories from which the trademark holders themselves purchased. Id. at

440. e Fourth Circuit disagreed, reasoning that §2320 focuses not on the

quality of the counterfeit goods but on the counterfeit trademark attached to

those goods and the right of trademark holders to control the manufacturing

and sale of goods with their trademarks. Id. at 440-41. Although the decision

did not specically discuss the overrun goods defense, that defense likely would

have been rejected because the garments had not been fully manufactured or

produced until the marks were placed on them by the companies the defendant

hired, which were not authorized by the trademark holders. Had the defendant

instead purchased garments from authorized factories with the trademarks

already on them, the overrun goods defense might have prevailed.

e defendant bears the burden of proving “that the goods or services in

question fall within the overrun exclusion, under both the criminal and civil

provisions” by a preponderance of the evidence. Joint Statement, 130 Cong.

Rec. 31,676 (1984).

2. Authorized-Use Defense: Gray Market Goods

“Gray market goods,” also known as “parallel imports,” are “trademarked

goods legitimately manufactured and sold overseas, and then imported into

the United States” through channels outside the trademark owner’s traditional

distribution channels. Joint Statement, 130 Cong. Rec. 31,676 (1984) (citing

Bell & Howell: Mamiya Co. v. Masel Supply Co., 719 F.2d 42 (2d Cir. 1983)).

As with overrun goods, the marks on gray market goods are placed there with

the mark-holder’s authorization. What the mark-holder has not authorized is

the sale of those foreign goods within the United States.

Just as with overrun goods (discussed in Section C.1 of this Chapter), the

authorized-use defense excludes parallel imports and gray market goods from

the denition of a counterfeit mark because such a mark is “placed there with

the consent of the trademark owner.” Joint Statement, 130 Cong. Rec. 31,676

(1984). Congress carefully considered “gray market” goods and intended that

those who trac in them not be prosecuted. Id.; S. Rep. No. 98-526, at 11

(1984), reprinted in 1984 U.S.C.C.A.N. 3627, 3637.

Additionally, as with the overrun goods defense, the gray market goods

defense is available not just to the party who produced the goods, but also to

any party who tracs in them downstream, because §2320(f )(1) (numbered

§ 2320(e)(1) prior to Dec. 31, 2011) declares that such goods are not

counterfeit. Although there are no reported decisions directly on point, it is

134 Prosecuting Intellectual Property Crimes

unlikely that a court would interpret the gray market or parallel import defense

to be an armative defense. First, Congress drew a distinction between these

defenses in the legislative history. While the legislative history makes clear that

overrun goods are exempt from the denition of counterfeit by §2320(f)(1)

and that the defendant bears the burden of proving the goods at issue are

overrun, Joint Statement, 130 Cong. Rec. 31,676 (1984), the Joint Statement

makes no such statement about gray market goods. Furthermore, the Joint

Statement expressly stated that the bill’s sponsors did not consider gray market

and parallel import goods to meet the denition of counterfeit marks, because

the marks were placed on the goods with the consent of the trademark owner

or a person aliated with the trademark owner. Id.

is defense does not apply if the gray market goods were subsequently

modied or remarked in a manner that made the new mark counterfeit. See

Section C.3. of this Chapter.

3. Repackaging Genuine Goods

When the defendant’s goods themselves are genuine and bear the trademark

of the rights-holder but have been repackaged by the defendant, whether the

defendant’s repackaging is criminal depends on whether he deceived the public

or damaged the mark-owner’s good will. is rule ran through the cases, and

was written into §2320 by the Stop Counterfeiting in Manufactured Goods

Act, Pub. L. No. 109-181, §1, 120 Stat. 285 (2006).

United States v. Hanafy held that a defendant cannot be prosecuted under

§ 2320 for repackaging genuine goods with reproduced trademarks if the

defendant did so without deceiving or confusing others. 302 F.3d 485 (5th Cir.

2002). In Hanafy, the defendants purchased individual cans of infant formula

from various convenience stores and other sources and then repackaged the

cans into trays for resale. Id. at 486. e defendants marked the shipping trays

with reproductions of the can manufacturers’ trademarks and resold the trays to

other wholesalers. Id. Although the cans had not been packaged by the original

manufacturers for resale in this form, the defendants’ goods were genuine,

unadulterated, and were sold within the “sell by” date. Id. e district court

ruled that the unauthorized use of a reproduction of a mark in connection

with genuine goods (that is, what the mark represents the goods to be) does

not violate §2320. Id. at 487-88. In so ruling, the court concluded that the

repackaging rule of Prestonettes, Inc. v. Coty, 264 U.S. 359, 368-69 (1924),

III. Trafcking In Counterfeit Marks 135

which applies to actions brought under the Lanham Act, does not apply to

criminal prosecutions under §2320. Hanafy, 302 F.3d at 488.

Arming the district court, the Fifth Circuit held that the shipping

trays did not qualify as counterfeit under § 2320. Id. at 488-89. Although

repackaging the goods without the manufacturer’s approval or control might

violate civil trademark law, attaching a mark to trays containing the “genuine

unadulterated, unexpired products associated with that mark does not give rise

to criminal liability under section 2320.” Id. at 489. e court distinguished

Petrosian, which involved fake Coca-Cola in real Coke bottles, because the

infant formula in this case was genuine. Id. See also the discussion of Petrosian

in Section B.4.a. of this Chapter. us, under Hanafy, a person usually cannot

be prosecuted under § 2320 for repackaging goods with reproductions of

the original trademark if the goods themselves are genuine and in the same

condition that they would have been had the rights-holder distributed them

itself.

United States v. Milstein, 401 F.3d 53, 62-63 (2d Cir. 2005), conrmed

that a defendant can be prosecuted under §2320 if he repackages genuine

goods to defraud consumers, such as by presenting fraudulent information.

In Milstein, the defendant obtained drugs manufactured for foreign markets

and repackaged them with false lot numbers and other markings to make the

drugs appear as if they had been approved by the FDA for sale in the United

States. 401 F.3d at 59-60. e repackaged drugs were not identical to the drugs

manufactured for U.S. markets. Id. On appeal, the defendant cited Hanafy

to argue that his repackaging did not violate §2320. Id. at 62. e Second

Circuit distinguished Hanafy because “[w]hile the cans in Hanafy were ‘merely

being repackaged, such that consumers could be sure of the goods’ quality and

source,’... the drugs here were repackaged so that consumers would believe

foreign versions of the drug were in fact domestic, FDA-approved versions.” Id.

(quoting United States v. Farmer, 370 F.3d 435, 441 n.1 (4th Cir. 2004) (citing

Hanafy, 302 F.3d at 486)). e critical distinction was that Hanafy’s false

marks “contained no more information than that which was carried on the

cans themselves,” whereas “Milstein sold [drugs] in forged packaging bearing

false lot numbers.” Id. (internal quotation marks and alterations omitted). See

also United States v. Lexington Wholesale Co., 71 Fed. Appx. 507, 508 (6th Cir.

2003) (arming restitution for a §2320 conviction based on repackaging of

loose cans of infant formula into cases that did not accurately reect the “use

by” date).

136 Prosecuting Intellectual Property Crimes

In amending §2320 in 2006, Congress essentially codied Hanafy and

Milstein in a new subsection of §2320: “Nothing in this section shall entitle

the United States to bring a criminal cause of action under this section for the

repackaging of genuine goods or services not intended to deceive or confuse.” 18

U.S.C. §2320(g) (previously numbered as §2320(f)). With respect to Hanafy,

the legislative history explains that “[b]ecause the bill amends the denition of

a counterfeit trademark to include packaging and labeling formats, which can

be used lawfully by a variety of businesses, this language is intended to clarify

that repackaging activities such as combining single genuine products into gift

sets, separating combination sets of genuine goods into individual items for

resale, inserting coupons into original packaging or repackaged items, axing

labels to track or otherwise identify genuine products, [and] removing genuine

goods from original packaging for customized retail displays are not intended

to be prosecuted as counterfeiting activities under the amended title 18 U.S.C.

§2320.” H.R. Rep. No. 109-68, at 8 & n.1 (2005).

Congress also intended to codify the Milstein rule to allow prosecution

of those who repackage genuine goods in a manner that defrauds consumers.

In determining whether to prosecute such a case, the government is expected

to “consider evidence tending to show an intent to deceive or confuse such as

altering, concealing, or obliterating expiration dates, or information important

to the consumer[‘s] use of the product such as safety and health information

about the quality, performance, or use of the product or service; statements

or other markings that a used, discarded, or refurbished product is new; or

statements or other markings that the product meets testing and certication

requirements.” Id. “Also relevant ... would be a meaningful variance from

product testing and certication requirements, placing seals on product

containers that have been opened and the original manufacturer’s seal has been

broken, or altering or otherwise adulterating the genuine product.” Id. at 9.

Although Hanafy and Milstein concern consumables such as food and

drugs, similar issues arise in other industries. See, e.g., Intel Corp. v. Terabyte

Int’l, Inc., 6 F.3d 614, 616, 620 (9th Cir. 1993) (holding defendants liable

for infringement for purchasing and later distributing computer chips from

a distributor who had relabeled the chips with a model number signifying a

higher processing speed); Adobe Sys. Inc. v. One Stop Micro, Inc., 84 F. Supp. 2d

1086, 1088 (N.D. Cal. 2000) (holding defendants liable for infringement for

sale of educational versions adulterated and repackaged as full retail versions).

III. Trafcking In Counterfeit Marks 137

Section 2320(g) does not preempt the prosecution of deceptionless

repackaging under statutes other than §2320: “Nothing in this section shall

entitle the United States to bring a criminal cause of action under this section

for the repackaging of genuine goods or services not intended to deceive or

confuse.” 18 U.S.C. §2320(g) (emphasis added). For instance, repackaging

cases that involve consumer products such as food, drugs, medical devices,

cosmetics, and other items designed for consumers to use in the household,

might be prosecuted under the product tampering statute, 18 U.S.C. §1365,

which addresses tampering with labels and communicating false information

that a consumer product was tainted, or under the Food, Drug, and Cosmetic

Act, 21 U.S.C.§§331(a), 333, 343, 352, 362, which punishes tracking in

misbranded food, drugs and cosmetics. See Section F. of this Chapter.

4. Lanham Act Defenses

e Lanham Act’s civil defenses have been incorporated as defenses against

criminal charges brought under §2320 to the extent applicable. “All defenses,

armative defenses, and limitations on remedies that would be applicable in an

action under the Lanham Act [for trademark infringement] shall be applicable

in a prosecution under this section.” 18 U.S.C. §2320(d) (previously numbered

§2320(c) prior to Dec. 31, 2011); see also Joint Statement, 130 Cong. Rec.

31,675 (1984)( “only those defenses, armative defenses, and limitations on

relief [in the Lanham Act] that are relevant under the circumstances will be

applicable”). In addition, “any armative defense under the Lanham Act will

remain an armative defense under this [section], which a defendant must

prove by a preponderance of the evidence.” Id.

Statutory defenses under the Lanham Act primarily address the

incontestability of a mark once it has been registered for ve years. 15 U.S.C.

§ 1115(b). e defenses to incontestability include: 1) fraud by the mark-

holder in obtaining the registration; 2) abandonment of the mark by its owner;

3) the registered mark’s use by or with the registrant to misrepresent the source

of the goods or services on or in connection with which the mark is used; 4)

use of the name, term, or device charged to be an infringement is a use of

the defendant’s individual name in his own business, or of someone in privity

with that party, or a term that is used in good faith to describe the goods or

services of such party or their geographic origin; 5) innocent and continuous

prior use of the mark without registration by the defendant; 6) the defendant’s

innocent prior use of the mark with registration; 7) use by the mark-holder of

a trademark in violation of the antitrust laws; 8) the mark is functional; and

138 Prosecuting Intellectual Property Crimes

9) equitable defenses, such as laches, estoppel, and acquiescence. Id. Other

Lanham Act defenses or limitations mentioned prominently in the legislative

history are those limitations on actions against printers and newspapers in 15

U.S.C. § 1114(2). For instance, the owner of an infringed mark is limited

to an injunction against future printing under 15 U.S.C. §1125(a). See 15

U.S.C. § 1114(2)(A); Joint Statement, 130 Cong. Rec. 31,675 (1984). For an

extensive discussion of these defenses, see David J. Goldstone & Peter J. Toren,

e Criminalization of Trademark Counterfeiting, 31 Conn. L. Rev. 1, 43-65

(1998).

e applicability of the Lanham Act’s statute of limitations (or lack thereof)

is discussed in Section C.5. of this Chapter.

Civil cases decided under the Lanham Act may prove instructive when

applying the Lanham Act defenses in criminal cases, but those defenses should

not be applied mechanically in a criminal case. For example, although an

“unclean hands” defense may deny relief to a plainti mark-holder in a civil

case, 15 U.S.C. §1115(b)(3), (9); 37 C.F.R. §2.114(b)(1) (2012), the mark-

holder’s unclean hands are less relevant in a criminal case. is is because the

mark-holder is not a party and the prosecutors act in the public’s interest rather

than exclusively the mark-holder’s interest. us, application of this Lanham

Act defense in a criminal case might not serve the public interest.

At this writing, few criminal cases address the Lanham Act defenses. See,

e.g., United States v. Milstein, 401 F.3d 53, 63-64 (2d Cir. 2005) (holding

laches defense unavailable in §2320 prosecutions); United States v. Sung, 51

F.3d 92, 94 (7th Cir. 1995) (discussing how 15 U.S.C. §1111’s limitations

on remedies in civil cases applies to criminal cases); United States v. Sheng, No.

92-10631, 1994 WL 198626 (9th Cir. 1994) (arming denial of defendant’s

motion for discovery concerning antitrust defense, due to defendant’s failure

to make a prima facie case for discovery); United States v. Shinyder, No. 88-

7236, 1989 WL 126528 (4th Cir. 1989) (per curiam) (holding that defendant

failed to demonstrate ineective assistance of counsel because defendant gave

his attorney no information regarding purported invalidity of victim’s mark

due to its prior use by defendant); United States v. Almany, 872 F.2d 924 (9th

Cir. 1989) (appeal based on evidentiary issues related to Lanham Act defenses).

5. Statute of Limitations

Under 18 U.S.C. §3282(a), the statute of limitations for almost all non-

capital federal crimes is ve years unless otherwise expressly provided by law.

III. Trafcking In Counterfeit Marks 139

Because §2320 does not specify a limitations period itself, violations of §2320

are subject to the general ve-year limitations period. See United States v. Foote,

413 F.3d 1240, 1247 (10th Cir. 2005); United States v. Milstein, No. CR 96-

899 (RJD), 2000 WL 516784, at *1 (E.D.N.Y. 2000).

Defendants, however, sometimes seek a shorter statute of limitations by

arguing that the courts should apply the limitations period applicable to civil

trademark violations. In Foote, for instance, the defendant argued that the

statute of limitations should be determined by state law because §2320(d)

incorporates “[a]ll defenses, armative defenses, and limitations on remedies

that would be applicable under the Lanham Act,” and courts apply state

statutes of limitations to Lanham Act cases since the federal civil statute does

not contain an express limitation period. Foote, 413 F.3d at 1247. e Tenth

Circuit disagreed, holding that the lack of an “express statute of limitations

in either the Counterfeit Trademark Act or the Lanham Act” means that the

general criminal limitations period in §3282(a) applies. Id.; see also United

States v. Foote, 238 F. Supp. 2d 1271, 1276-77 (D. Kan. 2002) (containing an

extended policy discussion of this issue).

6. Vagueness Challenges

Courts have rejected challenges to § 2320 under the Fifth Amendment on

vagueness grounds. A statute can be struck down as unconstitutionally vague if

it either (1) fails to provide the kind of notice that will enable ordinary people to

understand what conduct it prohibits, or (2) authorizes or encourages arbitrary

and discriminatory enforcement. City of Chicago v. Morales, 527 U.S. 41, 56

(1999). Federal courts have uniformly rejected challenges to various terms

within § 2320 as unconstitutionally vague. E.g., United States v. McEvoy, 820

F.2d 1170 (11th Cir. 1987) (rejecting claim that the Trademark Counterfeiting

Act, 18 U.S.C. § 2320, is unconstitutionally vague on its face); United States v.

Lam, 677 F.3d 190, 201-03 (4th Cir. 2012) (rejecting vagueness claim based

on § 2320’s use of the phrase “substantially indistinguishable”); United States v.

Bohai Trading Co., 45 F.3d 577 (1st Cir. 1995) (rejecting vagueness claim based

on § 2320’s use of the phrase “at the time of the manufacture or production”

in its “authorized-use” exception); United States v. Hon, 904 F.2d 803 (2d Cir.

1990) (rejecting claim that § 2320 is unconstitutionally vague as applied to

“likelihood of confusion” jury charge); United States v. Diallo, 476 F. Supp. 2d

497 (W.D. Pa. 2007) (rejecting vagueness claim based on Congress’ decision

not to dene the term “use” in § 2320), a’d, 575 F.3d 252 (3d Cir.), cert.

denied, 130 S. Ct. 813 (2009).

140 Prosecuting Intellectual Property Crimes

D. Special Issues

1. High-Quality and Low-Quality Counterfeits

Defense counsel often argue that it is inappropriate to charge a §2320

oense if the counterfeit goods are of very low or, conversely, very high

quality, arguing that nobody is fooled by low-quality counterfeits and that

nobody is harmed or deceived by high-quality counterfeits. Both arguments

are misguided. See, e.g., United States v. Farmer, 370 F.3d 435 (4th Cir. 2004)

(arming conviction under § 2320 for irregular garments purchased from

factories that manufactured garments to trademark holder’s specications);

United States v. Gonzalez, 630 F. Supp. 894, 896 (S.D. Fla.1986) (denying

motion to dismiss §2320 indictment because the counterfeits’ low price did

not preclude nding that they could cause confusion, mistake or deception).

e government’s response lies in the plain language of the statute.

Subsections 2320(a) and (f) focus on whether the counterfeit mark is likely

to cause confusion, cause mistake, or to deceive and make no mention of

the counterfeit item’s quality. See United States v. Foote, 413 F.3d 1240, 1246

(10th Cir. 2005) (“[T]he correct test is whether the defendant’s use of the

mark was likely to cause confusion, mistake or deception in the public in

general.”). As discussed in Section B.4.g. of this Chapter, § 2320 was “not

just designed for the protection of consumers,” but also for “the protection of

trademarks themselves and for the prevention of the cheapening and dilution

of the genuine product.” United States v. Hon, 904 F.2d 803, 806 (2d Cir.

1990) (internal quotation marks and citations omitted). In this vein, “[o]ne

of the rights that a trademark confers upon its owner is the ‘right to control

the quality of the goods manufactured and sold’ under that trademark. For this

purpose the actual quality of the goods is irrelevant; it is the control of quality that

a trademark holder is entitled to maintain.” Farmer, 370 F.3d at 441 (internal

quotation marks and citations omitted) (emphasis added). “When courts nd

that selling an item at an excessively cheap price precludes a nding that such

an item is ‘counterfeit’ under 18 U.S.C. § 2320[] in that the use of the goods

is not likely to cause confusion, to cause mistake, or to deceive, they are, in

eect, thwarting the purposes behind such legislation.” Gonzalez, 630 F. Supp.

at 896; United States v. Torkington, 812 F.2d 1347, 1350 n.3 (11th Cir. 1987)

(holding that Gonzalez “adopted essentially the same interpretation that we do

here”).

III. Trafcking In Counterfeit Marks 141

Because both high-quality and low-quality counterfeit goods aect the

intellectual property rights of the trademark holder, a §2320 charge can be

appropriate in either circumstance. See also Section B.4.g. of this Chapter.

2. Counterfeit Goods with Genuine Trademarks

Although the denition of “counterfeit mark” in §2320(f ) indicates that

the mark itself must be counterfeit, not the good to which it is attached, a

genuine or authentic mark becomes counterfeit when it is applied to counterfeit

goods. See the discussion of United States v. Petrosian, 126 F.3d 1232 (9th Cir.

1997), in Section B.4.a. of this Chapter.

Genuine trademarks can also become counterfeit when they are applied to

genuine product in a manner that misrepresents the genuine product’s quality.

See Section C.3. of this Chapter.

3. Selling Fakes While Admitting at ey Are Fakes

Defendants who disclose to consumers that their merchandise is counterfeit

may not argue successfully that no criminal liability should attach because

their customers were not deceived into thinking they were purchasing genuine

goods. See Section B.4.g. of this Chapter.

4. Selling Another’s Trademarked Goods As One’s Own (Reverse

Passing-O)

Agents sometimes inquire whether a target can be prosecuted for criminal

trademark infringement if he sells another’s goods as his own under his own

trademark, such as selling stolen Marlboro cigarettes as his own Acme brand

cigarettes. is conduct, called “reverse passing-o,” is civilly actionable under

the Lanham Act. See, e.g., Dastar Corp. v. 20th Century Fox Film Corp., 539

U.S. 23, 32-37 (2003); Web Printing Controls Co. v. Oxy-Dry Corp., 906 F.2d

1202 (7th Cir. 1990); Arrow United Indus., Inc. v. Hugh Richards, Inc., 678

F.2d 410, 416 (2d Cir. 1982); Smith v. Montoro, 648 F.2d 602, 606 & n.5 (9th

Cir. 1981). Reverse passing-o is not a crime under §2320, however, because

it does not involve the use of a counterfeit mark as dened in §2320(f). In the

example above, the defendant’s own Acme mark would be, in fact, a genuine

mark.

142 Prosecuting Intellectual Property Crimes

5. Mark-Holder’s Failure to Use ® Symbol

e trademark code requires the holder of a federally registered mark

to give others notice of registration by displaying the mark with the words

“Registered in U.S. Patent and Trademark Oce,” “Re. U.S. Pat. & Tm. O.,”

or the familiar ® symbol. Without this notice next to its mark on its goods

and services, the mark-holder cannot recover its prots or damages against an

infringer unless the infringer had actual notice of the registration. 15 U.S.C.

§1111. e commonly-seen TM and SM symbols do not give notice of federal

registration; they can be used with unregistered marks. 3 J. omas McCarthy,

McCarthy on Trademarks and Unfair Competition §19:148 (4th ed. 2012).

e victim’s intentional or inadvertent failure to use the statutory means of

notice mentioned above does not preclude the defendant’s prosecution under

§ 2320. United States v. Sung, 51 F.3d 92, 93-94 (7th Cir. 1995). Section

2320 criminalizes counterfeiting “whether or not the defendant knew [the

victim’s] mark was so registered.” 18 U.S.C. §2320(f)(1)(A)(ii); Sung, 51 F.3d

at 93-94. Moreover, the notice provisions in 15 U.S.C. §1111 do not create a

defense that excuses infringement, but rather they only limit the mark-holder’s

remedies. Sung, 51 F.3d at 94; see also 3 McCarthy on Trademarks and Unfair

Competition §19:144 (“Failure to use the statutory symbol does not create

a defense: it is merely a limitation on remedies.”) (footnote omitted). For a

discussion of how these remedies are limited in criminal cases, see Section E.3.

of this Chapter.

6. Storage Costs and Destruction

Unlike many other intellectual property crimes, criminal trademark

infringement frequently generates a substantial quantity of physical evidence.

Although large intellectual property seizures can be a problem to store, storage

is the safest option. (Chapter X of this Manual discusses whether victims may

assist with storage.) If storage is not feasible, part of the evidence probably can

be destroyed after a hearing if the seized property is counterfeit. Destruction

of the evidence, however, carries its own complications with respect to making

evidence available for defendants and jurors to inspect and employing sound

procedures for taking representative samples.

e decision to allege all or only a part of the seized intellectual property

in the indictment and at trial must be made on a case-by-case basis. In most

cases, it should be possible either to indict for all seized goods and present

III. Trafcking In Counterfeit Marks 143

evidence of a representative sample to prove the whole at trial, or to indict

and present evidence of only some of the goods, using evidence of the full

quantity as relevant conduct only at sentencing. (Chapter VIII’s discussion

of determining the infringement amount considers the justication for and

methods of estimation.) Charging a subset for trial and proving the remainder

at sentencing may also have some tactical advantages, such as streamlining the

trial and deferring loss calculations to the sentencing phase.

Because these issues can become quite complex, prosecutors should

consider them early on, even before the search is conducted. If the prosecutor

wants all the evidence to be available for trial, it is important to coordinate

with the seizing agency to ensure that any forfeited material is not destroyed

or is at least destroyed only after a sound procedure for taking representative

samples is completed. (Of course, destruction is not permissible until the items

have been forfeited.)

Prosecutors can discuss these issues with the Computer Crime and

Intellectual Property Section at (202) 514-1026.

7. Units of Prosecution

Because a defendant often tracs in numerous counterfeit trademarks,

drafting an indictment that reects the defendant’s actions is not always easy.

e United States Department of Justice’s Criminal Resource Manual 215,

available at http://www.usdoj.gov/usao/eousa/foia_reading_room/usam/

title9/crm00215.htm, advises that “all United States Attorneys should charge

in indictments and informations as few separate counts as are reasonably

necessary to prosecute fully and successfully and to provide for a fair sentence

on conviction”; it also generally recommends charging no more than fteen

counts. But trademark counterfeiters of any signicant size will often have

infringed numerous trademarks in numerous transactions.

e charging determination in a trademark counterfeiting case, as in

other criminal cases, is subject to the rule of reason, and generally the best

approach is to organize charges around specic courses of conduct in order

to keep the case as straightforward as possible for the jury. Counts may be

organized by the mark infringed; the identity of the mark-holder; or the date

upon which the infringing goods were obtained, manufactured, distributed, or

seized. Indictments charging counterfeiting schemes can be unied through a

conspiracy count.

144 Prosecuting Intellectual Property Crimes

If the defendant infringed only one trademark, the defendant can be charged

with a single count. Separate sales of goods bearing the same counterfeit mark,

however, have sometimes been charged in separate counts. See, e.g., United

States v. Gantos, 817 F.2d 41, 42 (8th Cir. 1987) (defendant charged and

convicted on four counts, each for separate sales of counterfeit Rolex watches).

If the defendant counterfeited multiple marks, the indictment may also

contain separate counts for each separate genuine mark. For example, in

United States v. Song, 934 F.2d 105 (7th Cir. 1991), the court upheld the

defendant’s conviction on ve separate counts “because she was tracking in

goods bearing ve dierent counterfeit marks.” Id. at 109. e court relied on

the plain language of §2320, which punishes someone who “‘intentionally

tracs or attempts to trac in goods or services and knowingly uses a counterfeit

mark’ on such goods or services.” Id. at 108 (quoting the then-current version

of 18 U.S.C. §2320(a)) (emphasis in original) (footnote omitted).

e courts have not yet addressed several charging issues that will continue

to arise in trademark prosecutions:

• Whether a single sale of multiple items that infringe multiple trademarks

may be charged in a single counterfeiting count. e issue is whether

such a charge would be duplicitous—i.e., charging two or more distinct

oenses in a single count—or rather just an allegation that multiple

means were used to commit a single oense. Prosecutors who confront

this issue should consult the Department’s manual, Oce of Legal

Education, U.S. Dep’t of Justice, Federal Grand Jury Practice §11.30

(2008) (concerning duplicitous indictments), available at http://

dojnet.doj.gov/usao/eousa/ole/usabook/gjma/11gjma.htm#11.30.

• How multiple counterfeit trademarks on a single good should be

charged in a criminal indictment: as one count, using the counterfeit

good as the unit of prosecution, or as multiple counts, using each mark

as a unit of prosecution.

• Whether a defendant who tracs in a counterfeit good wrapped in

counterfeit packaging may be charged in one count that covers both the

good and packaging and/or whether charging the good and packaging

separately in multiple counts is necessary or permissible, now that

§ 2320 (as amended 2006) criminalizes tracking in counterfeit

labels, documentation, and packaging in addition to counterfeit goods

and services.

III. Trafcking In Counterfeit Marks 145

8. Olympic Symbols

e denition of “counterfeit mark” in § 2320(f)(1)(B) includes

designations protected by the Olympic Charter Act, such as the ve

interlocking rings of the Olympic games. See also 36 U.S.C. §220506(a)(2)

(giving the United States Olympic Committee exclusive rights to the symbol of

the International Olympic Committee, consisting of 5 interlocking rings, the

symbol of the International Paralympic Committee, consisting of 3 TaiGeuks,

and the symbol of the Pan-American Sports Organization, consisting of a torch

surrounded by concentric rings).

Some of the rules that apply to prosecutions involving other marks do not

apply to cases involving the Olympic symbols:

• emarkneednothavebeenregisteredontheprincipalregisterin

the USPTO. Section 2320(f)(1)(A)’s registration requirements do not

apply to cases dealing with criminal trademark infringement of Olympic

symbols. Compare 18 U.S.C. §2320(f)(1)(A)(ii) with §2320(f)(1)(B);

see also 36 U.S.C. §220506; Joint Statement, 130 Cong. Rec. 31,675

(1984) (explicitly exempting cases involving Olympic symbols from

the registration requirement). See also the discussion of registration in

Section B.4.c. of this Chapter.

• Section 2320(f)(1)(A)(ii)’s use requirement does not apply to cases

involving protected Olympic symbols. See also the discussion of use in

Section B.4.d. of this Chapter.

• erequirementthatthe defendanthave usedthe counterfeitmark

in connection with the goods or services for which the mark had

been registered does not apply to cases involving protected Olympic

symbols. See also Section B.4.f. of this Chapter.

• IncasesinvolvingprotectedOlympicsymbols,themarkiscounterfeit

under 18 U.S.C. §2320(f)(1)(B) if the defendant’s counterfeit symbols

are “identical with, or substantially indistinguishable” from the genuine

symbols. No further proof of likely confusion, mistake, or deception is

required. See also Section B.4.g. of this Chapter.

e other rules discussed in this Chapter apply equally to cases involving

Olympic symbols.

146 Prosecuting Intellectual Property Crimes

E. Penalties

1. Fines and Imprisonment

For violations of § 2320(a)(1) (goods or services) or (a)(2) (labels, etc.), the

maximum penalty for a rst oense is up to 10 years imprisonment and a $2

million ne for an individual defendant and up to $5 million for organizational

defendants. 18 U.S.C. § 2320(b)(1)(A). Subsequent oenses are subject to

penalties of up to 20 years imprisonment and a $5 million ne for an individual

defendant and up to $15 million for organizational defendants. Id. § 2320(b)

(1)(B).

For violations of § 2320(a)(3) and (a)(4), involving counterfeit military

goods or services and counterfeit drugs, respectively, the maximum penalty

is imprisonment up to 20 years and a ne of up to $5 million for individuals

and up to $15 million for organizational defendants. Id. § 2320(b)(3)(A).

Subsequent oenses are subject to up to 30 years imprisonment and a $15

million ne for individuals and up to $30 million ne for organizational

defendants. Id. §2320(b)(3)(B).

If a defendant knowingly or recklessly causes or attempts to cause serious

bodily harm or death by any of the oenses listed in subsection 2320(a),

enhanced penalties may be available under § 2320(b)(2). In the case of serious

bodily injury the statutory penalty is up to 20 years’ imprisonment and a $5

million ne for an individual and up to $15 million for an organizational

defendant. e nes are the same in the case of death, however, an individual

is subject to life imprisonment. Id. §2320(b)(2)(A), (B).

A challenge to incarceration, probation, and supervised release, on the

ground that these remedies are not present in the civil Lanham Act, was rejected

in United States v. Foote, No. CR.A. 00-20091-01-KHV, 2003 WL 22466158,

at *2-3 (D. Kan. July 31, 2003), a’d in part on other grounds, 413 F.3d 1240

(10th Cir. 2005).

2. Restitution

e 2006 amendments to § 2320 expressly provided for restitution to

victims of trademark counterfeiting. e amendments codied the prior

practice in which restitution was awarded under 18 U.S.C. § 3663A(c)(1)

(A)(ii), which provides mandatory restitution to victims of crimes against

property in Title 18, and under Section 5E1.1 of the Sentencing Guidelines,

III. Trafcking In Counterfeit Marks 147

which provides restitution when there is an identiable victim and restitution

is authorized under 18 U.S.C. §3663A. See, e.g., United States v. Lexington,

71 Fed. Appx. 507, 508 (6th Cir. 2003) (arming contested restitution order

under 18 U.S.C. §3663 and U.S.S.G. §5E1.1 following a §2320 conviction);

United States v. Hanna, No. 02 CR.1364-01 (RWS), 2003 WL 22705133, at

*3 (S.D.N.Y. Nov. 17, 2003) (including restitution in sentence for §2320

conviction). See also Chapter VIII of this Manual.

e 2008 PRO-IP Act revised § 2320’s restitution provision to refer to 18

U.S.C. §2323, the general forfeiture and restitution provision for IP oenses

also created by the PRO-IP Act. Section 2323(c), provides that “[w]hen a

person is convicted of an oense under [§2320, inter alia], the court, pursuant

to sections 3556, 3663A, and 3664 of [title 18], shall order the person to pay

restitution to any victim of the oense as an oense against property referred

to in section 3663A(c)(1)(A)(ii).” 18 U.S.C. §2320(c). is provision does

not mean that restitution will be proper in every §2320 case, but rather that

restitution shall be ordered under 18 U.S.C. §3663A(c)(1)(A)(ii) if there is a

victim who was harmed in a manner that would entitle him to restitution as

the victim of a property crime.

Before the 2008 amendments, §2320 expressly dened the term “victim”

as having “the meaning given that term in section 3663A(a)(2),” that is, “a

person directly and proximately harmed as a result of the commission of an

oense for which restitution may be ordered.” See §2320(b)(5) (2008). at

express reference to § 3663A(a)(2) was removed when the specic restitution

language in § 2320 was replaced with a reference to the IP forfeiture and

restitution provision in § 2323 by the PRO-IP Act in 2008. Although § 2323

does not dene the term “victim,” there is no language in the PRO-IP Act or

its legislative history to indicate that Congress intended these amendments to

alter the denition of “victim” for § 2320 purposes, or to refer to any denition

other than that provided in § 3663A(a)(2). Even under that denition, however,

there remains some question whether a mark-holder qualies for restitution

if the defendant’s conduct did not diminish the mark-holder’s sales. See also

Chapter VIII of this Manual.

e restitution amount should be determined by calculating only “the

actual amount [of infringing goods] placed into commerce and sold.” United

States v. Beydoun, 469 F.3d 102, 108 (5th Cir. 2006). Although infringing

items intended to be sold (but not actually sold) may be included in valuing

loss for sentencing purposes, such goods should not be included in calculating

148 Prosecuting Intellectual Property Crimes

restitution. Id. at 107-108. Furthermore, since the purpose of restitution is

to compensate victims for actual losses, restitution should be based on the

legitimate seller’s gross, rather than net, lost prots. Id. at 108.

In § 2320 cases, the victim’s right to restitution may be subject to an

important qualication: the Lanham Act’s limitation on remedies in 15

U.S.C. § 1111. In civil cases, 15 U.S.C. § 1111 prohibits a plainti from

recovering monetary damages from a defendant who lacked actual notice

that the plainti’s mark was registered. One court has ruled that 15 U.S.C.

§1111 limits restitution in a §2320 prosecution because §2320 incorporates

civil Lanham Act defenses. United States v. Sung, 51 F.3d 92, 94 (7th Cir.

1995) (“[R]estitution in a criminal case is the counterpart to damages in civil

litigation,” and thus “restitution payable to the trademark owner is proper only

if the goods contained the proper notice or the infringer had actual knowledge

of the registration.”). In Sung, the Seventh Circuit held that specic ndings

on these points—proper notice or actual knowledge of the registration—must

be made by the sentencing court on the record before ordering restitution. Id.

See the discussion of what constitutes proper notice in Section D.5. of this

Chapter. For cases addressing how to prove notice or the defendant’s actual

knowledge of registration, see United Servs. Auto. Ass’n v. Nat’l Car Rental Sys.

Inc., No. Civ. A.SA00CA1370G, 2001 WL 1910543, at *4 (W.D. Tex. Sept.

26, 2001) (holding that “actual notice requirement is met when a party receives

information portraying a registered trademark bearing a ® symbol,” including

a letter asking the defendant to cease and desist); Schweitzz Dist. Co. v. P & K

Trading Inc., No. 93 CV 4785, 1998 WL 472505, at *5 (E.D.N.Y. July 16,

1998) (holding that defendant’s testimony that it was aware of plainti’s use of

the ® symbol on the open market suced to prove notice).

Even if other courts follow the Seventh Circuit’s holding in Sung, two points

are worth noting. First, the defendant’s knowledge or notice of the registration

is not a defense to a criminal conviction; it is only a limitation on remedies.

SeeSung, 51 F.3d at 93-94. See also Section D.5. of this Chapter. Second,

the rule should not limit restitution to any consumers whom the defendant

defrauded. Sung’s holding was stated only in terms of restitution to the mark-

holder, and its rationale should not be extended to consumers who have no

say in whether the mark-holder gave the defendant notice. See Sung, 51 F.3d

at 94 (noting that “as a form of money damages, restitution [is] payable to the

trademark owner”) (emphasis added); cf. United States v. Foote, 413 F.3d 1240,

1252 (10th Cir. 2005) (holding Sung inapplicable to criminal nes because

III. Trafcking In Counterfeit Marks 149

“[t]he court’s conclusion in Sung was based on its reasoning that restitution is

a form of money damages payable to the trademark owner. Unlike restitution

[to the trademark owner], nes are a form of criminal punishment rather

than a form of damages, and are payable to the government rather than to the

trademark owner.”) (citation omitted).

For a more in-depth discussion of restitution in intellectual property

crimes, such as whether a trademark-holder can be awarded restitution even

if the defendant did not cost the trademark-holder any sales, see Chapter VIII

of this Manual.

3. Forfeiture

Forfeiture is covered in Chapter VIII of this Manual.

4. Sentencing Guidelines

e applicable sentencing guideline is U.S. Sentencing Guidelines Manual

§2B5.3. It is covered in Chapter VIII of this Manual.

Historically, one of the most dicult issues in sentencing §2320 oenses

concerned how to compute the infringement amount of goods in the defendant’s

possession to which he had not yet applied a counterfeit mark. In cases where

the defendant had not completed applying the counterfeit mark to the goods at

issue (such as in cases of attempt or aiding-and-abetting where the defendants

produced counterfeit labels or packaging), courts held that the government was

required to establish with a “reasonable certainty” that the defendant intended

to complete and trac in those goods. United States v. Guerra, 293 F.3d 1279,

1293-94 (11th Cir. 2002) (“ere is no support for the proposition that the

number of ‘infringing items’ may be based on the number of seized articles

that have the mere potential of ultimately forming a component of a nished

counterfeit article, without a determination as to the extent to which defendants

had a reasonable likelihood of actually completing the goods.”); United States v.

Sung, 51 F.3d 92, 94-96 (7th Cir. 1995) (remanding for resentencing because

the district court did not nd with reasonable certainty that Sung intended to

sell 240,000 counterfeit shampoo bottles where the only evidence of intent

was the possession of counterfeit trademarked shipping cartons that could hold

240,000 bottles, and defendant had liquid to ll only 17,600 bottles). Further,

if the counterfeit label was not attached to the good, the counterfeit item’s

value might have been determined by whether the counterfeit label itself has

a market value separate from the value of the infringing item for which it was

150 Prosecuting Intellectual Property Crimes

intended. Compare United States v. Bao, 189 F.3d 860, 866-67 (9th Cir. 1999)

(holding that the most appropriate retail value to use in sentencing under 18

U.S.C. §2318 for tracking in counterfeit computer software manuals was

that of the genuine computer manual, not the total software package) with

Guerra, 293 F.3d at 1292 (distinguishing Bao in §2320 conviction because the

cigar labels had no retail value apart from being attached to the cigars).

In response to the 2006 amendments, which expressly addressed counterfeit

labeling components, the Sentencing Commission amended the Application

Notes to §2B5.3 to provide that the retail value of the infringed item should

be used to determine the infringement amount when the case involves:

a counterfeit label, patch, sticker, wrapper, badge, emblem,

medallion, charm, box, container, can, case, hangtag,

documentation, or packaging of any type or nature (I) that has

not been axed to, or does not enclose or accompany a good

or service; and (II) which, had it been so used, would appear to

a reasonably informed purchaser to be axed to, enclosing, or

accompanying an identiable, genuine good or service. In such

a case, the “infringed item” is the identiable, genuine good or

service.

United States Sentencing Guidelines § 2B5.3 cmt. n.2(A)(vii) (2012) (as

amended by Amendment 682, eective September 12, 2006).

On April 10, 2013, the Sentencing Commission promulgated new

Guidelines amendments to address the counterfeit military good or service

oense in § 2320(a)(3) that was created by the NDAA for FY2012 (enacted

Dec. 31, 2011), and the counterfeit drug oense in § 2320(a)(4) that was

created by the FDASIA (enacted July 9, 2012). Under these amendments,

both types of oenses will generally be subject to a 2-level enhancement, and

counterfeit military goods oenses will also be subject to a minimum oense

level of 14. Application of these new Guidelines provisions is discussed further

in Chapter VIII of this Manual.

III. Trafcking In Counterfeit Marks 151

F. Other Charges to Consider

When confronted with a case that implicates counterfeit trademarks,

service marks, or certication marks, prosecutors may consider the following

crimes in addition to or in lieu of §2320 charges if §2320’s elements cannot

be met:

• Conspiracyandaiding-and-abetting, 18U.S.C.§§2,371

Consider these charges if the defendant only supplied

counterfeit labels or packaging that were attached by another

person. See Section B.3.c. of this Chapter.

• Mailandwirefraud,18U.S.C.§§1341,1343

ese charges can be led if the defendant used the mail (or

other interstate carrier) or wires (including the Internet) in

a scheme to defraud purchasers, whether direct or indirect

purchasers. Mail and wire fraud may be especially appropriate

when there are foreign victims and domestic jurisdiction under

§2320 is dicult to establish. See Pasquantino v. United States,

544 U.S. 349, 125 S. Ct. 1766 (2005) (arming wire fraud

conviction where victim was the Canadian government);

United States v. Trapilo, 130 F.3d 547, 552 (2d Cir. 1997) (“e

[wire fraud] statute reaches any scheme to defraud involving

money or property, whether the scheme seeks to undermine

a sovereign’s right to impose taxes, or involves foreign victims

and governments.”) (emphasis in original) (citations omitted).

Mail and wire fraud charges may be available if the defendant

told his direct purchasers that his goods were counterfeit, so

long as he and his direct purchasers intended to defraud the

direct purchasers’ customers. If, however, all the participants

intended that the goods be sold to the ultimate customers as

admitted “replicas,” then mail and wire fraud charges will likely

be unavailable.

• Copyrightinfringement,17U.S.C.§506,18U.S.C.§2319

Consider these charges if the underlying goods are not only

trademarked or service marked, but also contain copyrighted

152 Prosecuting Intellectual Property Crimes

contents, such as books, movies, music, or software. See

Chapter II of this Manual.

• Trackingincounterfeitlabels,illicitlabels,orcounterfeit

documentationorpackaging, 18U.S.C.§2318

Consider charging § 2318 if the labels, documentation, or

packaging were intended to be used with copyrighted works.

See Chapter VI of this Manual.

• Trackinginmisbrandedfood,drugsandcosmetics

See Food, Drug, and Cosmetic Act and Title 21 provisions,

including 21 U.S.C.§§331(a) (prohibitions on misbranding),

333 (criminal penalties), 343 (misbranded food), 352

(misbranded drugs and devices), 362 (misbranded cosmetics)

and 841(a)(2) (prohibiting distribution of counterfeit

controlled substances).

• Tamperingwithconsumerproducts, 18U.S.C.§1365

Tampering with labels and communicating false information

that a consumer product has been tainted.

• Trackinginmislabeledwool,furandtextileberproducts

Title 15 U.S.C.§§68a, 68h (prohibiting commercial dealing in

misbranded wool products), 69a, 69i (prohibiting commercial

dealing in misbranded fur products), 70a, 70i (prohibiting

commercial dealing in misbranded textile ber products).

• RacketeerInuencedandCorruptOrganizations(RICO),

18U.S.C.§§1961-1968

Consider RICO if the intellectual property crimes are

committed by organizations. Counterfeit labeling, 18 U.S.C.

§2318; criminal copyright infringement, 18 U.S.C. §2319;

tracking in recordings of live musical performances, 18

U.S.C. § 2319A; and trademark counterfeiting, 18 U.S.C.

§ 2320, are all predicate oenses for a racketeering charge

under 18 U.S.C. §1961(1)(B). A RICO charge requires prior

approval from the Organized Crime and Gang Section of the

Criminal Division (OCGS). See United States Attorneys’ Manual

III. Trafcking In Counterfeit Marks 153

(USAM)9-110.101, 9-110.320. To contact OCGS, call (202)

514-3594.

• Moneylaundering,18U.S.C.§§1956,1957

Section 2320 is a predicate oense for a money laundering

charge. 18 U.S.C. §1956(c)(7)(D). See, e.g., United States v.

Bohai Trading Co., 45 F.3d 577, 579 (1st Cir. 1995) (charging

§2320 and §1957 oenses).

ose seeking additional information on enforcing criminal provisions

of the Food, Drug, and Cosmetic Act designed to protect consumers should

contact the Justice Department’s Consumer Protection Branch at (202) 616-

0295.

Congress has also provided civil remedies for violations of its prohibitions

on misbranded goods and has established agencies to enforce those laws, such

as the Federal Trade Commission and the Food and Drug Administration.

Cases appropriate for civil enforcement may be referred to the appropriate

agency. e Federal Trade Commission’s Marketing Practices Division, which

is part of the Consumer Protection Bureau, may be reached at (202) 326-

2412. e Federal Trade Commission’s website is www.ftc.gov, and their

general information telephone number is (202) 326-2222. e Food and

Drug Administration’s website is www.fda.gov, and they may be reached by

telephone at 1-888-INFO-FDA (1-888-463-6332).

154 Prosecuting Intellectual Property Crimes

155

IV.

eft of Commercial

Trade Secrets—

18 U.S.C. §§ 1831-1839

A. Introduction

“A trade secret is really just a piece of information (such as a customer list,

or a method of production, or a secret formula for a soft drink) that the holder

tries to keep secret by executing condentiality agreements with employees

and others and by hiding the information from outsiders by means of fences,

safes, encryption, and other means of concealment, so that the only way the

secret can be unmasked is by a breach of contract or a tort.” ConFold Pac.,

Inc. v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (Posner, J.) (citations

omitted). Or, as Judge Posner could have pointed out, it can also be unmasked

by a criminal act.

Congress expressly criminalized the theft of trade secrets with passage

of the Economic Espionage Act of 1996, Pub. L. No. 104-294, 110 Stat.

3489 (1996) (codied at 18 U.S.C. §§1831-1839) (EEA). Prior to the EEA,

criminal liability for the theft of trade secrets was available indirectly in limited

situations: 18 U.S.C.§1905 for the unauthorized disclosure of government

information, including trade secrets, by a government employee; 18 U.S.C.

§ 2314 for the interstate transportation of stolen property, including trade

secrets; and 18 U.S.C. §§1341, 1343, and 1346 for the use of mail or wire

communications in a fraud scheme to obtain condential business information

in. See Section G. of this Chapter. And while some state laws provided for

criminal enforcement of trade secret theft, the legal landscape was far from

uniform.

Congress passed the EEA in 1996 “against a backdrop of increasing threats

to corporate security and a rising tide of international and domestic economic

espionage.” United States v. Hsu, 155 F.3d 189, 194 (3d Cir. 1998). Congress

further recognized that as America continued to transition to a technology and

information-based economy, its businesses’ condential information would

156 Prosecuting Intellectual Property Crimes

become increasingly tied to America’s national security. See H.R. Rep. No. 104-

788, at 4-7 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4023-26; see also

id. at 7 (1996) (noting “the importance of developing a systematic approach

to the problem of economic espionage”). us, the EEA was intended to bring

the legal framework prohibiting the theft of sensitive and proprietary business

information in line with the realities of the information age. See 142 Cong.

Rec. 27111-12 (1996) (Statement of Senator Specter). e statute closed a

gap in federal law that made it dicult to prosecute the theft of trade secrets.

Hsu, 155 F.3d at 194-95; see also United States v. Yang, 281 F.3d 534, 543 (6th

Cir. 2002) (noting “the purpose of the EEA was to provide a comprehensive

tool for law enforcement personnel to use to ght theft of trade secrets”). In

recent years, the number of EEA cases has dramatically increased. See, e.g.,

U.S. Intellectual Property Enforcement Coordinator, 2011 Annual Report on

Intellectual Property Enforcement, at 30-31 (2012); U.S. Dep’t of Justice, PRO

IP Act Annual Report FY2011, at 18-19 (2011); FBI, PRO IP Act Annual Report

FY2011, at 1 (2011); U.S. Dep’t of Justice, PRO IP Act Annual Report FY2010,

at 16-18 (2010); FBI, PRO IP Act Annual Report FY2010, at 1 (2010).

e EEA has undergone two recent amendments. e eft of Trade

Secrets Clarication Act, Pub. L. No. 112-236, § 2, 126 Stat. 1627 (2012)

(“2012 amendment” ), enacted December 28, 2012, claried the “interstate

commerce” element of 18 U.S.C. § 1832 in response to the Second Circuit’s

decision in United States v. Aleynikov, 676 F.3d 71 (2d Cir. 2012). e Foreign

and Economic Espionage Penalty Enhancement Act, Pub. L. No. 112-269, § 3,

126 Stat. 2442 (2013), enacted January 14, 2013, increased the nes available

for 18 U.S.C. § 1831 oenses, and directed the United States Sentencing

Commission to review the penalties applicable to EEA oenses.

is Chapter considers a number of issues arising under the Economic

Espionage Act in depth. A sample indictment and jury instructions appear at

Appendix D. In addition to this Chapter, prosecutors may wish to consult the

following treatises or law review articles: Uniform Trade Secrets Act §1 et seq.

(amended 1985), 14 U.L.A. 438 (1990); Roger M. Milgrim, Milgrim on Trade

Secrets (2012); Ronald D. Coenen Jr. et al., Intellectual Property Crimes, 48 Am.

Crim. L. Rev. 849 (2011); 6 Joel Androphy, White Collar Crime, § 45:1-18

(2012); Economic Espionage and Trade Secrets, 57 United States Attorneys’

Bulletin, No. 5, 1-69 (Nov. 2009) (series of articles on prosecuting EEA cases),

available at http://www.justice.gov/usao/eousa/foia_reading_room/usab5705.

pdf; J. Michael Chamblee, Validity, Construction, and Application of Title I of

IV. Theft of Commercial Trade Secrets 157

Economic Espionage Act of 1996 (18 U.S.C.A. §§1831 et seq.), 177 A.L.R. Fed.

609 (2002); James M. Fischer, Note, An Analysis of the Economic Espionage

Act of 1996, 25 Seton Hall Legis. J. 239 (2001); Louis A. Karasik, Under the

Economic Espionage Act: Combating Economic Espionage is No Longer Limited to

Civil Actions to Protect Trade Secrets, 48 Fed. Law. 34 (2001); Michael Coblenz,

Intellectual Property Crimes, 9 Alb. L.J. Sci. & Tech. 235 (1999); James H.A.

Pooley, Mark A. Lemley & Peter J. Toren, Understanding the Economic Espionage

Act of 1996, 5 Tex. Intell. Prop. L.J. 177 (1997).

B. e Economic Espionage Act of 1996,

18 U.S.C.§§1831-1839

1. Overview

e Economic Espionage Act of 1996 (“EEA”) promotes two primary and

related objectives: to protect national and economic security. As noted in the

House Report:

With this legislation, Congress will extend vital federal

protection to another form of proprietary economic

information—trade secrets. ere can be no question that

the development of proprietary economic information is an

integral part of America’s economic well-being. Moreover, the

nation’s economic interests are a part of its national security

interests. us, threats to the nation’s economic interest are

threats to the nation’s vital security interests.

H.R. Rep. No. 104-788, at 4 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,

4023. President Clinton echoed these twin objectives in signing the legislation

into law:

Trade secrets are an integral part of virtually every sector of

our economy and are essential to maintaining the health and

competitiveness of critical industries operating in the United

States. Economic espionage and trade secret theft threaten our

Nation’s national security and economic well-being.

Until today, Federal law has not accorded appropriate or

adequate protection to trade secrets, making it dicult to

prosecute thefts involving this type of information. Law

158 Prosecuting Intellectual Property Crimes

enforcement ocials relied instead on antiquated laws that

have not kept pace with the technological advances of modern

society. is Act establishes a comprehensive and systemic

approach to trade secret theft and economic espionage,

facilitating investigations and prosecutions.

President William J. Clinton, Presidential Statement on the Signing of the

Economic Espionage Act of 1996 (Oct. 11, 1996), available at 1996 Pub.

Papers 1814 (Oct. 11, 1996).

e EEA criminalizes two types of trade secret misappropriation: economic

espionage, under § 1831, and trade secret theft, under § 1832. In Title 18,

§ 1831 punishes the theft of a trade secret to benet a foreign government,

instrumentality, or agent:

(a) In general.—Whoever, intending or knowing that the oense

will benet any foreign government, foreign instrumentality,

or foreign agent, knowingly—

(1) steals, or without authorization appropriates, takes,

carries away, or conceals, or by fraud, artice, or deception

obtains a trade secret;

(2) without authorization copies, duplicates, sketches,

draws, photographs, downloads, uploads, alters, destroys,

photocopies, replicates, transmits, delivers, sends, mails,

communicates, or conveys a trade secret;

(3) receives, buys, or possesses a trade secret, knowing the

same to have been stolen or appropriated, obtained, or

converted without authorization;

(4) attempts to commit any oense described in any of

paragraphs (1) through (3); or

(5) conspires with one or more other persons to commit

any oense described in any of paragraphs (1) through (3),

and one or more of such persons do any act to eect the

object of the conspiracy,

shall, except as provided in subsection (b), be ned not more

than $5,000,000 or imprisoned not more than 15 years, or

both.

IV. Theft of Commercial Trade Secrets 159

18 U.S.C. §1831(a) (as amended by the Foreign and Economic Espionage

Penalty Enhancement Act, Pub. L. No. 112-269, § 3, 126 Stat. 2442 (2013))

(emphasis added).

Section 1832, in contrast, punishes the commercial theft of trade secrets

carried out for economic advantage, whether or not it benets a foreign

government, instrumentality, or agent:

(a) Whoever, with intent to convert a trade secret, that is related to

a product or service used or intended for use in interstate or foreign

commerce, to the economic benet of anyone other than the owner

thereof, and intending or knowing that the oense will injure any

owner of that trade secret, knowingly—

(1) steals, or without authorization appropriates, takes,

carries away, or conceals, or by fraud, artice, or deception

obtains such information;

(2) without authorization copies, duplicates, sketches,

draws, photographs, downloads, uploads, alters, destroys,

photocopies, replicates, transmits, delivers, sends, mails,

communicates, or conveys such information;

(3) receives, buys, or possesses such information, knowing

the same to have been stolen or appropriated, obtained, or

converted without authorization;

(4) attempts to commit any oense described in paragraphs

(1) through (3); or

(5) conspires with one or more other persons to commit

any oense described in paragraphs (1) through (3), and

one or more of such persons do any act to eect the object

of the conspiracy,

shall, except as provided in subsection (b), be ned under this

title or imprisoned not more than 10 years, or both.

18 U.S.C. §1832(a) (as amended by the eft of Trade Secrets Clarication

Act, Pub. L. No. 112-236, § 2, 126 Stat. 1627 (2012)) (emphasis added).

Although §1831 (foreign economic espionage) and §1832 (theft of trade

secrets) dene separate oenses, they are nevertheless related. e following

160 Prosecuting Intellectual Property Crimes

table highlights the common and distinct statutory language for both oenses,

which are further discussed below:

Section 1831(a)

(Economic Espionage)

Section 1832(a)

(eft of Trade Secrets)

(1) e defendant knowingly

misappropriated information

(e.g., possessed, stole,

transmitted, downloaded) (or

conspired or attempted to do so)

Same

(2) e defendant knew or believed

this information was proprietary

and that he had no claim to it

Same

(3) e information was in fact a

trade secret (unless conspiracy

or an attempt is charged)

Same

(4) e defendant knew or

intended that the oense would

benet a foreign government,

foreign instrumentality, or

foreign agent

e defendant intended to convert

the trade secret to the economic

benet of anyone other than the

owner

(5) e defendant knew or intended

that the oense would injure the

owner of the trade secret

(6) e trade secret was related to

a product or service used or

intended for use in interstate or

foreign commerce

Sections 1831(a) and 1832(a) both require the government to prove beyond

a reasonable doubt that: (1) the defendant misappropriated information (or

conspired or attempted to do so); (2) the defendant knew or believed this

information was proprietary and that he had no claim to it; and (3) the

information was in fact a trade secret (unless, as is discussed below, the crime

charged is a conspiracy or an attempt). See 18 U.S.C.§§1831(a), 1832(a).

Both sections criminalize trade secret misappropriations in a variety of forms,

including but not limited to:

• stealing, taking or using fraud, artice, or deception to obtain the trade

secret, under §§1831(a)(1), 1832(a)(1);

IV. Theft of Commercial Trade Secrets 161

• duplicating, taking photographs, downloading, uploading, altering,

destroying, transmitting, or conveying the trade secret, under

§§1831(a)(2), 1832(a)(2);

• receiving, buying or possessing the trade secret, knowing the same

to have been stolen or appropriated, obtained, or converted without

authorization, under §§1831(a)(3), 1832(a)(3).

To prove economic espionage under 18 U.S.C.§1831, the government

must also prove the defendant knew or intended that the oense would benet

a foreign government, foreign instrumentality, or foreign agent.

If a foreign instrumentality element does not exist or cannot be proved,

the government may still establish a violation of 18 U.S.C.§1832 by proving,

in addition to the rst three elements described above, that: (4) the defendant

intended to convert the trade secret to the economic benet of anyone other

than the owner; (5) the defendant knew or intended that the oense would

injure the owner of the trade secret; and (6) the trade secret was related to a

product or service used or intended for use in interstate or foreign commerce.

e EEA can be applied to a wide variety of criminal conduct. e

statute criminalizes attempts and conspiracies to violate the EEA and certain

extraterritorial conduct. See Sections B.6. and E.4. of this Chapter.

e EEA also provides several remedies that are unusual in a criminal

statute: civil injunctive relief against violations, to be obtained by the Attorney

General, 18 U.S.C.§1836, and condentiality orders to maintain the trade

secret’s secrecy throughout the prosecution, 18 U.S.C. § 1835. See Section D.

of this Chapter. e statute includes an extraterritoriality provision, 18 U.S.C.

§1837, which extends its reach to conduct outside the United States where

certain conditions are met. See Section E.4. of this Chapter.

For a discussion of the Department of Justice’s oversight of and necessary

approvals for EEA prosecutions, see Sections B.4, E.5.

2. Relevance of Civil Cases

e EEA’s denition of a trade secret, 18 U.S.C. §1839(3), is based in

part on the trade secret denition in the Uniform Trade Secrets Act (UTSA),

14 U.L.A. 438 (1990). See H. R. Rep. No. 104-788, at 12 (1996), reprinted

in 1996 U.S.C.C.A.N. 4021, 4031. Cases that address trade secrets outside

the EEA should, in most cases, be relevant in EEA prosecutions. See generally

United States v. Chung, 659 F.3d 815 (9th Cir. 2011), cert. denied, _ U.S. _

162 Prosecuting Intellectual Property Crimes

(2012) (Because the EEA trade secret denition “is derived from the denition

that appears in the Uniform Trade Secrets Act ... we consider instructive

interpretations of state laws that adopted the UTSA denition without

substantial modication”) (footnote omitted); Hsu, 155 F.3d at 196 (“e

EEA’s denition of a ‘trade secret’ is similar to that found in a number of state

civil statutes and the Uniform Trade Secrets Act (‘UTSA’), a model ordinance

which permits civil actions for the misappropriation of trade secrets. ere are,

though, several critical dierences which serve to broaden the EEA’s scope.”)

(footnote omitted).

3. Elements Common to 18 U.S.C.§§1831, 1832

As discussed below, a trade secret consists of three primary components:

(1) information; (2) which derives independent economic value from being

secret; and (3) that the owner took reasonable measures to protect. See also

ConFold Pac., Inc. v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (Posner,

J.) (noting a trade secret can be any information, whether in tangible form or

otherwise, that its owner takes reasonable measures to keep secret, and that has

some economic value as a result of its secrecy) (citations omitted).

e elements for completed oenses are discussed in the ensuing sections.

Attempts and conspiracies are discussed in Section B.6. of this Chapter.

a. e Information Was a Trade Secret

e government should ascertain the specic information the victim claims

is a trade secret at the outset of the investigation. “[A] prosecution under [the

EEA] must establish a particular piece of information that a person has stolen

or misappropriated.” 142 Cong. Rec. 27, 117 (1996). is will help avoid the

defendant’s defense that he was merely relying on his general knowledge, skills,

and abilities along, perhaps, with legitimate reverse engineering. See Section

C.3. of this Chapter. Other questions to consider include how many trade

secrets may have been misappropriated and how they relate to one another.

In ascertaining what is the trade secret and the number of trade secrets

in a particular case, consider who would be the best trial witness to testify

about these issues before the jury. For example, where source code is the trade

secret, the chief technology ocer, or other supervisor overseeing the project

development, may be an appropriate witness. In other cases, a chief engineer

may be a suitable witness, depending on the nature of the trade secret.

IV. Theft of Commercial Trade Secrets 163

e defense, however, has no right to take pre-trial depositions of the

government’s expert witnesses to determine what the government will claim is

a trade secret and why. SeeUnited States v. Ye, 436 F.3d 1117, 1123 (9th Cir.

2006) (granting government’s petition for a writ of mandamus and rescinding

trial court order for deposition of the government’s expert witnesses).

i. “Information”

Whether particular information is a trade secret is a question of fact. See,

e.g., Hoechst Diafoil Co. v. Nan Ya Plastics Corp., 174 F.3d 411, 419 (4th Cir.

1999) (noting that whether or not a trade secret exists is a “fact-intensive

question to be resolved upon trial”); see also 4 Roger M. Milgrim, Milgrim on

Trade Secrets §15.01[1][a][i].

e EEA denes a trade secret very broadly to include all types of

information, regardless of the method of storage or maintenance, that the owner

has taken reasonable measures to keep secret and that itself has independent

economic value. Specically, §1839(3) states:

(3) the term “trade secret” means all forms and types of nancial,

business, scientic, technical, economic, or engineering

information, including patterns, plans, compilations,

program devices, formulas, designs, prototypes, methods,

techniques, processes, procedures, programs, or codes, whether

tangible or intangible, and whether or how stored, compiled,

or memorialized physically, electronically, graphically,

photographically, or in writing if —

(A) the owner thereof has taken reasonable measures to

keep such information secret; and

(B) the information derives independent economic value,

actual or potential, from not being generally known to, and

not being readily ascertainable through proper means by,

the public.

18 U.S.C. § 1839(3). e statute’s legislative history also counsels a broad

interpretation of this denition. See H.R. Rep. No. 104-788, at 12 (1996),

reprinted in 1996 U.S.C.C.A.N. 4021, 4031. In addition, because the EEA’s

denition of a trade secret derives in part from civil law, civil cases that

address trade secrets outside the EEA should, in most cases, be helpful in EEA

prosecutions. See Section B.2. of this Chapter.

164 Prosecuting Intellectual Property Crimes

Examples of trade secrets in criminal prosecutions include:

• Processes, methods, and formulas for an anti-cancer drug known as

Taxol. United States v. Hsu, 155 F.3d 189 (3rd Cir. 1998)

• Cost information unavailable to the public, condential business plan,

and customer list. United States v. Martin, 228 F.3d 1 (1st Cir. 2000)

• Measurements, metallurgical specications, and engineering drawings

to produce an aircraft brake assembly. United States v. Lange, 312 F.3d

263 (7th Cir. 2002)

• Adhesive product information. United States v. Yang, 281 F.3d 534 (6th

Cir. 2002)

• Microsoft windows source code. United States v. Genovese, 409 F. Supp.

2d 253 (S.D.N.Y. 2005)

• Coca–Cola documents and product samples. United States v. Williams,

526 F.3d 1312 (11th Cir. 2008) (per curiam)

• Biological strains and plasmids. United States v. Huang, Nos. 1:10-cr-

102, 1:11-cr-163 (S.D. Ind. 2010)

• Documents relating to the Space Shuttle, Delta IV and C-17. United

States v. Chung, 633 F. Supp. 2d 1134 (C.D. Cal. 2009), a’d, 659 F.3d

815 (9th Cir. 2011), cert. denied, _ U.S. _ (2012)

• Photographs of tire-assembly machine. United States v. Howley,

__F.3d__, 2013 WL 399345, at *3 (6th Cir. Feb. 4, 2013).

For an extensive collection of cases analyzing whether specic types of

information constitute a trade secret, see 1 Milgrim on Trade Secrets §1.09. In

cases alleging attempt and conspiracy, the government need not prove that the

information actually was a trade secret. See Section B.6. of this Chapter.

ii. Secrecy

e key attribute of a trade secret is that the underlying information “not

be[] generally known to ... the public” and that it “not be[] readily ascertainable

through proper means by [] the public.” 18 U.S.C.§1839(3)(B).

Unlike other forms of intellectual property, a trade secret need only possess

“minimal novelty.” Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476 (1974)

(quoting Comment, e Stiel Doctrine and the Law of Trade Secrets, 62 Nw.

U. L. Rev. 956, 969 (1968)); see also Avidair Helicopter Supply, Inc. v. Rolls-

Royce Corp., 663 F.3d 966, 972 (8th Cir. 2011) (nding “existence of a trade

secret is determined by the value of a secret, not the merit of its technical

improvements”); Learning Curve Toys, Inc. v. Playwood Toys, Inc., 342 F.3d 714,

IV. Theft of Commercial Trade Secrets 165

724 (7th Cir. 2003) (nding that, in contrast to “a patentable invention, a

trade secret need not be novel or unobvious.”); Avtec Sys., Inc. v. Peier, 21

F.3d 568, 575 (4th Cir. 1994) (holding that the “hallmark of a trade secret is

not its novelty but its secrecy”); Arco Indus. Corp. v. Chemcast Corp., 633 F.2d

435, 442 (6th Cir. 1980) (trade secret need only minimal novelty). is has

been dened as some element that sets the information apart from what is

generally known. “While we do not strictly impose a novelty or inventiveness

requirement in order for material to be considered a trade secret, looking at the

novelty or uniqueness of a piece of information or knowledge should inform

courts in determining whether something is a matter of general knowledge,

skill or experience.” 142 Cong. Rec. 27, 117 (1996); see also Hertz v. Luzenac

Grp., 576 F.3d 1103, 1110 (10th Cir. 2009) (observing that “[a] nding

that some of the elements are secret may support a conclusion that the entire

process is protected”); cf. Buets, Inc. v. Klinke, 73 F.3d 965, 968 (9th Cir.

1996) (holding that plainti’s recipes were not trade secrets in part because

they lacked the requisite novelty).

Whether the term “public” in 18 U.S.C. §1839(3)(B) refers to the general

public or those with general skills in a particular trade or industry has been the

subject of litigation. “[E]ither the phrase ‘readily ascertainable’ or the phrase

‘the public’ must be understood to concentrate attention on either potential

users of the information, or proxies for them (which is to say, persons who have

the same ability to ‘ascertain’ the information).” United States v. Lange, 312 F.3d

263, 268 (7th Cir. 2002) (Easterbrook, J.). But see id. at 271-72 (Ripple, J.,

concurring) (suggesting that this holding is dictum); see also Chung, 659 F.3d

at 825 (noting open issue and “some conict between circuits” on this issue).

In other words, information will not necessarily be a trade secret just because it

is not readily ascertainable by the general public. Under the Seventh Circuit’s

view, the information may not be a trade secret if it is readily ascertainable by

those within the information’s eld of specialty.

If a scientist could ascertain a purported trade secret formula only by

gleaning information from publications and then engaging in many hours

of laboratory testing and analysis, the existence of such publications would

not necessarily disqualify the formula as a trade secret under the EEA, since

the scientist’s work may probably not qualify as “readily ascertainable through

proper means by, the public.” See18 U.S.C. §1839(3)(B). But the formula

would not be a trade secret if it could be ascertained or reverse engineered

within a relatively short time or through the expenditure of few resources.

166 Prosecuting Intellectual Property Crimes

See Lange, 312 F.3d at 269 (EEA case) (“Such measurements could not be

called trade secrets if ... the assemblies in question were easy to take apart and

measure.”); Buets, Inc. v. Klinke, 73 F.3d 965, 968 (9th Cir. 1996) (holding

restaurant chain’s recipes were not trade secrets because, although innovative,

the recipes were readily ascertainable by others); Marshall v. Gipson Steel, Inc.,

806 So.2d 266, 271-72 (Miss. 2002) (holding that company’s bid estimating

system was readily ascertainable by using simple math applied to data on past

bids, and thus was not a trade secret); Weins v. Sporleder, 569 N.W.2d 16, 20-

21 (S.D. 1997) (holding formula of cattle feed product was not a trade secret

because the ingredients could be determined through chemical or microscopic

analysis in four or ve days, at most, and for about $27).

iii. Elements in the Public Domain

A trade secret can include elements that are in the public domain if the

trade secret itself constitutes a unique, “eective, successful and valuable

integration of the public domain elements.” Rivendell Forest Prods., Ltd. v.

Georgia-Pacic Corp., 28 F.3d 1042, 1046 (10th Cir. 1994); accord Tewari De-

Ox Sys., Inc. v. Mountain States/Rosen, L.L.C., 637 F.3d 604, 613 (5th Cir.

2011); Strategic Directions Grp., Inc. v. Bristol-Myers Squibb Co., 293 F.3d

1062, 1065 (8th Cir. 2002); Metallurgical Indus., Inc. v. Fourtek, Inc., 790

F.2d 1195, 1202 (5th Cir. 1986); Servo Corp. of America v. General Electric Co.,

393 F.2d 551, 554 (4th Cir.1968) (holding that a trade secret “might consist

of several discrete elements, any one of which could have been discovered by

study of material available to the public”); Apollo Techs. Corp. v. Centrosphere

Indus., 805 F. Supp. 1157, 1197 (D.N.J. 1992). In fact, “[a] trade secret can

exist in a combination of characteristics and components, each of which, by

itself, is in the public domain, but the unied process, design and operation

of which, in unique combination, aords a competitive advantage and is a

protectable secret.” Metallurgical Indus., 790 F.2d at 1202 (quoting Imperial

Chem., Ltd. v. National Distillers & Chem. Corp., 342 F.2d 737, 742 (2d Cir.

1965)); accord Hertz v. Luzenac Grp., 576 F.3d 1103, 1109-10 (10th Cir. 2009);

Mike’s Train House, Inc. v. Lionel, L.L.C., 472 F.3d 398, 411 (6th Cir. 2006);

Harvey Barnett, Inc. v. Shidler, 338 F.3d 1125,1130 (10th Cir. 2003); 3M v.

Pribyl, 259 F.3d 587, 595-96 (7th Cir. 2001); Integrated Cash Mgmt. Servs.,

Inc. v. Digital Transactions, Inc., 920 F.2d 171, 174 (2d Cir. 1990); Syntex

Ophthalmics, Inc. v. Tsuetaki, 701 F.2d 677, 684 (7th Cir. 1983); Rivendell

Forest Prods., 28 F.3d at 1046. For example, in Metallurgical Industries, when

the company modied a generally-known zinc recovery process, the modied

IV. Theft of Commercial Trade Secrets 167

process could be considered a trade secret even though the original process

and the technologies involved were publicly known, because the details of the

modications were not. 790 F.2d at 1201-03.

e denition of a trade secret under 18 U.S.C. § 1839(3) includes

“compilations.” e courts have consistently recognized that a compilation

which includes publicly known elements may still qualify as a trade secret so

long as the unied information satises the requirements to establish a trade

secret. See, e.g., AvidAir Helicopter Supply, Inc. v. Rolls-Royce Corp., 663 F.3d

966, 972 (8th Cir. 2011) (“Compilations of non-secret and secret information

can be valuable so long as the combination aords a competitive advantage and

is not readily ascertainable.”); Decision Insights, Inc. v. Sentia Group, Inc., 311

Fed. Appx. 586, at 592-94 (4th Cir. 2009) (per curiam) (noting that a software

compilation can qualify for protection as a trade secret); 3M v. Pribyl, 259 F.3d

587, 586 (7th Cir. 2001) (trade secret established for operating procedures

and manuals which included material in the public domain, concluding that

“when all the cleaning procedures, temperature settings, safety protocols, and

equipment calibrations are collected and set out as a unied process, that

compilation, if it meets the other qualications, may be considered a trade

secret”); Imperial Chem. Indus. v. Nat’l Distillers and Chem. Corp., 342 F.2d 737,

740 (2d Cir. 1965) (while eight of the nine components for a chemical process

were in the public domain, the “unied description of the design, process and

operation, i.e, the way in which the features were interrelated” constituted a

trade secret); see also Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284,

1291 (11th Cir. 2003) (“even if all of the information is publicly available, a

unique combination of that information, which adds value to the information,

also may qualify as a trade secret”).

iv. Independent Economic Value

e trade secret must derive “independent economic value, actual

or potential, from not being generally known to, and not being readily

ascertainable by, the public.” 18 U.S.C.§1839(3)(B). Although the EEA does

not require the government to prove a specic level of value, the government

must prove that the secret has some value. Economic value “speaks to the value

of the information to either the owner or a competitor; any information which

protects the owner’s competitive edge or advantage.” US West Communications,

Inc. v. Oce of Consumer Advocate, 498 N.W.2d 711, 714 (Iowa 1993) (citations

omitted). “[I]nformation kept secret that would be useful to a competitor and

require cost, time and eort to duplicate is of economic value.” Id. (citation

168 Prosecuting Intellectual Property Crimes

omitted); see also Trandes Corp. v. Guy F. Atkinson Co., 996 F.2d 655, 663

(4th Cir. 1993) (object code derived independent economic value from secrecy

where the trade secret owner “generates most of its revenues by providing

computer services to engineering rms and construction companies” and

“receives raw data from its clients, processes the data with the Tunnel System

software, and reports the results back to the clients”; “[a]rmed with a copy of

the object code, an individual would have the means to oer much the same

engineering services as” the trade secret owner). Independent economic value

can be shown even where there are no direct competitors for the particular trade

secret but disclosure would confer advantages to competitors. See, e.g., Chung,

659 F.3d at 827 (“Although Boeing had no competitors for the integration

project itself, ... [a] reasonable inference is that the information could assist a

competitor in understanding how Boeing approaches problem-solving and in

guring out how best to bid on a similar project in the future, for example, by

underbidding Boeing on tasks at which Boeing appears least ecient.”).

e secret’s economic value can be demonstrated by the circumstances of

the oense, such as the defendant’s acknowledgment that the secret is valuable,

the defendant’s asking price, or an amount of time or money the defendant’s

buyers would have required to replicate the information. See United States v.

Lange, 312 F.3d 263, 269 (7th Cir. 2002); United States v. Genovese, 409 F.

Supp. 2d 253, 257 (S.D.N.Y. 2005).

Not all of a business’s condential information may be valuable in a

competitor’s hands. For example, in Microstrategy, Inc. v. Business Objects, S.A.,

331 F. Supp. 2d 396, 421 (E.D. Va. 2004), the court found that a company-

wide email concerning the rm’s nancial problems and plans for survival was

not a trade secret because it was unclear what economic value it would have

had to anyone outside the company. See also US West Communications, 498

N.W.2d at 715 (nding no evidence of economic value without evidence that

disclosure would have harmed the victim).

Customer Lists or Information

Some information that a company deems proprietary may not qualify as a

trade secret. For example, under the Uniform Trade Secrets Act—which denes

trade secrets in a manner similar to the EEA—a customer list is generally a trade

secret only if the customers are not known to others in the industry, could be

discovered only by extraordinary eorts, and the list was developed through

a substantial expenditure of time and money. See ATC Distribution Group v.

IV. Theft of Commercial Trade Secrets 169

Whatever It Takes Transmissions & Parts, 402 F.3d 700, 714-15 (6th Cir. 2005);

Conseco Fin. Servicing Corp. v. North Am. Mortgage Co., 381 F.3d 811, 819

& n.6 (8th Cir. 2004) (holding les of thousands of customers nationwide

who were identied through a complex computer system to be trade secrets);

United States v. Martin, 228 F.3d 1, 12 n.8 (1st Cir. 2000) (noting customer

list could qualify as a trade secret); A.F.A. Tours, Inc. v. Whitchurch, 937 F.2d

82, 89 (2d Cir. 1991) (customer list from tour agency could qualify as a trade

secret); Surgidev Corp. v. Eye Technology, Inc., 828 F.2d 452, 455 & n.3 (8th

Cir. 1987) (ophthalmologist customer information on high volume implanters

of surgically implanted intraocular lenses devices qualied as a trade secret);

Leo Silfen, Inc. v. Cream, 278 N.E.2d 636, 639-41 (N.Y. 1972). Some state

statutes, based on Section 1(4) of the Uniform Trade Secret Act, expressly

include customer lists within the denition of a trade secret.

Whether a customer list qualies as a trade secret depends on the facts.

For example, a customer list is less likely to be considered a trade secret if

customers’ identities are readily ascertainable to those outside the list-owner’s

business and the list was compiled merely through general marketing eorts.

See ATC Distribution Group, 402 F.3d at 714-15 (arming that customer list of

transmission parts customers was not a trade secret because names of purchasers

could “be ascertained simply by calling each shop and asking”); Nalco Chem. Co.

v. Hydro Techs., Inc., 984 F.2d 801, 804 (7th Cir. 1993) (holding that customer

list was not a trade secret when base of potential customers was “neither xed

nor small”); Standard Register Co. v. Cleaver, 30 F. Supp. 2d 1084, 1095 (N.D.

Ind. 1998) (holding that customer list was not a trade secret where owner’s

competitors knew customer base, knew other competitors quoting the work,

and were generally familiar with the customers’ needs).

v. Reasonable Measures

Trade secrets are fundamentally dierent from other forms of property

in that a trade secret’s owner must take reasonable measures under the

circumstances to keep the information condential. See 18 U.S.C.§1839(3)

(A); Lange, 312 F.3d at 266. is requirement is generally not imposed upon

those who own other types of property. For example, a thief can be convicted

for stealing a bicycle the victim left unlocked in a public park, whereas a thief

might not be convicted under the EEA for stealing the bicycle’s design plans if

the victim left the plans in a public park.

170 Prosecuting Intellectual Property Crimes

For these reasons, prosecutors and investigators should identify the

measures the victim used to protect the trade secret early in their investigation.

ese protections will be a critical component of the case or the decision not

to prosecute. One means of identifying the reasonable measures safeguarding

the trade secret is to visit the facility. e barriers to access may be more readily

apparent by viewing the circumstances and surroundings.

Whether reasonable eorts have been employed is normally a question of

fact for the fact-nder. See, e.g., Camp Creek Hospitality Inns, Inc. v. Sheraton

Franchise Corp., 139 F.3d 1396, 1411 (11th Cir. 1998) (“Whether Camp

Creek’s eorts to keep the information secret in this case were ‘reasonable

under the circumstances’ presents a question for the trier of fact.”); Rockwell

Graphic Sys., Inc. v. DEV Indus., Inc., 925 F.2d 174, 197 (7th Cir. 1991) (“But

only in an extreme case can what is a ‘reasonable’ precaution be determined on

a motion for summary judgment, because the answer depends on a balancing

of costs and benets that will vary from case to case and so require estimation

and measurement by persons knowledgeable in the particular eld of endeavor

involved.”).

Depending on the trade secret being protected, security measures may

include physical safeguards, network security, and contractual protections.

ese measures may include:

Physical Security

• Restricting employee access to building areas, based on a need to

know;

• Requiring identication and access badges intended to limit access

to restricted areas;

• Keeping the secret physically secure in locked drawers, cabinets, or

rooms;

• Restricting visitors from accessing areas where condential

information is kept;

• Requiring visitors to obtain clearance prior to visit, pass through

security checkpoints and be escorted by an employee at all times;

and,

• Securing buildings with fences, locked doors and guards.

Network Security

• Encrypting sensitive electronic information, such as uncompiled

source code;

IV. Theft of Commercial Trade Secrets 171

• Protecting computer les and directories with passwords and

recurring password changes;

• Employing corporate rewalls and virtual private networks for

remote access;

• Restricting employees from using unapproved peripherals, such as

high capacity portable storage devices; and

• Maintaining of network logs.

Contractual and Employment Practices

• Restricting access to those with a need to know;

• Splitting tasks among people or teams to avoid concentrating too

much information in any one place;

• Requiring recipients, including employees, contractors and

business partners, to sign condentiality, non-disclosure, or non-

competition agreements;

• Marking documents as condential, proprietary, or secret;\

• Providing regular training concerning steps to safeguard trade

secrets; and

• Conducting exit interview once employee leaves company, and

conrming condentiality obligations with departing employee.

See also Chung, 659 F.3d at 825 (“Security measures, such as locked

rooms, security guards, and document destruction methods, in addition to

condentiality procedures, such as condentiality agreements and document

labeling, are often considered reasonable measures.”); Lange, 312 F.3d at 266

(EEa case concerning aircraft brake assemblies); Reingold v. Swiftships, Inc., 126

F.3d 645, 650 (5th Cir. 1997) (discussing steps to protect ship-builder’s mold

for berglass boat hulls); 1 Roger M. Milgrim, Milgrim on Trade Secrets§1.04.

e owner’s security measures need not be absolute or the best available,

and need only satisfy the standard of reasonableness under the facts and

circumstances of the specic case. See H.R. Rep. No. 104-788, at 7 (1996),

reprinted in 1996 U.S.C.C.A.N. 4021, 4026 (“[A]n owner of this type of

information need only take ‘reasonable’ measures to protect this information….

[I]t is not the Committee’s intent that the owner be required to have taken every

conceivable step to protect the property from misappropriation.”); Howley,

2013 WL 399345, at *3 (“[t]he ‘reasonable measures’ requirement does not

mean a company must keep its own employees and suppliers in the dark about

machines they need to do their work”); Lange, 312 F.3d at 266; Surgidev Corp.

v. Eye Tech., Inc., 828 F.2d 452, 455 (8th Cir. 1987) (“Only reasonable eorts,

172 Prosecuting Intellectual Property Crimes

not all conceivable eorts, are required to protect the condentiality of putative

trade secrets.”); see also Pioneer Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d

1226, 1235-36 (8th Cir. 1994) (discussing steps to safeguard genetic messages

of genetically engineered corn); Gates Rubber Co. v. Bando Chem. Indus., 9

F.3d 823, 848-49 (10th Cir. 1993) (discussing steps to protect industrial belt

replacement software); MAI Sys. Corp. v. Peak Computer, Inc., 991 F.2d 511,

521 (9th Cir. 1993) (noting reasonable measures such as requiring “employees

to sign condentiality agreements respecting [company’s] trade secrets”); K-2

Ski Co. v. Head Ski Co., 506 F.2d 471, 473-74 (9th Cir. 1974) (discussing steps

to protect design and manufacture specications of high performance skis); Elm

City Cheese Co. v. Federico, 752 A.2d 1037, 1049-53 (Conn. 1999) (holding

that victim’s failure to require defendant employee to sign a condentiality,

non-disclosure, or non-competition agreement was reasonable “in light of the

close personal relationship enjoyed over the years” by the parties); 1 Milgrim

on Trade Secrets §1.04.

A recent Ninth Circuit decision, United States v. Chung, underscores the

requirement that only reasonable measures are necessary to satisfy this element.

In considering a suciency of the evidence claim, the court considered whether

reasonable measures were employed to safeguard a trade secret (phased array

antenna documents for the space shuttle) which was not secured by locks.

Taken as a whole, other measures were reasonable. As the court noted:

Although none of the documents was kept under lock and key,

Boeing implemented general physical security measures for

its entire plant. Security guards required employees to show

identication before entering the building, and Boeing reserved

the right to search all employees’ belongings and cars. Boeing

also held training sessions instructing employees not to share

documents with outside parties, and it required employees,

including Defendant, to sign condentiality agreements.

Further, two of the four phased array documents (underlying

counts 3 and 5) were marked as proprietary. us, there was

sucient evidence to support the conclusion that Boeing took

reasonable measures to keep all four phased array antenna

documents secret.

Chung, 659 F.3d at 827.

IV. Theft of Commercial Trade Secrets 173

It is important that the reasonable measures standard is appropriately and

fairly applied. Courts have held that the focus of reasonableness should be on

the measures that were taken, not on other measures that could have been

taken, particularly with the benet of hindsight. For example, the Tenth Circuit

reversed a summary judgment based on misapplication of the reasonableness

standard. Specically, the trial court erred “in considering whether Luzenac

adequately protected the secrecy of [trade secret] 604AV, the district court

focused on the evidence of the steps that Luzenac did not take rather than the

reasonableness of the measures it did take.” Hertz v. Luzenac Group, 576 F.3d

1103, 1109 (10th Cir. 2009). e court observed: “[T]here always are more

security precautions that can be taken. Just because there is something else that

Luzenac could have done does not mean that their eorts were unreasonable

under the circumstances.” Id. at 1113; see also General Universal Sys., Inc. v.

Lee, 379 F.3d 131, 150 (5th Cir. 2004) (concluding the district erroneously

“focused solely on Lopez’s alleged failure to take ‘reasonable precautions’ to

protect” the trade secret where there was “uncontroverted evidence that”

reasonable precautions were taken). Additionally, courts have held that “the

fact that one ‘could’ have obtained a trade secret lawfully is not a defense if

one does not actually use proper means to acquire the information.” Pioneer

Hi-Bred Int’l v. Holden Found. Seeds, Inc., 35 F.3d 1226, 1237 (4th Cir. 1994)

(citations omitted); see also Wyeth v. Natural Biologics, Inc., 395 F.3d 897,

899-900 (8th Cir. 2005) (rejecting claim that the trade secret owner “failed

to adequately secure its trade secret in many [specied] ways” and concluding

sucient reasonable measures included “use of physical security, limited access

to condential information, employee training, document control, and oral

and written understandings of condentiality”).

If a trade secret was disclosed to licensees, vendors, or third parties for

limited purposes, those disclosures do not waive trade secret protections so

long as the trade secret owner took reasonable security measures before and

during disclosure, such as requiring non-disclosure agreements from all

recipients. See, e.g., Howley, 2013 WL 399345, at *4; Quality Measurement

Co. v. IPSOS S.A., 56 Fed. Appx. 639, 647 (6th Cir. 2003); MAI Sys. Corp.,

991 F.2d at 521; Religious Tech. Ctr. v. Netcom On-Line Commc’n Servs., 923

F. Supp. 1231, 1254 (N.D. Cal. 1995). However, other reasonable measures

may be adopted instead. For example, where the trade secret owner “relies on

deeds (the splitting of tasks) rather than promises to maintain condentiality,” it

is “irrelevant that [the victim] does not require vendors to sign condentiality

agreements.” Lange, 312 F.3d at 266 (emphasis in original).

174 Prosecuting Intellectual Property Crimes

As discussed above, information does not lose its status as a trade secret if

it is disclosed to the government for purposes of investigation or prosecution.

For this reason, federal prosecutors and law enforcement agents need not sign

protective orders with victims before accepting trade secret information.

A defendant who was unaware of the victim’s security measures can be

convicted under the EEA if he was aware that the misappropriated information

was proprietary. United States v. Krumrei, 258 F.3d 535, 538-39 (6th Cir. 2001)

(rejecting void-for-vagueness argument against EEA); accord United States v.

Genovese, 409 F. Supp. 2d 253, 258 (S.D.N.Y 2005) (“In this case, one can

infer that Genovese knew not only that the source code was proprietary, but

that any protective measures by Microsoft had been circumvented.”). ere is

no requirement that a defendant be aware that the victim implemented security

measures to protect the misappropriated information.

b. Misappropriation

i. Means of Misappropriation

Under § 1831 and§ 1832, a defendant must have misappropriated the

trade secret through one of the acts prohibited in §§ 1831(a)(1)-(5) or 1832(a)

(1)-(5), respectively. Misappropriation covers a broad range of acts including

traditional methods of theft in which a trade secret is physically removed from

the owner’s possession, and also less traditional methods of misappropriation

such as copying, duplicating, sketching, drawing, photographing, downloading,

uploading, altering, destroying, photocopying, replicating, transmitting,

delivering, sending, mailing, communicating, or conveying the information. See

18 U.S.C.§§1831(a)(1)-(2), 1832(a)(1)-(2). Although many of these means

of misappropriation leave the original property in the hands of its owner, they

reduce or destroy the trade secret’s value nonetheless. Congress prohibited all

types of misappropriation “to ensure that the theft of intangible information is

prohibited in the same way that the theft of physical items is punished.” H.R.

Rep. No. 104-788, at 11 (1996), reprinted in 1996 U.S.C.C.A.N. 4021, 4030.

Misappropriation also includes the knowing receipt, purchase, or possession of

trade secrets. See 18 U.S.C. §§ 1831(3), 1832(3).

Because §§ 1831 and 1832 do not contain a specic statute of limitations,

the general ve-year statute of limitations for non-capital oenses applies. See

18 U.S.C. § 3282. In one recent prosecution for economic espionage (United

States v. Chung), however, the court held misappropriation that occurred before

the ve-year statute of limitation does not defeat a trade secret prosecution

IV. Theft of Commercial Trade Secrets 175

because possession of trade secrets is a “continuing oense.” In Chung, the

defendant, a former Boeing employee, misappropriated trade secrets before

the ve-year statute of limitations period (2003 through 2008) and included

conduct that occurred during the late 1970s. e court concluded that trade

secrets misappropriated before the period of the statute of limitations, yet

possessed within the period of the statute of limitations may violate the statute

so long as the remaining elements of the oense are satised. See Chung, 633

F. Supp. 2d at 1146 n.12 (“Because Mr. Chung continued to possess the

documents in 2006, there is no statute of limitations problem here. [P]ossessory

oenses have long been described as ‘continuing oenses’ that are not complete

upon receipt of the prohibited item. Rather, the statute of limitations does

not begin to run until the possessor parts with the item.”) (quotation marks

and citation omitted). On appeal, the Ninth Circuit armed, concluding

that the conspiracy to violate the EEA was established by proof that the

agreement between the defendant and his co-conspirators “continued into the

limitations period.” Chung, 659 F.3d at 828; see also id. (“Given Defendant’s

history of passing technical documents to China, however, a rational trier of

fact reasonably could infer from Defendant’s more recent possession of similar

documents that his intent to benet China persisted well into the limitations

period and extended to his possession of the trade secrets.”).

When charging trade secret theft or economic espionage under 18 U.S.C.

§§ 1831 and 1832 the prosecutor may charge each means of theft as a separate

count. For example, where the defendant takes a trade secret prototype from

his employer’s facility, and also emails trade secret design schematics to a

competitor, the prosecutor may include a count for violation of §1832(a)(1)

with respect to the stealing of the prototype and a separate count for violation

of §1832(a)(2) with respect to the emailing of the design specications. A

prosecutor may also wish to consider what other legal theories may apply to the

facts of the case. See Section G. of this chapter for other charges to consider.

ii. Memorization Included

e above types of misappropriation include not only manipulating a

physical object, but also conveying or using intangible information that has

been memorized. e EEA denes a trade secret as “all forms and types of

nancial, business, scientic, technical, economic, or engineering information,

... whether tangible or intangible, and whether or how stored.” 18 U.S.C.

§1839(3) (emphasis added). e statute also prohibits not only actions taken

against a trade secret’s physical form, such as “steal[ing], ...tak[ing], [and]

176 Prosecuting Intellectual Property Crimes

carr[ying] away”, 18 U.S.C. §§1831(a)(1), 1832(a)(1), but also actions that

can be taken against a trade secret in a memorized, intangible form, such as

“sketch[ing], draw[ing], ... download[ing], upload[ing], ..., transmit[ting], ...

communicat[ing], [and] convey[ing],” 18 U.S.C. §§1831(a)(2), 1832(a)(2).

See James H.A. Pooley et al., Understanding the Economic Espionage Act of 1996,

5 Tex. Intell. Prop. L.J. 177 (1997). In this respect, as in others, the EEA

echoes civil law and some pre-EEA caselaw. See, e.g., Stampede Tool Warehouse,

Inc. v. May, 651 N.E.2d 209, 217 (Ill. App. Ct. 1995) (“A trade secret can be

misappropriated by physical copying or by memorization.”) (citations omitted);

4 Roger M. Milgrim, Milgrim on Trade Secrets §15.01[e]. Trade secret cases to

the contrary that do not involve the EEA are not persuasive authority on this

point.

is is not to say, however, that any piece of business information that can

be memorized is a trade secret. As noted, the EEA does not apply to individuals

who seek to capitalize on their lawfully developed knowledge, skill, or abilities.

When the actions of a former employee are unclear and evidence of theft has

not been discovered, it may be advisable for a company to pursue its civil

remedies and make another criminal referral if additional evidence of theft is

developed.

Where available, tangible evidence of theft or copying is helpful in all cases

to overcome the potential problem of prosecuting the defendant’s purported

“mental recollections” and a defense that “great minds think alike.”

iii. Lack of Authorization

e crux of misappropriation is that the defendant acted “without

authorization” from the trade secret’s owner. e necessary “authorization is

the permission, approval, consent or sanction of the owner” to obtain, destroy,

or convey the trade secret. 142 Cong. Rec. 27,116 (1996). us, although an

employee may be authorized to possess a trade secret during his employment, he

would violate the EEA if he conveyed it to a competitor without his employer’s

permission.

iv. Misappropriation of Only Part of a Trade Secret

A defendant can be prosecuted even if he misappropriated only part of a

trade secret. Using only part of the secret, so long as it too is secret, qualies as

misappropriation. Mangren Research and Dev. Corp. v. National Chem. Co., 87

F.3d 937, 943-44 (7th Cir. 1996); cf. United States v. Pemberton, 904 F.2d 515,

IV. Theft of Commercial Trade Secrets 177

517 (9th Cir. 1990) (rejecting argument of defendant convicted for receiving

30 stolen technical landscape and irrigation drawings for a commercial

development “that the incomplete nature of the drawings rendered them

worthless,” because evidence established that “some of the drawings would

have been useful to the developer, even though not entirely nished,” and

the developer might have been willing to adjust the price for the drawings’

incomplete nature); United States v. Inigo, 925 F.2d 641, 653-54 (3d Cir. 1991)

(Hobbs Act conviction) (rejecting defendant’s argument that the victim should

not have feared economic loss because, inter alia, he possessed less than ve

percent of the condential documents on a subject, and holding that “what

matters is how important the documents [the defendant] had were to [the

defendant], not their number”).

v. Mere Risk of Misappropriation Not Prosecutable,

but Attempts and Conspiracies Are

A former employee cannot be prosecuted just because she was exposed

to a trade secret at her former job and has now moved to a competitor. e

government must establish that she knowingly stole or misappropriated a

particular trade secret and did so with the “intent to convert a trade secret ... to

the economic benet of anyone other than the owner thereof, and intending or

knowing that the oense will, injure any owner of that trade secret.” 18 U.S.C.

§ 1832(a). e intent element is considered further below.

c. Knowledge

e EEA contains a heightened mens rea requirement. Section 1831 requires

that the government prove that the defendant (1) knowingly misappropriated

a trade secret (e.g., possessed, stole, transmitted, downloaded) and (2) did

so with the intent, “or knowing that the oense will benet any foreign

government, foreign instrumentality, or foreign agent.” Section 1832 requires

that the government show that the defendant (1) knowingly misappropriated

a trade secret (e.g., possessed, stole, transmitted, downloaded) and (2) did so

“with intent to convert a trade secret ... to the economic benet of anyone

other than the owner” and (3) “intending or knowing that the oense will,

injure any owner of that trade secret.”

As outlined above, the rst part of the mens rea requirement in an EEA

case is that the defendant misappropriated the trade secret “knowingly.” As

noted in the legislative history, “A knowing state of mind with respect to an

element of the oense is (1) an awareness of the nature of one’s conduct, and

178 Prosecuting Intellectual Property Crimes

(2) an awareness of or a rm belief in or knowledge to a substantial certainty

of the existence of a relevant circumstance, such as whether the information

is proprietary economic information as dened by this statute.” S. Rep. No.

104-359, at 16 (1996).

Based upon the legislative history, the government is not required to prove

that the defendant knew and understood the statutory denition of a trade

secret, as set forth in 18 U.S.C.§1839(3), before acting. If the government

had to prove this, the EEA would be unnecessarily narrowed in its application,

which is contrary to the intent of Congress. Some violations would be nearly

impossible to prosecute in a number of factual scenarios, and would amount

to a willfulness mens rea requirement equivalent to that imposed for criminal

secret to those on a need to know basis, some companies do not divulge all

of the reasonable measures used to protect the trade secret, even within the

company. e individual stealing a trade secret may not know about these

reasonable measures safeguarding the trade secret.

e legislative history is clear that Congress intended to extend the reach

of the new federal oenses involving trade secret misappropriation. In fact,

the legislative history supports a “knew or should have known” mens rea

requirement:

It is not necessary that the government prove that the defendant

knew his or her actions were illegal, rather the government must

prove that the defendant’s actions were not authorized by the

nature of his or her relationship to the owner of the property

and that the defendant knew or should have known that fact.

H.R. Rep. No. 104-788, at 12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,

4030-31 (emphasis added); 142 Cong. Rec. 27,117 (1996) (government must

show the defendant was “aware or substantially certain” he was misappropriating

a trade secret); see also United States v. Genovese, 409 F. Supp. 2d 253, 258

(S.D.N.Y. 2005) (discussing circumstances that would indicate that EEA

defendant knew the information was proprietary).

Congress did not require the government to show that the defendant

specically was aware of each element of the denition of a trade secret

under § 1839(3) (e.g., that the defendant knew of specic reasonable

measures employed by the trade secret owner to protect the trade secret).

An opportunistic defendant, such as a company outsider, may not be fully

IV. Theft of Commercial Trade Secrets 179

aware of all of the company measures used to safeguard a trade secret, but

does know the proprietary information has value which he intends to use to

injure the owner of the trade secret. In other words, the defendant knowingly

misappropriated property (or proprietary information) belonging to someone

else without permission. In fact, in recognizing this point, the Sixth Circuit has

held that the “defendant need not have been aware of the particular security

measures taken by [the trade secret owner]. Regardless of his knowledge of

those specic measures, defendant knew the information was proprietary.”

Krumrei, 258 F.3d at 539 (arming denial of motion to dismiss indictment as

void for vagueness); see also United States v. Roberts, No. 3:08-CR-175, 2009

WL 5449224, at *7 (E.D. Tenn. Nov. 17, 2009) (holding that “a defendant

must know that the information he or she seeks to steal is proprietary, meaning

belonging to someone else who has an exclusive right to it, but does not

have to know that it meets the statutory denition of a trade secret”), report

and recommendation adopted by, 2010 WL 56085 (E.D. Tenn. Jan. 5, 2010)

(quoting H.R. Rep. No. 104-788, at 12 (1996)).

An example demonstrates why it logically follows that the government is

not required to prove the defendant was aware of each of the sub-elements of

the trade secret denition under §1839(3), including his knowledge of the

trade secret owner’s specic reasonable measures taken to safeguard the trade

secret. Assume a hacker inltrates a company’s corporate network and copies

sensitive research and development materials regarding a product the company

is developing for future release. e hacker may not know all the steps the

company has taken to protect its information such as requiring its employees

to sign non-disclosure agreements, employing physical security measures at its

oces or restricting sensitive information to its employees on a need-to-know

basis. However, the hacker did overcome the company’s electronic security

measures and knowingly misappropriated sensitive research and development

information, which he shared with others, either intending to benet another

country or injure the owner of the trade secret. By the nature of his relationship

with the trade secret owner, the defendant is aware the property belongs to

someone else and that he misappropriated it without the authorization of the

company.

As already noted, in drafting the statute, Congress already included a

heightened intent standard. For example, § 1831 requires the government

to prove that the defendant intended or knew his actions would benet a

foreign government, foreign instrumentality, or foreign agent. See generally

180 Prosecuting Intellectual Property Crimes

Chung, 659 F.3d at 828 (discussing intent standard). e information must

in fact be a trade secret (unless, as discussed in Section B.6. of this Chapter,

attempt or conspiracy is charged). Additionally, the government must show

that the defendant knowingly stole, or without authorization appropriated,

took, carried away, possessed or concealed, or by fraud, artice, or deception

obtained trade secret information.

Under §1832, the government must prove that the defendant intended

“to convert a trade secret ... to the economic benet of anyone other than the

owner” of the trade secret, “intending or knowing that the oense will, injure

any owner of that trade secret,” and “knowingly” misappropriated the trade

secret information. As with § 1831, the information must in fact be a trade

secret (unless attempt or conspiracy is charged), and the government must show

that the defendant knowingly stole, or without authorization appropriated,

took, carried away, possessed or concealed, or by fraud, artice, or deception

obtained trade secret information.

Under the last element (knowingly stole a trade secret), the government

must show that the defendant knowingly misappropriated (e.g., possessed or

concealed) information belonging to the trade secret owner; in other words,

the defendant knowingly misappropriated property belonging to someone else

without permission.

A recent district court opinion following a bench trial of a § 1831 case

directly addressed the mens rea requirement of the EEA, concluding that

the Government must prove that the defendant knew the information

he misappropriated was actually a trade secret (which included proof of

the defendant’s knowledge of the sub-elements of the denition of a trade

secret). See Chung, 633 F. Supp. 2d 1134 (bench trial conviction of a former

Boeing employee of economic espionage with the intent to benet a foreign

government). e government asserted that the term “knowingly” modied

only the active conduct elements of the oense (“receives, buys, or possesses”)

and did not require proof that the defendant knew the information at issue

fell within the precise statutory denition of a trade secret, as set forth in the

EEA. Id.

Acknowledging that the statutory language of § 1831(a)(3) is not explicitly

clear whether the word “knowingly” modies “trade secret,” the court

concluded that canons of statutory construction supported an interpretation

requiring proof that the defendant knew the information he received, possessed

IV. Theft of Commercial Trade Secrets 181

or bought was a trade secret. Id. at 1145. However, the court found that this

was not a dicult element to satisfy, at least based on the facts presented in the

Chung case:

A defendant charged with economic espionage will necessarily

have some understanding of the measures that have been taken

to protect the information he possesses. He will know whether

the facility he acquired the information from was gated. He

will know if the information in his possession has proprietary,

trade secret, or classied markings. If he is an employee, he

will know his company’s policy about whether documents

can be taken home. e Government need not prove that a

defendant knew all of the security measures taken to protect the

information. Likewise, proving that a defendant charged with

economic espionage knows that the information he possesses

has economic value is not exceedingly dicult. A spy does not

deal in worthless or readily ascertainable information.

Id. at 1145-46. Moreover, the court was clear that this element did not require

the government to prove that the defendant knew his conduct was illegal. Id.

In contrast to the district court, however, in considering the suciency of

the evidence, the Ninth Circuit did not require the defendant to know that

the information he misappropriated was actually a trade secret. See Chung,

659 F.3d at 824-28. Rather, the Ninth Circuit concluded that the evidence

was sucient to support the trial conviction and that a trade secret had been

established.

Based on the statute and legislative history, noted above, the government

should be able to satisfy the “knowingly” requirement by showing that the

defendant knew or had a rm belief that the information was proprietary; was

valuable to its owner because it was not generally known to the public; and

that its owner had taken measures to protect it, that is, the information had the

attributes of a trade secret described in §1839(3). See 18 U.S.C. § 1839(3);

H.R. Rep. No. 104-788, at 12 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,

4030-31 (“the government must prove that the defendant’s actions were not

authorized by the nature of his or her relationship to the owner of the property

and that the defendant knew or should have known that fact”); Krumrei, 258

F.3d at 539 (“defendant need not have been aware of the particular security

measures taken by” the trade secret owner; “Regardless of his knowledge of

182 Prosecuting Intellectual Property Crimes

those specic measures, defendant knew the information was proprietary.”);

cf. Genovese, 409 F. Supp. 2d at 258 (discussing alleged circumstances that

would indicate that EEA defendant knew the information was proprietary).

Evidence that the defendant was aware of condentiality agreements or

policies concerning the information, proprietary markings and other security

measures taken by the information’s owner will help to satisfy this element. On

the other hand, a person cannot be prosecuted under the EEA if “[a] person

[took] a trade secret because of ignorance, mistake, or accident.” 142 Cong.

Rec. 27,117 (1996). Nor could he be prosecuted if “he actually believed that

the information was not proprietary after [he took] reasonable steps to warrant

such belief.” Id.

4. Additional 18 U.S.C.§1831 Element: Intent to Benet a Foreign

Government, Foreign Instrumentality, or Foreign Agent

Under 18 U.S.C. § 1831, the second mens rea requirement is that the

defendant intended or knew that the oense would “benet” a “foreign

government, foreign instrumentality, or foreign agent.” Under this section,

there is no requirement to show the government’s role to obtain the trade

secret (even where such proof may be present); the focus is on the defendant’s

knowledge that the oense would benet or intent to benet the “foreign

government, foreign instrumentality, or foreign agent.” See generally Chung,

659 F.3d at 828 (“Unlike the foreign agent count, which required evidence of

a foreign government’s direction or control, criminal liability under the EEA

may be established on the basis of Defendant’s intent alone.”; concluding that

the defendant’s intent was shown by his supplying technical information in

response to requests for such information from Chinese ocials and by his

continuing possession of trade secret materials relating to the space shuttle and

the Delta IV Rocket), cert. denied, _ U.S. _ (2012). Consequently, normally

evidence regarding the conduct or intent of the foreign government or its

ocials is not a requirement to establish a violation under § 1831.

A “foreign instrumentality” is “any agency, bureau, ministry, component,

institution, association, or any legal, commercial, or business organization,

corporation, rm, or entity that is substantially owned, controlled, sponsored,

commanded, managed, or dominated by a foreign government.” 18

U.S.C.§1839(1). A “foreign agent” is “any ocer, employee, proxy, servant,

delegate, or representative of a foreign government.” 18 U.S.C.§1839(2). us,

the government must show that the defendant knew or had a rm belief that

misappropriation would benet an entity controlled by a foreign government.

IV. Theft of Commercial Trade Secrets 183

If this “entity” is not a government entity per se, such as a business, there must

be “evidence of foreign government sponsored or coordinated intelligence

activity” with the entity. 142 Cong. Rec. 27,116 (1996).

e “benet” to the foreign entity should be interpreted broadly. As the

House Report claried:

e defendant did not have to intend to confer an economic

benet to the foreign government, instrumentality, or agent, to

himself, or to any third person. Rather, the government need

only prove that the actor intended that his actions in copying or

otherwise controlling the trade secret would benet the foreign

government, instrumentality, or agent in any way. erefore, in

this circumstance, benet means not only an economic benet

but also reputational, strategic, or tactical benet.

H.R. Rep. No. 104-788, at 11 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,

4030.

e requirement that the benet accrue to a foreign government,

instrumentality, or agent should be analyzed very carefully. To establish

that the defendant intended to benet a “foreign instrumentality,” the

government must show that the entity was “substantially owned, controlled,

sponsored, commanded, managed, or dominated by a foreign government.” 18

U.S.C.§1839(1) (emphasis added). e EEA does not dene “substantially,”

but the legislative history claries that the prosecution need not prove complete

ownership, control, sponsorship, command, management, or domination:

Substantial in this context, means material or signicant, not

technical or tenuous. We do not mean for the test of substantial

control to be mechanistic or mathematical. e simple fact

that the majority of the stock of a company is owned by a

foreign government will not suce under this denition, nor

for that matter will the fact that a foreign government only

owns 10 percent of a company exempt it from scrutiny. Rather

the pertinent inquiry is whether the activities of the company

are, from a practical and substantive standpoint, foreign

government directed.

142 Cong. Rec. 27,116 (1996).

184 Prosecuting Intellectual Property Crimes

us, § 1831 does not apply to a defendant who intended who knew that

the oense would benet a foreign corporation not substantially controlled by

a foreign government. Id. In such an instance, however, the defendant could

still be properly charged under 18 U.S.C.§1832.

Before charges may be led under § 1831, the Counterespionage Section

(CES), National Security Division (NSD) must approve. e USAM provides:

e United States may not le a charge under 18 U.S.C. § 1831

of the Economic Espionage Act (hereinafter the “EEA”), or use

a violation under § 1831 of the EEA as a predicate oense under

any other law, without the approval of the Assistant Attorney

General for the [National Security Division] (or the Acting

ocial if a position is lled by an acting ocial). Responsibility

for reviewing requests for approval of charges to be brought

under § 1831 rests with the Counterespionage Section which

shall obtain approval from the Assistant Attorney General for

the [National Security Division].”

USAM 9-59.100; see also USAM 9-2.400.

CCIPS is available to assist on legal or evidence gathering questions. DOJ

has strongly encouraged prosecutors to consult with CCIPS prior to ling

§ 1832 charges, under USAM 9-59.110 (“Prosecutors are strongly urged to

consult with the Computer Crime and Intellectual Property Section before

initiating prosecutions under 18 U.S.C. § 1832”), and the Memorandum from

the Attorney General, Renewal of Approval Requirement Under e Economic

Espionage Act of 1996, (March 1, 2002) (“I strongly urge prosecutors to

consult with the Computer Crime and Intellectual Property Section (CCIPS)

regarding § 1832 prosecutions prior to ling charges.”). CCIPS has provided

assistance on a number of cases raising trade secret and economic espionage

act issues.

For questions concerning charges under§1831, contact the Department’s

Counterespionage Section, within the National Security Division, at (202)514-

1187, or concerning other related issues in trade secret cases, CCIPS at (202)

514-1026.

IV. Theft of Commercial Trade Secrets 185

5. Additional 18 U.S.C.§1832 Elements

a. Economic Benet to a ird Party

Under 18 U.S.C.§1832, the government must prove that the defendant’s

misappropriation was intended for the “economic benet of anyone other than

the owner thereof.” 18 U.S.C.§1832(a). e recipient of the intended benet

can be the defendant, a competitor of the victim, or some other person or

entity.

One who misappropriates a trade secret but who does not intend for

anyone to gain economically from the theft cannot be prosecuted under 18

U.S.C.§1832. is requirement diers from foreign-government economic

espionage under 18 U.S.C.§1831, for which the economic or non-economic

nature of the misappropriation is immaterial. Compare 18 U.S.C.§1831(a)

with §1832(a).

b. Intent to Injure the Owner of the Trade Secret

Beyond demonstrating in a § 1832 case that the defendant both knew

that the information he took was proprietary and that he intended the

misappropriation to economically benet someone other than the rightful

owner, the government must also prove that the defendant intended to “injure”

the owner of the trade secret. See 18 U.S.C.§1832(a). is provision “does not

require the government to prove malice or evil intent, but merely that the actor

knew or was aware to a practical certainty that his conduct would cause some

disadvantage to the rightful owner.” H.R. Rep. No. 104-788, at 11-12 (1996),

reprinted in 1996 U.S.C.C.A.N. 4021, 4030.

By denition, for a trade secret to have value, it must confer a commercial

advantage to its owner. See 18 U.S.C.§1839(3)(B); H. R. Rep. No. 104-788,

at 4. e trade secret loses its value once it is disclosed to another person for

the recipient’s benet. See H. R. Rep. No. 104-788, at 11 (“[M]isappropriation

eectively destroys the value of what is left with the rightful owner.”).

Absent direct evidence of an individual’s intent or knowledge that the trade

secret’s owner would be injured by the theft, such as an admission, intent to

injure will typically be shown through the circumstances around the individual’s

conduct. Such circumstantial evidence of intent to injure could include, among

other things: lying to supervisors about post-employment plans; taking steps to

cover one’s tracks, such as destroying an employer’s original les after making

copies for use at a new job; disclosing the victim’s trade secret information to

186 Prosecuting Intellectual Property Crimes

a competitor; using the victim’s trade secret information while working for a

competitor; and directing business to a new employer while still employed by

the victim. See, e.g., United States v. Martin, 228 F.3d 1, 12 (1st Cir. 2000)

(intent to injure shown by “plan of competition”).

As discussed in greater detail in Section C.1.a., below, lack of intent to

injure is a common defense that may pose particular challenges in cases where

a departing employee is apprehended or searched before he or she has the

opportunity to disclose the former employer’s trade secrets to the new employer.

c. Product or Service Used or Intended for Use in Interstate

or Foreign Commerce

On a charge of economic espionage under 18 U.S.C. § 1832, the

government must prove that the trade secret was “related to a product or service

used or intended for use in interstate or foreign commerce.” 18 U.S.C.§1832

(as amended by the eft of Trade Secrets Clarication Act, Pub. L. No. 112-

236, § 2, 126 Stat. 1627 (2012)); compare 18 U.S.C. §1831 (containing no

comparable language).

Because the nexus to interstate or foreign commerce was likely included

to provide a basis for federal jurisdiction, the government does not have to

prove that they defendant knew that the trade secret was related to a product or

service used or intended for use in interstate or foreign commerce. e statute’s

plain text conrms this. e jurisdictional language quoted above is set o in

the statute by commas to qualify which types of trade secrets fall under the

statute. It precedes the word “knowingly,” thus putting it outside the elements

the government must prove the defendant knew.

e phrase “a product or service used or intended for use in interstate or

foreign commerce” includes trade secrets developed for existing products and

for future products. In the case of an existing product, this nexus can usually

be satised by evidence of the trade secret’s connection to the current product

and the product’s current or potential interstate or foreign sales.

By contrast, for products still being developed, § 1832 merely requires

proof that the trade secret was “related to a product or service … intended

for use in interstate or foreign commerce.” 18 U.S.C.§1832(a). A defendant

might try to argue that a product still in the research and development stage

is not yet “intended for use in … interstate commerce,” 18 U.S.C. §1832,

because the prototype itself is not “intended” for sale. But this argument would

IV. Theft of Commercial Trade Secrets 187

withhold the EEA’s protection when it was most needed. e research and

development phase is often when a trade secret is most valuable. Once the nal

product embodying the trade secret is released to the public, the trade secret’s

value can be lost because of its availability to competitors who can examine the

product legitimately and obtain or deduce the trade secret for themselves.

In considering the interstate commerce element of § 1832 (prior to

the 2012 amendment), the court in United States v. Yang held that a patent

application had a sucient nexus to interstate commerce because it involved

a product that generated $75-100 million in sales the previous year and it was

related to products produced and sold in the United States and Canada; and

also because the victim also had sought patents for the product in Europe. 281

F.3d 534, 551 & n.4 (6th Cir. 2002).

Prior to December 28, 2012, the “interstate commerce” element of

§ 1832—which required that the trade secret in question be “related to or

included in a product that is produced for or placed in interstate or foreign

commerce”—was arguably narrower than the amended language in two ways.

First, the previous language required a connection to a “product.” Second, it

required that the product be “produced for or placed in” interstate commerce,

rather than be related to a product or service that is “used or intended for use

in” interstate or foreign commerce.

In United States v. Aleynikov, the Second Circuit further narrowed what was

considered a product that is “produced for or placed in” interstate comment.

676 F.3d 71 (2d Cir. 2012).

In Aleynikov, a former Goldman Sachs programmer was convicted of

violating 18 U.S.C. § 1832 for stealing trade secret computer source code

related to Goldman Sachs’ high-frequency trading (HFT) platform. Id.

at 73. HFT involves using computer algorithms to quickly analyze market

movements and execute large numbers of stock trades in order to exploit tiny

price discrepancies. Id. Goldman Sachs used the software code at issue in

Aleynikov to facilitate the ow of information through its HFT system and to

monitor system performance. Id. at 74.

e district court denied defendant’s motion to dismiss, in which he

argued that the high-frequency trading system source code trade secret was

not suciently “related to or included in a ‘product’ that is ‘produced for or

placed in interstate and foreign commerce.’” United States v. Aleynikov, 737 F.

Supp. 2d 173 (S.D.N.Y. 2010), rev’d, 676 F.3d 71 (2d Cir. 2012). Although

188 Prosecuting Intellectual Property Crimes

the statute did not dene the term “product,” the district court concluded that

“[t]he ordinary meaning of ‘product’ is something that is the result of human

or mechanical eort or some natural process.” Id. at 178. e court explained

that the misappropriated source code satised this denition and further, was

expressly developed to enable the company to engage in interstate and foreign

commerce. Id. at 179.

On appeal, the Second Circuit reversed the district court’s decision. Noting

that Goldman Sachs had no intention of selling or licensing its HFT software

to anyone else, the Second Circuit concluded that “because the HFT [high-

frequency trading] system was not designed to enter or pass in commerce,

or to make something that does, Aleynikov’s theft of source code relating to

that system was not an oense under the EEA.” Aleynikov, 676 F.3d at 82. In

construing the statute, the Second Circuit found that in order to give meaning

to both “produced for” and “placed in” interstate commerce, the product at

issue has to be either sold (i.e., placed in) in interstate commerce or produced

for such placement but for its stage of development (e.g., prototypes). Id. at

80-81.

In response to the Second Circuit’s decision in Aleynikov, the eft of

Trade Secrets Clarication Act made clear that Congress intends 18 U.S.C.

§ 1832 to cover a broader array of trade secret thefts than the Second

Circuit’s narrow reading of the pre-2012 amendment version of the statute

would allow. See 158 Cong. Rec. S6978 (daily ed. Nov. 27, 2012), 2012 WL

5932548 (“e clarifying legislation that the Senate will pass today corrects

the [Aleynikov] court’s narrow reading to ensure that our federal criminal laws

adequately address the theft of trade secrets related to a product or service used

in interstate commerce.”) (statement of Sen. Leahy). is 2012 amendment

changed §1832 to read as follows:

Whoever, with intent to convert a trade secret, that is related

to or included in a product that is produced for or placed in a

product or service used in or intended for use in interstate or

foreign commerce, …

is new statutory language contains two primary changes. First, it specically

applies to both products and services. Second, it replaces the requirement

that the product be “produced for or placed in” interstate commerce (which

the Second Circuit in Aleynikov interpreted to require that the trade secret

information itself either enter or pass into commerce, or be used to “make

IV. Theft of Commercial Trade Secrets 189

something that does”) with a broader denition that requires only that the trade

secrets at issue be related to a product or service that is “used in or intended for

use in” interstate or foreign commerce.

6. Attempts and Conspiracies, Including the Impossibility Defense

e EEA punishes attempts and conspiracies to misappropriate trade

secrets. 18 U.S.C. §§ 1831(a)(4)-(5), 1832(a)(4)-(5). For an attempt, the

defendant must (1) have the intent needed to commit a crime dened by

the EEA, and (2) perform an act amounting to a “substantial step” toward

the commission of that crime. Hsu, 155 F.3d at 202. For a conspiracy, the

defendant must agree with one or more people to commit a violation, and one

or more of the co-conspirators must commit an overt act to eect the object of

the conspiracy. 18 U.S.C. §§1831(a)(5), 1832(a)(5). See generally Chung, 659

F.3d at 828-29 (listing elements).

To convict a defendant under the EEA of attempt or conspiracy, however,

the government is not required to prove that the information the defendant

sought actually constituted a trade secret. Hsu, 155 F.3d at 204.

In Hsu, the defendants were charged with attempting and conspiring

to steal the techniques for manufacturing an anti-cancer drug from Bristol-

Meyers Squibb. e district court compelled the government to disclose to the

defendants the trade secrets at issue, on the grounds that the defendants were

entitled to demonstrate that the materials were not trade secrets in fact. United

States v. Hsu, 982 F. Supp. 1022, 1024 (E.D. Pa. 1997). On interlocutory appeal,

the ird Circuit disagreed, holding that to prove an attempt or conspiracy

under the EEA, the government need not prove the existence of an actual trade

secret, but, rather, that the defendants believed that the information was a trade

secret—regardless of whether the information was truly a trade secret or not—

and that they conspired in doing so. Hsu, 155 F.3d at 203 (“the government

need not prove that an actual trade secret was used …, because a defendant’s

culpability for a charge of attempt depends only on ‘the circumstances as he

believes them to be,’ not as they really are”). us, to prove an attempt, the

government need only prove “beyond a reasonable doubt that the defendant

sought to acquire information which he or she believed to be a trade secret,

regardless of whether the information actually qualied as such.” Id.

In reaching its conclusion the ird Circuit rejected the defendants’

contention that the government had to disclose the trade secrets so the

defendants could prepare a potential defense of legal impossibility. Although

190 Prosecuting Intellectual Property Crimes

elsewhere the ird Circuit generally allowed the common-law defense of

legal impossibility in cases charging attempt, it found that the EEA clearly

showed Congress’s intent to foreclose an impossibility defense. Hsu, 155 F.3d

at 202 (“[T]he great weight of the EEA’s legislative history evinces an intent to

create a comprehensive solution to economic espionage, and we nd it highly

unlikely that Congress would have wanted the courts to thwart that solution by

permitting defendants to assert the common law defense of legal impossibility.”).

e court found it signicant that “[t]he EEA was drafted in 1996, more than

twenty-ve years after the National Commission on Reform of the Federal

Criminal Laws had concluded that the abolition of legal impossibility was

already ‘the overwhelming modern position.’” Id. Lastly, the court noted that

if legal impossibility were “a defense to the attempted theft of trade secrets, the

government would be compelled to use actual trade secrets during undercover

operations.” Id. is would “have the bizarre eect of forcing the government to

disclose trade secrets to the very persons suspected of trying to steal them, thus

gutting enforcement eorts under the EEA.” Id. erefore, the court held that

“legal impossibility is not a defense to a charge of attempted misappropriation

of trade secrets in violation of 18 U.S.C.§1832(a)(4).” Id.

Nor is legal impossibility a defense to a charge of conspiracy to violate the

EEA. Because the basis of a conspiracy charge is the “conspiratorial agreement

itself and not the underlying substantive acts,” the impossibility of achieving

the conspiracy’s goal is irrelevant. See Hsu, 155 F.3d at 203 (citing United States

v. Jannotti, 673 F.2d 578, 591 (3d Cir.1982) (en banc)); see also United States v.

Wallach, 935 F.2d 445, 470 (2d Cir. 1991); United States v. LaBudda, 882 F.2d

244, 248 (7th Cir. 1989); United States v. Petit, 841 F.2d 1546, 1550 (11th Cir.

1988); United States v. Everett, 692 F.2d 596, 599 (9th Cir. 1982).

Hsu’s reasoning has been adopted by the Sixth Circuit in United States v.

Yang, 281 F.3d 534, 541-45 (6th Cir. 2002); the Seventh Circuit in United

States v. Lange, 312 F.3d 263, 268-69 (7th Cir. 2002); and the First Circuit in

United States v. Martin, 228 F.3d 1, 13 (1st Cir. 2000).

IV. Theft of Commercial Trade Secrets 191

C. Defenses

1. Common Defenses

a. Lack of Intent to Convert a Trade Secret

A common defense in both civil trade secret misappropriation and criminal

EEA cases is that the defendant did not intend to convert a trade secret for the

benet of someone other than its owner, but intended only to use publicly

available information or general skills and knowledge acquired throughout the

defendant’s career. e defendant’s intent to convert the trade secret is an essential

element of the oense; absent proof of wrongful intent beyond a reasonable

doubt, the defendant will be acquitted. See, e.g., United States v. Shiah, No. SA

CR 06-92 (C.D. Cal. Feb. 19, 2008) (unpublished), available at http://court.

cacd.uscourts.gov/CACD/RecentPubOp.nsf/ecc65f191f28f59b8825728f005

ddf4e/37d207fcb9587a30882573f400620823/$FILE/SACR06-92DOC.pdf.

is defense is rooted in Congress’ stated purpose to dierentiate between trade

secrets, which are the subject matter of the EEA, and a person’s general skills

and knowledge, which are not. e House Report states that the EEA does

not apply “to individuals who seek to capitalize on the personal knowledge,

skill, or abilities they may have developed” in moving from one job to another.

H. R. Rep. No. 104-788, at 7 (1996), reprinted in 1996 U.S.C.C.A.N. 4021,

4026. “e statute is not intended to be used to prosecute employees who

change employers or start their own companies using general knowledge and

skills developed while employed.” Id. “It is not enough to say that a person has

accumulated experience and knowledge during the course of his or her employ.

Nor can a person be prosecuted on the basis of an assertion that he or she was

merely exposed to a trade secret while employed. A prosecution that attempts

to tie skill and experience to a particular trade secret should not succeed unless

it can show that the particular material was stolen or misappropriated.” 142

Cong. Rec. 27, 117 (1996); see also United States v. Martin, 228 F.3d 1, 11 (1st

Cir. 2000) (emphasis in original) (Section 1832(a) “was not designed to punish

competition, even when such competition relies on the know-how of former

employees of a direct competitor. It was, however, designed to prevent those

employees (and their future employers) from taking advantage of condential

information gained, discovered, copied, or taken while employed elsewhere.”);

Shiah, No. SA CR 06-92 (same).

A defendant successfully invoked this defense against § 1832 charges

during a bench trial in United States v. Shiah, No. SA CR 06-92. e defendant

192 Prosecuting Intellectual Property Crimes

had been a product line manager at Broadcom, a semi-conductor company, for

approximately two-and-a-half years, where he had been exposed to technical,

marketing and price information on a variety of Broadcom products. Shortly

after receiving a negative performance evaluation, the defendant applied for

and was oered a similar position with a direct competitor. After applying for

the new job, but before tendering his resignation, the defendant went about

collecting electronic documents concerning matters he had worked on at

Broadcom. On the same day he intended to give notice of his resignation, the

defendant copied 4,700 les from his Broadcom laptop onto an external hard

drive.

At the defendant’s exit interview, Broadcom’s general counsel told the

defendant that he was forbidden from disclosing Broadcom’s condential

information, which he said included technical documents, pricing lists and

a wider range of business information. e defendant was not shown a copy

of the condentiality agreement he had signed when he started working at

Broadcom. After he began working for the competitor, the defendant accessed

several of the electronic Broadcom les he had kept while performing his new

job.

At trial, the defendant claimed he did not intend to use or disclose any

of the condential Broadcom information contained in the thousands of les

he copied onto his external hard drive. Instead, he claimed he would rely on

his own internal lter to use only the non-condential and publicly available

information in the thousands of documents he had copied. He considered this

information to be part of his “tool kit” of information he had developed during

the course of his career in the computer device industry. In support of this

argument, he pointed to evidence he had copied thousands of documents from

his prior employer before joining Broadcom. e defendant further testied

that of the Broadcom documents he accessed after leaving the company, he

used only the non-condential information from them concerning aggregate

industry information.

Although the trial court found that the defendant’s pattern of access to the

Broadcom les while at his new job was “suspicious,” and that the evidence

indicated that it was more likely than not that defendant did intend to convert

trade secrets (which would have satised a preponderance standard), it concluded

that the government fell “just short” of proving the defendant’s intent to

convert the trade secrets beyond a reasonable doubt because his alternative

explanation for his conduct was sucient to create a reasonable doubt. e

IV. Theft of Commercial Trade Secrets 193

court ultimately found that the defendant’s claimed “tool kit” defense was

consistent with the defendant’s past practices and with his wholesale copying

of les on his Broadcom laptop. e court also relied on the facts that many of

the les that the defendant copied were marketing documents that contained

both trade secret and non-condential information and that there was no

evidence that the condential portions of the documents were disclosed to the

defendant’s new co-workers. e court also found the defendant’s eorts to

acquire certain Broadcom documents before leaving the company were equally

consistent with defendant’s claimed eorts to address a point of criticism in his

recent performance evaluation that he lacked detailed product knowledge as

they were with a malicious intent.

e Shiah case underscores the importance of developing evidence of

intent to convert. Certainly the best evidence of such intent is direct evidence

of disclosure of the trade secrets to the new employer or other third parties.

However, evidence of disclosure is often not available when a defendant is

searched or arrested shortly after leaving his or her former employer with a

treasure trove of trade secrets in hand. erefore, it will be necessary to develop

circumstantial evidence of the defendant’s behavior by looking to his conduct

and actions around the time of the misappropration.

b. Information is Not a Trade Secret

i. Owner Failed to Take Reasonable Measures to Protect Secrecy

Another common defense to EEA charges is that the trade secret’s owner

failed to take reasonable measures to protect the secrecy of the information

at issue. As discussed in Section B.3.a.v. of this Chapter, the government is

not required to prove that the victim took all available measures to keep its

information secret. e standard is whether measures the owner took were

reasonable under the circumstances.

Although there are no reported EEA cases in which this defense was

successful, the United States v. Shiah case provides detailed insight into the

factors at least one trial court considered when weighing this element. Although

the court ultimately found that the government had satised its burden

beyond a reasonable doubt, it expressed concern that the measures taken by

the trade secret owner “were barely sucient to qualify as reasonable.” Shiah,

No. SA CR 06-92, at 31. e court focused its concerns not on the physical

or electronic security measures taken by Broadcom, but on its practices toward

its employees. For example, the court found that Broadcom had not provided

194 Prosecuting Intellectual Property Crimes

the defendant with a copy of his condentiality agreement after he signed it,

and did not explain the meaning of the agreement to him both at the outset

of his employment or during his exit interview. e court was also critical of

Broadcom’s failure to provide regular training to its employees on protecting

condential information, and the absence of a comprehensive system in

place for designating which documents were and which documents were not

condential. Finally, the court criticized Broadcom’s failure to examine the

defendant’s computer immediately upon his departure.

Despite these complaints, the court found that the deciencies in the trade

secret owner’s practices were not so extensive as to qualify as unreasonable,

because, as a whole, the company’s measures were generally eective. is

conclusion was supported by evidence that Broadcom employees generally

understood what types of information the company considered to be

condential, as well as evidence that the company had a reputation of being

“stingy” with its data protection. Id. at 36. As the reasonable measures element

is based on what steps were taken to keep the information secret from the

public, the court correctly noted that the owner is not required to keep the

information secret from the trade secret owner’s own employees, because

otherwise “‘no one could do any work.’” Id. at 32 (quoting Lange, 312 F.3d at

266). Nevertheless, the court stated that a company could fall short if it failed

to take reasonable measures to prevent a departing employee from taking trade

secrets with him upon termination.

e Shiah case, and the cases discussed in Section B.3.a.v. above suggest

that this defense will be successful only in situations where the victim’s security

environment is so lax that disclosures of condential information are frequent

occurrences, or where a company fails to employ a combination of technical,

physical and contractual tools to protect its information.

ii. Information is Not Secret

e government bears the burden of proving, beyond a reasonable doubt,

that the alleged trade secrets derived economic value from not being generally

known or readily ascertainable to the public through proper means. Defendants

will often try to inject doubt into this element by presenting evidence that the

alleged trade secrets were generally known to persons in the industry or that

they had been publicly disclosed. is is often done through a defense expert

witness who is familiar with the industry or the technology at issue.

IV. Theft of Commercial Trade Secrets 195

In addition, the defendant may argue that the victim has publicly disclosed

some aspect of the alleged trade secret. For this reason, the prosecutor and

investigator should ascertain early on whether the purported trade secret was

ever disclosed, in whole or in part, and to what extent those disclosures aect

the information’s status as a trade secret. ese issues are discussed further in

Donald M. Zupanec, Annotation, Disclosure of Trade Secret as Abandonment of

Secrecy, 92 A.L.R.3d 138 (2012) and 1 Roger M. Milgrim, Milgrim on Trade

Secrets §§1.05-1.06. e following is an overview.

• DisclosureroughthePatentandCopyrightProcesses

Information that has been disclosed in a patent application can nevertheless

qualify as a trade secret between the time of the application’s submission and

the patent’s issuance, as long as the patent application itself is not published

by the patent oce. Scharmer v. Carrollton Mfg. Co., 525 F.2d 95, 99 (6th

Cir. 1975) (citing Grant v. Raymond, 31 U.S. 218, 242 (1832)); see generally

Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 482-93 (1974) (noting distinct

intellectual property roles served by patents and trade secrets). e patented

process or device is no longer a trade secret once the application is published

or the patent is issued because publication of the application or patent makes

the process publicly available for all to see. Id. at 485 (citing 35 U.S.C. §

122 and 37 C.F.R. § 1.14(b)); see also On-Line Techs. v. Perkin-Elmer Corp.,

253 F. Supp. 2d 313, 323-27 (D. Conn. 2003). Patent applications led in

the United States after November 29, 2000, are typically published after 18

months. At the beginning of the investigation, the prosecutor and investigator

should ask the victim for copies of all published patent applications and issued

patents covering the subject matter of the trade secret information to determine

whether it has been disclosed. See Chapter VII of this Manual.

A subsequent renement or enhancement to the patented technology may

be a trade secret if it is not reasonably ascertainable from the published patent

itself. See United States v. Hsu, 185 F.R.D. 192, 200 (E.D. Pa. 1999).

Even where some elements are publicly known through a patent application,

trade secret status may be found where non-public elements are included. See,

e.g., Penalty Kick Mgmt. Ltd. v. Coca Cola Co., 318 F.3d 1284, 1291 (11th

Cir. 2003) (concluding that beverage label marketing and production process

qualied as a trade secret since “nothing in the ... patent application dealt with

the production elements used to produce” the labels).

196 Prosecuting Intellectual Property Crimes

Substantially the same analysis applies to information that has been

submitted to the United States Copyright Oce for registration. Submitting

material to the Copyright Oce can render it open to public examination and

viewing, thus destroying the information’s value as a trade secret, unless the

material is submitted under special procedures to limit trade secret disclosure.

See Tedder Boat Ramp Sys., Inc. v. Hillsborough County, Fla., 54 F. Supp. 2d 1300,

1303-04 (M.D. Fla. 1999); Religious Tech. Ctr. v. Netcom On-Line Commc’n

Servs., Inc., 923 F. Supp. 1231, 1255 n.28 (N.D. Cal. 1995); 1 Milgrim on

Trade Secrets §1.06[6]-[9]. But see Compuware Corp. v. Serena Software Int’l,

Inc., 77 F. Supp. 2d 816 (E.D. Mich. 1999) (holding that material could

continue to be a trade secret even after its owner submitted it to the Copyright

Oce without redaction, because the owner had taken other steps to keep it

secret and there was no evidence that it had become known outside the owner’s

business).

• DisclosureroughIndustryPublicationsorConferences

Information can also lose protection as a trade secret through accidental

or intentional disclosure by an employee at a conference or trade show, or

in technical journals or other publications. See, e.g., Mixing Equip. Co. v.

Philadelphia Gear, Inc., 436 F.2d 1308, 1311 n.2 (3d Cir. 1971) (holding that

industrial mixing equipment charts and graphs lost trade secret status through

publication in trade journals).

• DisclosuretoLicensees,Vendors,andirdParties

Information that has been disclosed to licensees, vendors, or third parties

for limited purposes can remain a trade secret under some circumstances,

including covering the disclosures by a non-disclosure agreement. See, e.g.,

Lange, 312 F.3d at 266; Rockwell Graphic Sys., Inc. v. DEV Indus., Inc., 925

F.2d 174, 177 (7th Cir. 1991). For the security measures the trade secret owner

should take to maintain secrecy during those disclosures, see Section B.3.a.v.,

of this Chapter.

• DisclosureroughInternetPostings

A trade secret can lose its protected status after it is posted anonymously

on the Internet, even if the trade secret was originally gathered through

improper means. See Religious Tech. Ctr. v. Netcom On-Line Communication

Servs., Inc., 923 F. Supp. 1231 (N.D. Cal. 1995). If the Internet posting causes

the information to fall into the public domain, a person who republishes the

IV. Theft of Commercial Trade Secrets 197

information is not guilty of misappropriating a trade secret, even if he knew

that the information was originally acquired by improper means. DVD Copy

Control Ass’n Inc. v. Bunner, 10 Cal. Rptr. 3d 185, 194 (Cal. Ct. App. 2004).

“[T]hat which is in the public domain cannot be removed by action of the

states under the guise of trade secret protection.” Id. at 195.

Disclosure over the Internet may not always strip away a trade secret’s

protection automatically. For example, in United States v. Genovese, the court

held that a trade secret could retain its secrecy despite a brief disclosure over

the Internet: “[A] trade secret does not lose its protection under the EEA if it is

temporarily, accidentally or illicitly released to the public, provided it does not

become ‘generally known’ or ‘readily ascertainable through proper means.’”

409 F. Supp. 2d 253, 257 (S.D.N.Y. 2005) (citing 18 U.S.C. §1839(3)(B)).

Publication on the Internet may not destroy the trade secret’s status “if the

publication is suciently obscure or transient or otherwise limited so that it does

not become generally known to the relevant people, i.e., potential competitors

or other persons to whom the information would have some economic value.”

DVD Copy Control Ass’n Inc., 10 Cal. Rptr. 3d at 192-93.

• DisclosureDuringLawEnforcementInvestigations

Disclosures to the government to assist an investigation or prosecution of

an EEA case should not waive trade secret protections. See United States v.

Yang, 1999 U.S. Dist. LEXIS 7130 (N.D. Ohio Mar. 18, 1999) (holding that

victim’s disclosure of trade secret to government for use in a sting operation

under oral assurances that the information would not be used or disclosed for

any purpose unrelated to the case did not vitiate trade secret status). Disclosure

to the government is essential for the investigation and prosecution of illegal

activity and is expressly contemplated by the EEA. First, 18 U.S.C.§1833(2)

specically encourages disclosures to the government, stating: “[the EEA] does

not prohibit ... the reporting of a suspected violation of law to any governmental

entity of the United States ... if such entity has lawful authority with respect

to that violation.” Second, 18 U.S.C.§1835 authorizes the court to “enter

such orders and take such other action as may be necessary and appropriate to

preserve the condentiality of trade secrets, consistent with the requirements of

the Federal Rules of Criminal and Civil Procedure ... and all other applicable

laws.” See also infra Section D. of this Chapter. Section 1835 gives “a clear

indication from Congress that trade secrets are to be protected to the fullest

extent during EEA litigation.” Hsu, 155 F.3d at 197. Together, these sections

demonstrate Congress’s intent to encourage the reporting of an EEA violation.

198 Prosecuting Intellectual Property Crimes

Laws other than the EEA similarly limit the Department of Justice’s

disclosure of trade secrets without the consent of the trade secret owner or the

express written authorization of senior ocials at the Department. See, e.g., 28

C.F.R.§16.21 (2012).

Information does not lose its status as a trade secret if the government

discloses it to the defendant as “bait” during a sting operation. See United States

v. Hsu, 185 F.R.D. 192, 199 (E.D. Pa. 1999). “To hold that dangling such

bait waives trade secret protection would eectively undermine the Economic

Espionage Act at least to the extent that the Government tries ... to prevent an

irrevocable loss of American technology before it happens.” Id.

• DisclosurebytheOriginalMisappropriatororHisCo-Conspirators

e person who originally misappropriates a trade secret cannot immunize

himself from prosecution by disclosing it into the public domain. Although

disclosure of a trade secret may cause it to lose trade-secret status after the

disclosure, disclosure does not destroy trade-secret status retroactively.

Consequently, one who initiates the disclosure may be prosecuted, whereas

one who distributes the information post-disclosure may not, unless he was

working in concert with the original misappropriator. Cf. Underwater Storage,

Inc. v. United States Rubber Co., 371 F.2d 950, 955 (D.C. Cir. 1966) (“We do

not believe that a misappropriator or his privies can ‘baptize’ their wrongful

actions by general publication of the secret.”); Religious Tech. Ctr., 923 F. Supp.

at 1256.

2. Parallel Development

e essence of the parallel development defense is that the defendant

independently, through its own eorts, developed the same information as the

putative victim, without access to the victim’s trade secrets. Indeed, the owner

of a trade secret, unlike the holder of a patent, does not have “an absolute

monopoly on the information or data that comprises a trade secret.” 142

Cong. Rec. 27,116 (1996). Other companies and individuals have the right to

discover the information underlying a trade secret through their own research

and hard work; if they do, there is no misappropriation under the EEA. Id.

Of course, this defense would prove ineective where direct evidence of the

defendant’s acquisition of the trade secrets from the victim exists.

IV. Theft of Commercial Trade Secrets 199

3. Reverse Engineering

Similarly, a person may legally discover the information underlying a trade

secret by “reverse engineering,” that is, the practice of taking apart something

that was legally acquired to determine how it works or how it was made or

manufactured. See, e.g., Kewanee Oil Co. v. Bicron Corp., 416 U.S. 470, 476

(1974) (holding that the law does not protect the owner of a trade secret

from “discovery by fair and honest means, such as by independent invention,

accidental disclosure, or by so-called reverse engineering”); ConFold Pac., Inc.

v. Polaris Indus., 433 F.3d 952, 959 (7th Cir. 2006) (“[I]t is perfectly lawful

to ‘steal’ a rm’s trade secret by reverse engineering.”) (Posner, J.) (citations

omitted).

Although the EEA does not expressly address when reverse engineering

is a valid defense, its legislative history states that “[t]he important thing is to

focus on whether the accused has committed one of the prohibited acts of this

statute rather than whether he or she has ‘reverse engineered.’ If someone has

lawfully gained access to a trade secret and can replicate it without violating

ne.” 142 Cong. Rec. 27,116 (1996).

e mere fact that a particular secret could have been reverse engineered

after a time-consuming and expensive laboratory process does not provide a

defense for someone who intended to avoid that time and eort by stealing

the secret, unless the information was so apparent as to be deemed “readily

ascertainable,” and thus not a trade secret. See 4 Roger M. Milgrim, Milgrim

on Trade Secrets §15.01[1][d][v]; Alcatel USA, Inc. v. DGI Techs., Inc., 166

F.3d 772, 784-85 (5th Cir. 1999) (holding that a competitor could not assert

reverse engineering defense after it had rst unlawfully obtained a copy of the

software and then used the copy to reverse engineer); Pioneer Hi-Bred Int’l v.

Holden Found. Seeds, Inc., 35 F.3d 1226, 1237 (8th Cir. 1994) (stating that

fact “that one ‘could’ have obtained a trade secret lawfully is not a defense if

one does not actually use proper means to acquire the information”) (citations

omitted); Telerate Sys., Inc. v. Caro, 689 F. Supp. 221, 233 (S.D.N.Y. 1988)

(“[T]he proper focus of inquiry is not whether an alleged trade secret can

be deduced by reverse engineering but rather, whether improper means are

required to access it.”).

200 Prosecuting Intellectual Property Crimes

To counter a defense of reverse engineering, prosecutors should establish

how the defendant obtained the trade secret. Proving misappropriation should

refute a claim of reverse engineering.

4. Legal Impossibility

e defense of legal impossibility has largely been rejected by courts in

EEA prosecutions. See Section B.6. of this Chapter.

5. Advice of Counsel

“ere is no such thing as an ‘advice of counsel’ defense.” United States

v. Urfer, 287 F.3d 663, 665 (7th Cir. 2002) (Posner, J.) (charges of willfully

injuring federal property). Rather, “if a criminal statute requires proof that the

defendant knew he was violating the statute in order to be criminally liable for

the violation, and it is unclear whether the statute forbade his conduct, the

fact that he was acting on the advice of counsel is relevant because it bears on

whether he knew that he was violating the statute.” Id. at 666. In other words,

advice of counsel is a defense only if it negates the mens rea needed to prove a

violation.

Advice of counsel could conceivably negate an EEA defendant’s mens rea

in several ways. As is discussed in Section B.3.c. of this Chapter, the defendant

cannot be convicted unless he knew that he was misappropriating a trade

secret. us, the defendant’s mens rea might be negated if counsel advised him

either that the information in question was not a trade secret or that it was a

trade secret to which he could claim ownership.

To rely on an advice of counsel claim at trial, the defendant must rst

provide “independent evidence showing (1) the defendant made full disclosure

of all material facts to his or her attorney before receiving the advice at issue;

and (2) he or she relied in good faith on the counsel’s advice that his or her

course of conduct was legal.” Covey v. United States, 377 F.3d 903, 908 (8th

Cir. 2004) (citations and alterations omitted); United States v. Munoz, 233 F.3d

1117, 1132 (9th Cir. 2000) (noting an advice of counsel instruction requires

proof that the defendant “fully disclosed to his attorney all material facts and

relied in good faith on the attorney’s recommended course of conduct”); see

also United States v. Butler, 211 F.3d 826, 833 (4th Cir. 2000) (same). Both

elements must be shown.

Under the full disclosure requirement, the information may not be

mischaracterized and all material facts must be provided. See, e.g., United States

IV. Theft of Commercial Trade Secrets 201

v. Munoz, 233 F.3d 1117, 1132 (9th Cir. 2000) (in mail fraud prosecution,

defendant was not entitled to an advice of counsel instruction where, among

other things, attorney’s opinion letter was based on misrepresentations that

investments were not advertised to general public even though defendant

“honestly believed the opinion letters written by the attorneys were accurate

and … did not understand the importance of not advertising … to the

general public”); United States v. Kenney, 911 F.2d 315, 322 (9th Cir. 1990)

(holding that defendant did not make a full disclosure where the defendant

mischaracterized a kickback as an interest-free loan); United States v. Conforte,

624 F.2d 869, 877 (9th Cir. 1980) (noting a material fact is any “fact[] to

which the advice pertains”); United States v. Stirling, 571 F.2d 708, 735 (2d Cir.

1978) (rejecting defendants’ argument that attorneys failed to ask suciently

probing questions because attorneys had “no obligation to ferret out proof of

wrongdoing.”). Under the good faith reliance requirement, the client must rely

on the recommended course of conduct and cannot act before receiving the

legal advice. See, e.g., United States v. Cheek, 3 F.3d 1057, 1061-62 (7th Cir.

1993) (advice of counsel instruction did not apply because defendant who had

been warned of illegality “merely continued a course of illegal conduct begun

prior to contacting counsel”); Conforte, 624 F.2d at 877 (rejecting a reliance on

counsel defense because, among other reasons, the defendant did not speak to

his attorney until after the crimes had been committed); see also United States v.

Polytarides, 584 F.2d 1350, 1353 (4th Cir. 1978) (good faith reliance on advice

of counsel defense was not available when defendant had taken signicant steps

toward the illegal activity and had been warned of its illegality prior to seeking

advice of an attorney).

6. Claim of Right—Public Domain and Proprietary Rights

As is discussed in Section B.3.c. of this Chapter, the defendant cannot be

convicted unless he knew that the information he was misappropriating was

proprietary. us, the defendant’s mens rea might be negated if he believed in

good faith that he had a right to use the information, either because it was in

the public domain or because it belonged to him.

e former situation, information in the public domain, is discussed in

Section B.3.a.iii. (discussing how disclosure aects trade secret status).

e latter situation, when the accused acts under a proprietary claim of

right, can occur when two parties have a legitimate dispute over who owns

the trade secret. is type of dispute is most likely to occur after the parties

202 Prosecuting Intellectual Property Crimes

developed technology together and their respective ownership interests are

unclear. In these circumstances, one party’s unilateral action with regard to

the trade secret might precipitate a criminal referral from the other party. Such

cases are rarely appropriate for criminal prosecution, especially if the putative

defendant acted on the advice of counsel. See Section C.5. of this Chapter.

Notwithstanding the passage of the EEA, many disputes about trade secrets are

still best resolved in a civil forum.

7. e First Amendment

e First Amendment provides no defense when the defendant’s speech

itself is the very vehicle of the crime. See, e.g., United States v. Morison, 844

F.2d 1057, 1068 (4th Cir. 1988) (rejecting defendant’s First Amendment

defense and upholding a conviction for a violation of 18 U.S.C.§ 793 for

stealing secret government documents, noting that “[w]e do not think that

the First Amendment oers asylum ... merely because the transmittal was

to a representative of the press”); United States v. Rowlee, 899 F.2d 1275 (2d

Cir. 1990) (rejecting First Amendment defense against charges of tax evasion

conspiracy). In a prosecution similar to the theft of trade secrets under the

EEA, the First Amendment was held to provide no defense to a charge under

18 U.S.C.§2314 for the interstate transportation of stolen computer les:

In short, the court nds no support for [the defendant’s]

argument that the criminal activity with which he is charged

... is protected by the First Amendment. Interpreting the

First Amendment as shielding [the defendant] from criminal

liability would open a gaping hole in criminal law; individuals

could violate criminal laws with impunity simply by engaging

in criminal activities which involve speech-related activity. e

First Amendment does not countenance that kind of end run

around criminal law.

United States v. Riggs, 743 F. Supp. 556, 560-61 (N.D. Ill. 1990).

In most instances, if the government can establish that the defendant

intended his misappropriation to benet a third party economically, he should

have a hard time claiming that his disclosure of the trade secret was protected

by the First Amendment. In other words, where the defendant’s motivation

was pecuniary, the defendant’s argument that he disclosed the trade secret as

a public service or to educate the public should be signicantly undermined.

IV. Theft of Commercial Trade Secrets 203

SeeDVD Copy Control Ass’n v. Bunner, 10 Cal. Rptr. 3d 185, 194-96 (Cal. Ct.

App. 2004).

Because the First Amendment does not protect speech that is criminal, the

government should seek to exclude evidence regarding that defense through an

appropriate motion in limine.

8. Void-for-Vagueness

Several defendants have challenged the EEA on grounds that it is vague or

otherwise unconstitutional. us far, all such challenges have been rejected.

In United States v. Hsu, 40 F. Supp. 2d 623 (E.D. Pa. 1999), the defendant

was charged with, among other things, conspiracy to steal trade secrets in

violation of 18 U.S.C. §1832(a)(5) and attempted theft of trade secrets in

violation of 18 U.S.C. §1832(a)(4). Hsu moved to dismiss, arguing that the

EEA was unconstitutionally vague in numerous respects.

In denying Hsu’s motion to dismiss, the court noted that a statute is not

unconstitutionally vague just because “Congress might, without diculty, have

chosen ‘clearer and more precise language’ equally capable of achieving the end

which it sought.” Hsu, 40 F. Supp. 2d at 626 (quoting United States v. Powell,

423 U.S. 87, 94 (1975) (citation omitted)). Because the First Amendment

was not implicated, Hsu’s void-for-vagueness challenge could succeed only if

the EEA were vague as applied to his conduct and as applied to “the facts

of the case at hand.” Id. at 626-27. Hsu argued that the First Amendment

was implicated because the Bristol-Meyers Squibb “employee who aided the

Government ‘sting’ operation by posing as a corrupt employee [had] a right

freely to express himself and exchange information with the defendant, or

with anyone else he [thought was] a potential employer.” Id. at 627 (citations

omitted). e court disagreed. It noted rst that Hsu lacked standing to raise

the victim’s employee’s purported First Amendment rights. Id. And even if Hsu

had standing, the court said, the employee had knowingly participated in a

government sting operation, not in a job interview with a potential employer.

Id. erefore, no First Amendment interests were implicated. Id.

e court also rejected Hsu’s argument that the term in the pre-2012

amendment version of 18 U.S.C. § 1832 “related to or included in a product

that is produced for or placed in interstate or foreign commerce is unacceptably

vague.” Id. Prior First Amendment decisions disapproving of the term “related”

had no bearing on the use of “related to or included in” in the EEA, which the

204 Prosecuting Intellectual Property Crimes

court found “readily understandable to one of ordinary intelligence, particularly

here, where the defendant appears to be well versed as to [the nature of the

technology at issue].” Id.

e court also concluded that the EEA’s denition of “trade secret” was

not unconstitutionally vague as applied to Hsu. As to the requirement that the

owner take “reasonable measures” to keep the information secret, the mere use

of the word “reasonable” or “unreasonable” does not render a statute vague. Id.

at 628. e court further noted that these terms were taken “with only minor

modications” from the Uniform Trade Secrets Act, which had been adopted

in forty states and the District of Columbia and had also withstood a void-for-

vagueness attack. Id.

Also undermining Hsu’s void-for-vagueness challenge was his own

knowledge of the facts at the time of the oense. Hsu knew that Bristol-Meyers

Squibb had taken many steps to keep its technology secret. He had been told

on several occasions that the technology was proprietary to Bristol-Meyers

Squibb, could not be acquired through a license or joint venture, and could

be obtained only through an allegedly corrupt employee. e court therefore

held that he could not contend that the term “reasonable measures” was vague

as applied to him. Id.

Finally, the Hsu court concluded that the EEA was not void for vagueness

in qualifying that the information not be “generally known to” or “readily

ascertainable by” the public. e court concluded that the EEA’s use of

those terms was problematic because “what is ‘generally known’ and ‘readily

ascertainable’ about ideas, concepts, and technology is constantly evolving in

the modern age.” Id. at 630. Nonetheless, Hsu’s emails, telephone calls, and

conversations together showed that he believed that the information he sought

could not be acquired through legal or public means. erefore, the court

concluded that the EEA’s denition of trade secret was not unconstitutionally

vague as applied to Hsu. Id. at 630-31.

Subsequent courts have upheld the EEA against similar constitutional

challenges. See United States v. Yang, 281 F.3d 534, 544 n.2 (6th Cir. 2002)

(rejecting defendants’ argument that the EEA would be unconstitutionally

vague if attempt and conspiracy charges need not be based on actual trade

secrets, because “[w]e have every condence that ordinary people seeking to

steal information that they believe is a trade secret would understand that

their conduct is proscribed by the statute”); United States v. Kumrei, 258 F.3d

IV. Theft of Commercial Trade Secrets 205

535, 539 (6th Cir. 2001) (rejecting claim that the “reasonable measures” were

unconstitutionally vague); Chung, 622 F. Supp. 2d at 974 (concluding “the

term ‘reasonable measures’ is not unconstitutionally vague”); United States v.

Genovese, 409 F. Supp. 2d 253 (S.D.N.Y. 2005) (denying motion to dismiss

indictment as vague by defendant who argued that, having found condential

source code on the Internet, he could not know whether the code was generally

known to the public or whether the code’s owners took reasonable measures

to keep it secret, and ruling that the government’s allegations established that

the defendant was on notice that the code was proprietary and any protective

measures had been circumvented).

D. Preserving Condentiality and the Use of

Protective Orders

One essential objective in any trade secret prosecution is to ensure that an

eective protective order is in place to safeguard against disclosure of the trade

secret during prosecution of the criminal case. e safeguards should cover

each phase of the prosecution, including discovery and any public proceedings,

such as a trial or sentencing hearing.

1. Overview

Protective orders, or other appropriate measures, are commonly used in

civil cases involving trade secrets. See, e.g., Fed. R. Civ. P. 26(c)(1)(g) (providing

for civil protective orders “requiring that a trade secret or other condential

research, development, or commercial information not be revealed or be

revealed only in a specied way”); see also Burlington N.R.R. Co. v. Omaha

Pub. Power Dist., 888 F.2d 1228, 1232 (8th Cir. 1989) (reviewing contract in

camera without revealing trade secret); Canal Rening Co. v. Corrallo, 616 F.

Supp. 1035, 1045 (D.D.C. 1985) (granting plainti’s motion for protective

order to seal separate portions of adavit designated as exhibit); see generally 3

Roger M. Milgrim, Milgrim on Trade Secrets § 14.02[4] (discussing protective

orders and other measures). Likewise, protective orders are regularly used in

EEA cases to protect against disclosure of trade secrets.

Congress emphasized the need for protective orders in criminal cases

involving trade secrets. See H. R. Rep. No. 104-788, at 4 (1996), reprinted

in 1996 U.S.C.C.A.N. 4021, 4022 (“e bill requires courts hearing cases

brought under the statute to enter such orders as may be necessary to protect

206 Prosecuting Intellectual Property Crimes

the condentiality of the information involved in the case.”); id. at 13, 4032

(“e intent of this section is to preserve the condential nature of the

information and, hence, its value. Without such a provision, owners may be

reluctant to cooperate in prosecutions for fear of further exposing their trade

secrets to public view, thus further devaluing or even destroying their worth.”).

e legislative history underscores the importance of courts taking adequate

steps to protect trade secrets particularly in the early stages of prosecution even

before a determination that the information is a trade secret has been made:

We have been deeply concerned about the eorts taken by

courts to protect the condentiality of a trade secret. It is

important that in the early stages of a prosecution the issue

whether material is a trade secret not be litigated. Rather, courts

should, when entering these orders, always assume that the material

at issue is in fact a trade secret.

142 Cong. Rec. 12,213 (Oct. 2, 1996) (Manager’s Statement) (emphasis

added).

e EEA contains a specic provision authorizing protective orders in

trade secret cases. Specically, § 1835 provides:

[T]he court shall enter such orders and take such other action as

may be necessary and appropriate to preserve the condentiality

of trade secrets, consistent with the requirements of the Federal

Rules of Criminal and Civil Procedure, the Federal Rules

of Evidence, and all other applicable laws. An interlocutory

appeal by the United States shall lie from a decision or order

of a district court authorizing or directing the disclosure of any

trade secret.

In addition to § 1835, which applies to EEA cases, prosecutors can

alternatively consider Fed. R. Crim. P. 16(d), which provides:

(1) Protective and Modifying Orders. At any time the court

may, for good cause, deny, restrict, or defer discovery or

inspection, or grant other appropriate relief. e court may

permit a party to show good cause by a written statement that

the court will inspect ex parte. If relief is granted, the court

must preserve the entire text of the party’s statement under seal.

IV. Theft of Commercial Trade Secrets 207

Rule 16(d) has been cited as an alternative legal basis for a protective

order in cases involving trade secrets. See, e.g., United States v. Hsu, 155 F.3d

189, 193 (3d Cir. 1998) (noting “the government led a motion pursuant

to 18 U.S.C. § 1835 and Fed. R. Crim. P. 16(d)(1) for a protective order to

prevent the disclosure of the Bristol–Myers trade secrets allegedly contained

in those documents”). Although both provisions authorize protective orders,

their coverage and application are distinct. Rule 16(d) applies generally in

all criminal cases, whereas § 1835 applies only to cases charging economic

espionage, under 18 U.S.C. § 1831, and trade secret misappropriation, under

18 U.S.C. § 1832. Nonetheless, it is common for both legal bases, § 1835 and

Rule 16(d), to be cited in an application for a protective order.

In some cases, prosecutors may consider whether to charge the

misappropriation of proprietary information as trade secret misappropriation or

under other legal theories. See generally Section G. of this Chapter (considering

other alternative charges). Where trade secrets are involved, however, it is

recommended that prosecutors pursue charges under either §§ 1831 or 1832

of the EEA. One benet from charging violations of the EEA is the ability to

use the protections aorded in § 1835 to safeguard trade secrets in the criminal

prosecution, such as the ability to seek an interlocutory appeal of a court order

to disclose a trade secret, as noted in the next Section.

2. Interlocutory Appeals

Section 1835 expressly allows the government to le “[a]n interlocutory

appeal … from a decision or order of a district court authorizing or directing

the disclosure of any trade secret.” is opportunity for prompt judicial review

of a district court decision provides an essential added layer of protection

against the disclosure of trade secrets.

Although the language permitting the government to seek interlocutory

appeal is broad and without time limits, as a practical matter, the issues

concerning court-ordered disclosure of a trade secret should be raised before

trial and certainly resolved before jeopardy attaches upon the swearing of the

jury.

Since the statute was enacted in 1996, the interlocutory provision has been

invoked in two cases, United States v. Hsu, 155 F.3d 189 (3rd Cir. 1998), and

United States v. Ye, 436 F.3d 1117 (9th Cir. 2006). Both times the government

prevailed on appeal and averted disclosure of trade secret information, however,

for dierent reasons.

208 Prosecuting Intellectual Property Crimes

United States v. Hsu (3d Cir. 1998)

e rst case to address the use of protective orders under the EEA is

United States v. Hsu, 155 F.3d 189 (3rd Cir. 1998). Hsu, also one of the rst

cases prosecuted under the statute, presented an early test concerning the

disclosure of trade secret information and the new protections provided under

§ 1835. In Hsu, the trade secrets involved processes, methods, and formulas

for an anti-cancer drug known as Taxol. One defendant requested and oered

to pay for Taxol information, not realizing he was communicating with an

undercover agent. After the investigation, three defendants were charged with

attempted theft of trade secrets, and a conspiracy to steal trade secrets, along

with other charges. e defense moved for a copy of the documents revealed

at a key meeting with the undercover agent. e government requested a

protective order under § 1835 and Rule 16(d)(1) to prevent disclosure of the

trade secrets. e government asked the court to review the materials in camera

and to redact trade secret information. e government argued that since

inchoate crimes of attempt and conspiracy were charged, there was no need to

divulge the trade secrets. e defense insisted on receiving unredacted copies.

e district court agreed with the defense to adopt an order allowing “select

members of the defense team” with access to the documents. e court then

“‘encourage[d]’ the government to le an interlocutory appeal to clarify the

‘unsettled and important questions of law’ raised by this case.” Hsu, 155 F.3d at

193-94 (quoting district court opinion). e government led an interlocutory

appeal under § 1835.

On appeal, the ird Circuit reversed the district court ruling after

concluding that the incomplete crimes of attempt and conspiracy did not

require actual proof of the trade secret. Hsu, 155 F.3d at 203-04; see also Section

B.6. of this Chapter, supra. After the case was remanded, the district court

concluded the defense was not entitled to receive the unredacted documents.

e materials were also unnecessary to support an entrapment or outrageous

government conduct defense. See United States v. Hsu, 185 F.R.D. 192, 198 &

n.19 (E.D. Pa. 1999) (analogizing that it is unnecessary in a drug case involving

attempt or conspiracy charges for the defense to have access to the drugs in the

case).

Although the Hsu case did not involve review of a trade secret case involving

actual misappropriation under the substantive provisions of the statute, 18

U.S.C. § 1832(a)(1)-(a)(3), the case demonstrates how the interlocutory appeal

IV. Theft of Commercial Trade Secrets 209

provision was used eectively to advert disclosure of trade secret information

pending appellate court review.

United States v. Ye (9th Cir. 2006)

In United States v. Ye, 436 F.3d 1117 (9th Cir. 2006), the second case to

address interlocutory appeal, decided eight years after Hsu, the government

sought an interlocutory appeal along with a writ of mandamus. In Ye, two

defendants were arrested as they tried to board a ight from San Francisco to

China. ey were found to possess suspected trade secrets from four Silicon

Valley companies including technical schematics, information about design

methodology, computer aided design scripts, microprocessor specications,

and other technology information. e two defendants were charged with

committing economic espionage, the second case charging violations of

§ 1831, along with trade secret misappropriation and other counts. Before

trial, the government provided the defense with “all the trade secret materials”

under a protective order, including “more than 8,800 pages of materials, which

‘describe the substance of each alleged trade secret.’” Ye, 436 F.3d at 1119.

e defense requested, and was granted, the opportunity to conduct pre-trial

depositions of several government expert witnesses to determine “what exactly

is being alleged to be the trade secret and why it is a trade secret in advance of

trial.” Id. After its motion for reconsideration was denied, the government led

an interlocutory appeal under § 1835 and alternatively petitioned for a writ of

mandamus under the All Writs Act, 28 U.S.C. § 1651.

e Ninth Circuit concluded that it lacked jurisdiction over the § 1835

interlocutory appeal because “the purpose of the district court’s order was only

to clarify exactly which materials the government contends constitute the

protected trade secrets, and all relevant materials had already been turned over,

the district court’s order does not direct or authorize the ‘disclosure’ of trade

secrets as required by the plain language of § 1835.” Ye, 436 F.3d at 1121. In

considering the second basis for appellate review, however, the court found

that the government established “exceptional circumstances” to warrant a writ

of mandamus directing the district court to rescind its ruling. As the court

explained:

After weighing all ve [writ of mandamus] factors, we conclude

that they lean strongly in favor of granting mandamus relief. e

district court’s order was ‘wholly unauthorized’ and ‘constitutes

a clear and very substantial departure from the fundamental

210 Prosecuting Intellectual Property Crimes

principles governing criminal pretrial and trial procedures in

federal court.’ e government has demonstrated that it has

no alternative means of relief and will suer harm that is not

correctable on appeal. Finally, the district court’s order raises

the new and important question of whether the EEA empowers

a court to authorize discovery depositions under Rule 15 in

order to ensure fairness and eciency and eectively control

the dissemination of important trade secrets.

Ye, 436 F.3d at 1124 (citations omitted). Consequently, the government

prevailed in challenging the district court’s discovery order under this

alternative, although exceptional, ground.

3. Types of Protective Orders

Generally speaking, three types of protective orders may be appropriate

during dierent stages of a case:

• First, a protective order may be necessary to discuss the case with

third parties before charges are led. Under these circumstances, the

protective order, which is typically stipulated to by the parties, should

stipulate to jurisdiction in the event any disputes arise.

• Second, after charges are led, but before any trial, a protective order

is essential to ensure that the trade secret is used solely for preparation

of the defense and is not divulged to third parties unconnected with

the defense.

• ird, a protective order may be required to govern the use of trade

secret evidence during a public trial.

Typically, the parties will enter into a stipulation and application for entry

of a protective order. Where agreement cannot be reached on selected issues, the

court may need to resolve them. It is not uncommon for an interim protective

order to be imposed during one stage with the understanding that it may be

modied to protect the trade secret and related information at another stage.

Protective orders may also vary depending on the issues in the case. For

example, a special protective order may be necessary for a case involving source

code. CCIPS has examples of each type of protective order which is available

to prosecutors. ese model protective orders can be tailored to the facts and

issues of the particular case.

IV. Theft of Commercial Trade Secrets 211

As described in the following subsections, although protective orders may

vary depending on the trade secrets and issues involved in the case, there are

some key and consistent parameters that should be addressed in an application

for each type protective order. e protections are dierent before trial and

during trial.

a. Pre-Trial Protective Order Issues

Before trial, protective orders generally govern what information is covered

and who may access it without necessarily stipulating that the information is

in fact a trade secret. Because the defense may not wish to stipulate that the

items are in fact trade secrets, it is not uncommon for the parties to agree

that the designated items may constitute trade secrets or other condential or

proprietary information, or that the designation merely serves to “to preserve

the condentiality of trade secrets,” as required under 18 U.S.C. § 1835. At this

stage of the criminal case, the label assigned to the materials is less important

than ensuring that they are adequately safeguarded.

e pre-trial protective order will typically restrict access to the defense

litigation team solely for defending the case. One important feature of

protective orders is that anyone accessing the trade secret materials sign an

acknowledgment that they have read and understood the protective order and

agree to be bound by its terms, including sanctions for any violations. e

signed acknowledgments can be maintained by the government or led with

the court. e protective order usually species that:

• the trade secret materials must be maintained in a secure manner and

may not leave a designated area;

• if maintained on a computer, the computer may not be connected to

the Internet;

• a copy of the protective order shall be kept with the copies of the

protected materials at all times;

• any lings of the trade secret materials shall be made led under seal;

and

• the circumstances for the return of the trade secret materials upon the

conclusion of the case.

Another pretrial issue that may relate to a trade secret protective order

concerns defense use of a subpoena under Fed. R. Crim. P. 17(c) to obtain

further information about the trade secrets from the victim company.

Prosecutors should consider whether the subpoena seeks information protected

212 Prosecuting Intellectual Property Crimes

by the protective order, or that has been previously provided. e courts have

also recognized that Rule 17(c) cannot be used as a means to obtain general

discovery. See, e.g., United States v. Hardy, 224 F.3d 752, 756 (8th Cir. 2000)

(denying Rule 17(c) subpoena where defendant was attempting to use it as a

discovery device, “which it is not”); United States v. Arditti, 955 F.2d 331, 345

(5th Cir. 1992) (Rule 17 “is not intended to provide an additional means of

discovery”); see also United States v. Ye, 436 F.3d 1117, 1124 (9th Cir. 2006)

(issuing writ of mandamus to rescind district court order compelling depositions

of government expert witnesses concerning trade secrets before trial).

Generally, Rule 17(c) subpoenas should not be issued by the court unless

the moving party meets its burden to demonstrate that (1) the documents

sought are both evidentiary and relevant, that is, admissible; (2) the documents

are not otherwise procurable before trial through reasonable diligence, (3)

the party cannot properly prepare for trial without early production; and (4)

the application is not intended as a general shing expedition. United States

v. Nixon, 418 U.S. 683, 699-700 (1974). CCIPS can provide some sample

responses to defense requests for subpoenas under Rule 17(c).

b. Trial Protective Order Issues

Separate issues are involved by the presentation of evidence related to

the trade secret at trial. A protective order governing the use of information

during trial may apply more specically to “trade secrets” as dened under

18 U.S.C. § 1839(3), and “trial protected material,” which includes trade

secret information and related condential or proprietary information that

may reveal or disclose the trade secrets in this case. e scope of this coverage

protects against disclosure of not only trade secrets but information related to

the trade secret.

e protective order should impose a duty on the parties to notify the court

before introducing any protected material at trial. is obligation is important

to allow the court and parties to put appropriate and timely measures in place

to protect the condentiality of trade secrets before such material is introduced

at trial.

Likewise, prosecutors should consider seeking to include instructions on

how trade secret materials may be presented during the trial. For example, the

protective order could limit access to exhibit binders exclusively to the jury,

the parties, and the court and require the exhibits to be retrieved after the

conclusion of the witness testimony. Additionally, the court display or other

IV. Theft of Commercial Trade Secrets 213

monitors shall be similarly conned. See, e.g., United States v. Roberts, 2010

WL 1010000, at *9 (E.D. Tenn. Mar. 17, 2010).

Special instructions may be necessary for witnesses and juries as well to

protect trade secret material. For example, the parties may instruct witnesses

not to disclose the protected materials during the course of their testimony

until and unless authorized by the court. Additionally, during the trial and

at the conclusion of the case, the jury may be instructed that they are not to

disclose or otherwise use the protected material which was presented during

the trial. CCIPS has sample trial protective orders for prosecutors.

c. Closing the Courtroom

Where closed proceedings are contemplated, other special requirements

apply. First, Department of Justice policy does not permit the closing of the

courtroom unless approved by the Deputy Attorney General. See 28 C.F.R.

§ 50.9; USAM 9-5.150. is presumption against closed proceedings may

be overcome upon a showing of certain factors and approval by the Deputy

Attorney General. A request for a closed proceeding is initially reviewed through

the Oce of Enforcement Operations at (202) 305-4023. Id.. For a trial

example in which the courtroom was closed on a limited number of occasions,

see United States v. Aleynikov, 2010 WL 5158125, at *1 (S.D.N.Y. Dec. 14,

2010) (noting “Over the course of the eight day trial, the courtroom was closed

on seven occasions, most of them lasting no longer than 20 minutes.”), rev’d on

other grounds, 676 F.3d 71 (2d Cir. 2012).

e right to a public criminal trial, under the Sixth and First Amendments,

is not absolute and may be limited in certain circumstances. See Globe Newspaper

Co. v. Superior Court for the County of Norfolk, 457 U.S. 596, 603 (1982)

(noting “the press and general public have a constitutional right of access to

criminal trials.”); Waller v. Georgia, 467 U.S. 39, 46 (1984) (“[T]here can be

little doubt that the explicit Sixth Amendment right of the accused is no less

protective of a public trial than the implicit First Amendment right of the press

and public.”); see also Gannett v. DePasquale, 443 U.S. 368, 419-33 (1979)

(Blackmun, J., concurring in part and dissenting in part) (tracing the history

of the right to a public trial and citing cases where that right has been limited).

Although not absolute, the Supreme Court has held that, “proceedings cannot

be closed unless specic, on the record ndings are made demonstrating

that ‘closure is essential to preserve higher values, and is narrowly tailored

to serve that interest.’” Press-Enterprise Co. v. Superior Court of California for

214 Prosecuting Intellectual Property Crimes

Riverside, 478 U.S. 1, 13-14 (1986) (citations omitted) (holding there is a First

Amendment right of access to the transcript of a preliminary hearing); Waller,

467 U.S. at 48 (noting that (i) a “party seeking to close the hearing must

advance an overriding interest that is likely to be prejudiced,” (ii) “the closure

must be no broader than necessary to protect that interest,” and (iii) “the trial

court must consider reasonable alternatives to closing the proceeding”); see also

In re Copley Press, Inc., 518 F.3d 1022, 1028 (9th Cir. 2008) (applying factors,

concluding there was “no First Amendment right to access the transcripts of

the closed portions of the [plea] hearings on the motions to seal”). Accordingly,

if the proceedings are closed, appropriate ndings, consistent with this case

law, should be made on the record.

4. Return of Trade Secrets Upon Conclusion of the Case

A nal step to safeguard trade secrets is to provide for the return of the

trade secret material upon the conclusion of the case. e protective order

should direct that the defense assemble and return all materials and certify in

writing that the required procedures were completed.

To ensure defense counsel is aware of the responsibility to return all trade

secret material after a conviction, by trial or plea agreement, the prosecutor

should alert the defense and court that the materials will be requested for

return shortly after sentencing. One approach used in trade secret cases is to

send defense counsel a letter reminding them of the terms under the protective

order requiring the return of the trade secret materials upon the conclusion

of the case. e letter can request the material be returned at the sentencing

hearing or shortly afterwards. e sentencing memorandum can apprise the

court of this request which can be renewed at the sentencing hearing. e

court can resolve any disagreements under the terms of the protective order.

E. Special Issues

1. Civil Injunctive Relief for the United States

e EEA authorizes the government to le a civil action to “obtain

appropriate injunctive relief against any violation of this chapter.” See 18

U.S.C. § 1836(a). Prosecutors should consider seeking injunctive relief to

prevent further disclosure of a trade secret by the defendant or third parties

during a criminal investigation, or as part of the judgment at the end of the

case.

IV. Theft of Commercial Trade Secrets 215

Prosecutors may even seek injunctive relief in matters that do not warrant

criminal prosecution if the victim is unable to do so. Note, however, that

most victims can obtain injunctive and monetary relief on their own through

state-law statutory and common-law remedies. For an extensive discussion of

injunctive relief in civil cases, see 4 Roger M. Milgrim, Milgrim on Trade Secrets

§15.02[1].

e civil remedy in § 1836 can be enforced only by the government.

Neither that section nor any other section of the EEA creates a private right

of action that can be enforced by private citizens. Cooper Square Realty, Inc. v.

Jensen, No. 04 Civ. 01011 (CSH), 2005 WL 53284 (S.D.N.Y. Jan. 10, 2005);

Barnes v. J.C. Penney Co., No. 3-04-CV-577-N, 2004 WL 1944048 (N.D. Tex.

Aug. 31, 2004), magistrate’s ndings adopted, 2004 WL 2124062 (N.D. Tex.

Sept. 22, 2004).

2. Parallel Proceedings

In light of the signicant overlap of elements in civil trade secret

misappropriation statutes and the EEA, it is often the case that a prosecutor on

an EEA criminal case is confronted with a parallel civil proceeding. A parallel

proceeding is simply

simultaneous or successive investigation or litigation of separate

criminal, civil, and administrative actions by dierent agencies,

dierent branches of government, or private litigants involving

a common set of facts.

Oce of Legal Education, U.S. Dep’t of Justice, Federal Grand Jury Practice

§12.1 (2008).

In the context of an EEA prosecution, a parallel proceeding is most

likely to arise in the form of a concurrent or pre-existing civil trade secret

misappropriation case brought by the victim against one or more of the subjects

of the criminal investigation. Additionally, as explained above, § 1836(a) of

the statue expressly authorizes the Attorney General to bring a civil action

to “obtain appropriate injunctive relief against any violation of this chapter.”

ese parallel civil proceedings will almost certainly generate evidence, in the

form of interrogatory responses, deposition or trial testimony, and responses

to document requests that would be of interest to a criminal prosecutor and

investigator investigating potential criminal violations of the EEA. And in

some cases, a victim / civil plainti may be more than willing to turn over this

216 Prosecuting Intellectual Property Crimes

evidence to law enforcement. However, federal prosecutors need to be mindful

of both the strategic and ethical implications of parallel proceedings in an EEA

prosecution.

Prosecutors looking for more in depth guidance on parallel proceedings

across all types of federal criminal prosecutions should consult the Federal

Grand Jury Practice Manual.

a. Due Process and Prosecutorial Misconduct Considerations

ere is nothing inherently wrong, ethically or legally, with parallel

proceedings, provided that each proceeding is conducted in good faith.See,

e.g., United States v. Kordel, 397 U.S. 1 (1970) (approving government’s parallel

civil and criminal proceedings against defendant); Abel v. United States, 362

U.S. 217 (1960) (lacking bad faith, mere cooperation of dierent branches of

the Department of Justice is neither illegitimate or unconstitutional); Securities

& Exchange Comm’n v. Dresser Indus., 628 F.2d 1368, 1374 (D.C. Cir. 1980)

(en banc) (“In the absence of substantial prejudice to the rights of the parties

involved, such parallel proceedings are unobjectionable under [United States]

jurisprudence.”). Misuse of a civil or criminal proceeding for the purpose of

benetting the other proceeding, however, in addition to being improper,

may jeopardize the criminal proceeding. Such misuse may include armative

misstatements of fact or law, conduct involving dishonesty, fraud, deceit, or

misrepresentation, or impermissible communications with represented persons.

Professional responsibility questions with regard to a specic factual scenario

should be directed to the Department of Justice’s Professional Responsibility

Advisory Oce at (202)514-0458.

As discussed below, three circuits have recently found, on somewhat similar

factual records, that parallel civil and criminal proceedings being handled by

separate divisions of the U.S. government were not conducted in bad faith, and

therefore did not violate due process. e key similarities in those cases were

that: (1) there were legitimate bases for the civil actions; (2) the defendants

were advised of their Fifth Amendment rights prior to making statements to

government questioners in the civil actions; and (3) no misleading statements

were made regarding the pendency of any criminal proceedings. But see United

States v. Scrushy, 366 F. Supp. 2d 1134 (N.D. Ala. 2005) (suppressing testimony

given by defendant at deposition in civil action by the Security and Exchange

Commission (SEC) where the SEC scheduled the deposition based on the

prosecutor’s request, and the prosecutor provided topics for the SEC to cover).

IV. Theft of Commercial Trade Secrets 217

In United States v. Stringer, 535 F.3d 929 (9th Cir. 2008) the Ninth Circuit

considered the conduct of a parallel civil SEC investigation, which led to a

criminal referral and prosecution by the U.S. Attorney’s Oce in Oregon. At

the outset of the SEC’s investigation, the agency provided a standard letter to

the defendants, informing them that it may turn over evidence to criminal

investigators. e SEC also advised witnesses of their Fifth Amendment Rights

at the beginning of their depositions. e SEC referred the matter for criminal

prosecution to the U.S. Attorney’s Oce early in its case, and provided

evidence to the criminal prosecution team during the course of its case. It also

scheduled depositions of subjects of the criminal investigation to be held in the

jurisdiction of the investigating U.S. Attorney’s Oce, at the request of the

Assistant U.S. Attorney.

e district court granted defendant’s motion to dismiss the indictment

in which the defendant argued that the government used deceit and trickery

to obtain incriminating evidence and statements in the civil proceeding for

the criminal proceeding, in violation of Due Process. e Ninth Circuit

reversed the district court decision. Central to the Ninth Circuit’s ruling were

that the SEC made no armative misrepresentations and advised defendants

of possible criminal referrals at the outset of the civil proceeding. e court

further recognized:

It is signicant to our analysis that the SEC began its civil

investigation rst and brought in the U.S. Attorney later. is

tends to negate any likelihood that the government began the

civil investigation in bad faith, as, for example, in order to

obtain evidence for a criminal prosecution.

Id. at 939.

e Eleventh Circuit reached the same conclusion on similar facts in

United States v. Moses, 219 Fed. Appx. 847 (11th Cir. 2007), in which a

defendant in a criminal securities fraud prosecution argued, unsuccessfully,

that the government engaged in prosecutorial misconduct when the SEC

deposed him in its civil proceeding shortly before the U.S. Attorney’s Oce

initiated its criminal case. As in Stringer, the Eleventh Circuit found that the

SEC had a legitimate purpose in pursuing its civil case, and the defendant was

advised of his Fifth Amendment rights prior to his deposition. Id. at 849-50. In

reaching its ruling, the court noted that “[i]t is well established that the federal

218 Prosecuting Intellectual Property Crimes

government may pursue civil and criminal actions either ‘simultaneously or

successively.’” Id. at 849.

Similarly, in United States v. Posada Carilles, 541 F.3d 344 (5th Cir. 2008),

the Fifth Circuit Court of Appeals reversed the district court’s dismissal of a

false statements indictment arising out of the defendant’s statements during a

naturalization interview. ere, the defendant, a high-prole Cuban dissident

who had been linked to a terrorist attack decades earlier, had illegally entered the

United States and applied for citizenship after he was detained. e immigration

ocer met with federal prosecutors when preparing for the naturalization

interview. At the beginning of the interview, the immigration ocer advised

the defendant of his Fifth Amendment rights, which the defendant invoked

at various times during the interview. Reversing the district court’s dismissal

of the indictment, the Fifth Circuit held that the immigration ocer did not

have an armative duty to warn the defendant of the possibility of criminal

prosecution, provided that she did not make any material misrepresentations.

e court concluded: “the mere failure of a government ocial to warn that an

investigation may result in criminal charges does not constitute fraud deceit,

or trickery.” Id. at 355. Also key to the court’s ruling were the facts that the

defendant, and not the government, initiated thecivil proceeding in which

he made the false statements while applying for citizenship; the defendant

was advised of his Fifth Amendment rights; and the U.S. Citizenship and

Immigration Services, like the SEC, is required by law to coordinate with

federal law enforcement.

It remains to be seen how a court would address similar types of interaction

between prosecutors and private parties who were pursuing a civil trade secret

action against the subjects of a criminal investigation. For example, it is uncertain

how a court would address a situation where the private litigant met with

prosecutors to prepare for depositions of subjects of the criminal investigation,

and asked subjects questions proposed by prosecutors. e Stringer, Posada

Carilles, and Moses cases suggest that a court would not nd a due process

violation or prosecutorial misconduct, provided that the civil litigation was for

a legitimate, independent purposes, and no material, misleading statements

were made regarding the possibility of criminal prosecution.

b. Strategic Considerations

Apart from the ethical considerations outlined above, the potential for

parallel proceedings raises other strategic considerations in EEA prosecutions.

IV. Theft of Commercial Trade Secrets 219

While evidence gathered by a trade secret owner in a civil action may assist in

developing a criminal case, there is also the potential such evidence may be

damaging to a criminal investigation. For example, defendants in civil trade

secret proceedings are entitled to liberal discovery, which they use to poke holes

in both the secrecy of the alleged trade secret information and in the security

measures employed by the victim. Defendants may pursue extensive third-party

discovery designed to show that the allegedly secret information is, in fact,

known to a variety of entities. Similarly, depositions of employees of the owner

of the alleged trade secret information could result in conicting testimony on

what they understand to be secret and not secret. Aggressive discovery could

also be employed in an attempt to harass employees of the victim company. In

such circumstances, the government may consider bringing a motion to stay

the parallel civil proceeding. See generally Federal Grand Jury Practice, §12.9

(discussing motions to stay in detail). Of course, doing so will require making

the pending criminal investigation known to its subjects.

3. Signicance of Electronic Evidence in Trade Secret

and Economic Espionage Act Cases

Electronic evidence has proven particularly signicant in recent trade secret

and economic espionage cases. Because there are unique challenges in gathering

evidence concerning a scheme to misappropriate trade secrets, and some of the

evidence may be in a foreign country, electronic evidence may open a window

on the unlawful conduct.

a. Examples of Electronic Evidence

Examples of electronic evidence in a trade secret case include:

• email or other communications on the victim company’s servers that

may demonstrate the misappropriation;

• email or other communications or records obtained during a border

search of a laptop either entering or leaving the country;

• records on storage media, such as a thumb drive, or portable hard drive

used to transfer or download trade secrets;

• email or other communication records among the targets or co-

conspirators planning the misappropriation or discussing venture

capital or business formation to use the trade secret;

• cell phone communications and records;

• records obtained after seizing computers or hard drives of targets under

investigation.

220 Prosecuting Intellectual Property Crimes

In addition to supporting trade secret or economic espionage charges,

electronic evidence may also illuminate other legal theories that may apply in

the case, such as wire or computer fraud.

b. Developing an Electronic Evidence Case Plan

Given the importance of electronic evidence, it is important to develop an

Electronic Evidence Case Plan at the inception of the case. As part of the plan,

consider what types of electronic evidence may be involved. Also, consider how

many places the evidence may be found. For example, an email may be located

on the sender and recipient’s computer or provider’s server.

In such circumstances, investigators and prosecutors should consider

issuing a request to preserve electronic evidence pending further legal process.

Title 18, United States Code, § 2703(f )(1) provides:

A provider of wire or electronic communication services or a

remote computing service, upon the request of a governmental

entity, shall take all necessary steps to preserve records and

other evidence in its possession pending the issuance of a court

order or other process.

Under Section 2703(f)(2), the provider must retain the records, pending

legal process, “for a period of 90 days, which shall be extended for an additional

90-day period upon a renewed request by the governmental entity.”

For more detailed information on preserving and obtaining electronic

evidence see CCIPS’s manual on Searching and Seizing Computers and Obtaining

Electronic Evidence in Criminal Investigations.

c. Case Example: United States v. Meng

e importance of an Electronic Evidence Case Plan was underscored in

United States v. Meng, No. CR 5:04-20216-JF (N.D. Cal. Aug. 29, 2007), a

case involving economic espionage charges under 18 U.S.C. § 1831, trade

secret misappropriation under 18 U.S.C. § 1832, violations of the Arms

Export Control Act under 22 U.S.C. § 2778, and other related charges. e

defendant was suspected of misappropriating trade secrets from a Silicon Valley

company and using them in the People’s Republic of China. During a three-

day visit to attend a conference in the United States, the defendant was arrested

based on preliminary evidence found during a border search of the defendant’s

laptop. Section 2703(f) preservation requests were made for all identied

IV. Theft of Commercial Trade Secrets 221

email accounts shortly after the arrest was made. After an initial indictment

was obtained, a search warrant for the known email accounts was issued about

thirty days after the arrest and after preservation requests were made.

After receiving the search warrant, one email provider advised that there

were about 980 emails in the account. e email provider noted that someone

using IP addresses in another country tried to delete approximately 966 emails,

during a time after the arrest was made in the case. See also Meng, No. CR 04-

20216-JF (N.D. Cal. Dec. 13, 2006) at ¶ 37 (Superseding Indictment alleging:

“It was further part of the conspiracy that defendant Xiaodong Sheldon Meng,

directed, and caused to be directed, another person unknown to the Grand Jury,

to delete approximately nine-hundred sixty-six (966) emails from Defendant

Xiaodong Sheldon Meng’s account at smeng~cn@yahoo.com.cn.”). Because a

preservation request had been made at the time of the arrest, the later attempt

to delete the emails was ineective and the government was able to obtain all

of the contents. Without the preservation request, important evidence used

to further the investigation and support the prosecution would not have been

available in the case. Ultimately, the defendant pled guilty to violating § 1831

of the Economic Espionage Act and also the Arms Export Control Act. See

United States v. Meng, No. CR 5:04-20216-JF (N.D. Cal. Aug. 29, 2007).

4. Extraterritoriality

Federal criminal laws are generally presumed not to apply to conduct

outside the United States or its territories unless Congress indicates otherwise.

See, e.g., United States v. Corey, 232 F.3d 1166, 1170 (9th Cir. 2000). Congress

made an exception for the EEA. e EEA expressly “applies to conduct outside

the United States if—(1) the oender is a citizen or permanent resident alien

of the United States, or an organization organized under the laws of the United

States or a State or political subdivision thereof; or (2) an act in furtherance of

the oense was committed in the United States.” 18 U.S.C.§1837.

5. Department of Justice Oversight

Before Congress passed the EEA, the Attorney General promised that all

EEA prosecutions under both §§ 1831 and 1832 would be approved by the

Attorney General, the Deputy Attorney General, or the Assistant Attorney

General of the Criminal Division during the rst ve years of the from the date

the statute was enacted. is requirement was codied at 28 C.F.R.§0.64-5

and applied to the ling of complaints, indictments, and civil proceedings, but

not to search warrant applications or other investigative measures.

222 Prosecuting Intellectual Property Crimes

After the ve-year period elapsed, the approval process was modied.

Federal prosecutors may now prosecute 18 U.S.C. § 1832 oenses without

prior approval; however, the Attorney General strongly urges consultation with

the Computer Crime and Intellectual Property Section (CCIPS) before ling

§1832 charges because of CCIPS’s experience in handling these complex cases

and its access to valuable information and resources. CCIPS can be reached at

(202) 514-1026. CCIPS regularly provides assistance on EEA cases including

(1) indictment review; (2) suggestions on proving an intent to benet a foreign

government (a key oense element) under 18 U.S.C. §§ 1831, 1839(1), (2);

(3) addressing proof issues in establishing a “trade secret” under 18 U.S.C.

§§ 1832, 1839(3); (4) early issue spotting and investigative steps to consider;

(5) identifying case strategies and suggesting alternative charging theories; (6)

advising on strategies to develop an Electronic Evidence Case Plan to obtain

electronic evidence; (7) providing sample pleadings, protective orders, and

other documents; and (8) trial and proof issues.

In contrast, the Attorney General renewed the prior approval requirement

for initiating prosecutions under 18 U.S.C. § 1831. Approval must be

obtained from the Assistant Attorney General for the National Security

Division, through the Counterespionage Section. USAM9-2.400, 9-59.000.

e Counterespionage Section can be reached at (202) 233-0986.

F. Penalties

1. Statutory Penalties

a. Imprisonment and Fines

Reecting the more serious nature of economic espionage sponsored by a

foreign government, the maximum sentence for a defendant convicted under

18 U.S.C.§1831 is 15 years’ imprisonment and a ne of $5 million, whereas

the maximum sentence for a defendant convicted under 18 U.S.C.§1832 is

10 years’ imprisonment and a ne of $250,000 or twice the monetary gain or

loss, or both. See 18 U.S.C.§§1831(a), 1832(a). Similarly, organizations can

be ned up to $10 million for violating §1831 or $5 million for violating

§1832. 18 U.S.C. §§1831(b), 1832(b).

IV. Theft of Commercial Trade Secrets 223

b. Criminal Forfeiture

e EEA provides for both civil and criminal forfeiture. In October

2008, Congress harmonized the criminal forfeiture provisions for all criminal

intellectual property violations, including violations of the EEA, in the

Prioritizing Resources and Organization for Intellectual Property (PRO-IP)

Act of 2008. e relevant provision is 18 U.S.C. §2323. Section 1834 of the

EEA, which formerly governed criminal forfeiture for violations of the EEA

now simply references 18 U.S.C. §2323.

e following property is subject to both criminal and civil forfeiture in a

case brought under the EEA:

(A) Any article, the making or tracking of which, is prohibited

under ... [the EEA].

(B) Any property used, or intended to be used, in any manner

or part to commit or facilitate the commission of [a violation

of the EEA].

obtained directly or indirectly as a result of the commission of

[a violation of the EEA].

18 U.S.C. §2323(a)(1), (b)(1).

As a procedural matter, the government should allege forfeiture in the

indictment. For additional discussion of forfeiture in intellectual property

cases, see Chapter VIII of this Manual.

c. Restitution

e PRO-IP Act of 2008 referenced above also harmonized federal criminal

law regarding restitution in intellectual property oenses in a single section of

the criminal code, 18 U.S.C. § 2323(c). at section now expressly provides

that the court shall order a person who has been convicted of an EEA oense,

among other criminal intellectual property laws, “to pay restitution to any

victim of the oense as an oense against property referred to in 18 U.S.C. §

3663A(c)(1)(A)(ii).”

e Mandatory Victims Restitution Act of 1996 (“MVRA”), codied at

18 U.S.C.§3663A, requires the court to order restitution in all convictions

for, among others, any “oense against property … including any oense

224 Prosecuting Intellectual Property Crimes

committed by fraud and deceit,” and “in which an identiable victim or victims

has suered a physical injury or pecuniary loss.” See 18 U.S.C.§3663A(c)(1)

(A)(ii), (B). For cases involving “damage to or loss or destruction of property

of a victim of the oense,” the MVRA requires that the defendant return the

property to its owner. If return of the property is “impossible, impracticable,

or inadequate,” the MVRA requires the defendant to pay an amount equal to

the property’s value on the date of its damage, destruction, or loss, or its value

at the time of sentencing, whichever is greater, less the value of any part of the

property that is returned. See 18 U.S.C.§3663A(b)(1).

As noted, the mandatory restitution statute also applies to any oense where

“anidentiable victim or victims has suered a physical injury or a pecuniary

loss.” 18 U.S.C. § 3663A(c)(1)(B). Restitution must be ordered “to each

victim in the full amount of each victim’s losses as determined by the court and

without consideration of the economic circumstances of the defendant.” 18

U.S.C.§3664(f)(1)(A). us, to the extent a court has already calculated the

loss or injury actually suered by a victim of trade secret theft in determining

the oense level under U.S.S.G. § 2B1.1, the same amount could be used

for restitution under the MVRA. For additional discussion of restitution in

criminal intellectual property cases, see Chapter VIII of this Manual.

2. Sentencing Guidelines

Issues concerning the Sentencing Guidelines are covered in Chapter VIII

of this Manual.

G. Other Charges to Consider

When confronted with a case that implicates condential proprietary

information, prosecutors may wish to consider other crimes in addition to or

in lieu of EEA charges. Section 1838 of the statute contemplates that other

appropriate remedies may be considered, as the statute does not “preempt or

displace any other remedies, whether civil or criminal, provided by United

States Federal, State, commonwealth, possession, or territory law for the

misappropriation of a trade secret.” Other charges that may be appropriate,

depending on the fact of the case, may include:

• Disclosing government trade secrets, 18 U.S.C. § 1905, which

punishes government employees and contractors who, inter alia,

“divulge” or “disclose” trade secrets or certain other information to

IV. Theft of Commercial Trade Secrets 225

the extent not authorized by law. United States v. Wallington, 889 F.2d

573 (5th Cir. 1989) (arming defendant’s conviction for running

background checks on several people whom the defendant’s friend

suspected of dealing drugs). Defendants face a ne, a year in prison,

and removal from oce or employment.Congress claried that

Customs and Border Protection (CBP) may disclose to rights-holders

information on suspected counterfeit products to determine if the

product is prohibited from importation. See §818(g) of the National

Defense Authorization Act for FY2012 (NDAA), H.R.1540, Pub. L.

No. 112-81, 125 Stat. 1298 (Dec. 31, 2011) (also noting that this

provision will expire on the date the Customs Facilitation and Trade

Enforcement Reauthorization Act of 2012 is enacted).

• Unlawfullyaccessingorattemptingtoaccessaprotectedcomputer

toobtaininformation, 18U.S.C.§1030(a)(2),(b), for access to a

computer used for interstate or foreign commerce or by or for a nancial

institution or the United States government, 18 U.S.C.§1030(e)(2).

e term “information” is to be construed broadly and need not be

condential or secret in nature. S. Rep. No. 104-357, at 7 (1996).

“‘[O]btaining information’ includes merely reading it. ere is no

requirement that the information be copied or transported.” Id. A

violation is a misdemeanor unless it was committed for commercial

advantage or private nancial gain, to further any tortious or criminal

act, or if the information’s value exceeds $5,000. See 18 U.S.C.§1030(c)

(2).

For oenses on or after September 26, 2008, § 1030(a)(2)(C) was

amended (1) to remove the requirement that “the conduct involved an

interstate or foreign communication” and (2) to broaden the denition

of “protected computer” to include those used in or aecting interstate

or foreign commerce or communication. See Former Vice President

Protection Act, Pub. L. No. 110-326, 122 Stat. 3560 (2008).

Note: ere presently is a split in the circuits in construing the terms

“exceed[ing] authorized access” to information under the Computer

Fraud and Abuse Act. Depending on the facts of the case, CCIPS can

provide current guidance on this issue.

• Unlawfullyaccessingorattemptingtoaccessaprotectedcomputer

tocommitfraud, 18U.S.C.§1030(a)(4),(b), where the defendant

“knowingly and with intent to defraud,” accessed or attempted to access

226 Prosecuting Intellectual Property Crimes

a protected computer without authorization, or in excess of authorized

access, and by means of such conduct furthered the intended fraud

and obtained anything of value, “unless the object of the fraud and

the thing obtained” was computer time worth less than $5,000. What

constitutes “fraud” under § 1030(a)(4) is dened broadly. See 132

Cong. Rec. 7,189 (1986) (“e acts of ‘fraud’ that we are addressing

in proposed section 1030(a)(4) are essentially thefts in which someone

uses a [protected computer] to wrongly obtain something of value from

another”); see also Shurgard Storage Centers, Inc., v. Safeguard Self Storage,

Inc. 119 F. Supp. 2d 1121, 1126 (W.D. Wash. 2000) (holding that the

word “fraud” as used in §1030(a)(4) simply means “wrongdoing” and

does not require proof of the common-law elements of fraud). EEA

charges, which generally involve some level of deception and knowing

wrongdoing, will often qualify as fraud. Harming a victim’s “goodwill

and reputation” provides a defendant with something of “value.” See,

e.g., In re America Online, Inc., 168 F. Supp. 2d 1359, 1380 (S.D. Fla.

2001).

For more information on oenses involving 18 U.S.C. § 1030 generally,

see CCIPS’s manual Prosecuting Computer Crimes.

• Mailorwirefraud, 18U.S.C.§§1341,1343,1346, for schemes that

use the mail or wires to defraud another of property or condential and

proprietary information. See, e.g., United States v. Martin, 228 F.3d 1,

16-19 (1st Cir. 2000) (arming mail and wire fraud convictions for

schemes to obtain condential business information); Howley, 2013

WL 399345, at *5 (arming wire fraud convictions for taking and

emailing photographs containing condential proprietary information

after promising to not take photographs in non-disclosure agreement).

A scheme to defraud another of property includes intangible property,

such as condential, nonpublic, prepublication, and proprietary

information. Carpenter v. United States, 484 U.S. 19 (1987) (holding

that nancial journalist’s trading on information gathered for his

newspaper column defrauded the newspaper of its right to the

exclusive use of the information); United States v. Wang, 898 F. Supp.

758, 760 (D. Colo. 1995) (holding that 18 U.S.C. §1343 applies not

just to physical goods, wares, or merchandise, but also to condential

computer les transmitted by wire); United States v. Seidlitz, 589 F.2d

152 (4th Cir. 1978) (holding that data the defendant downloaded from

IV. Theft of Commercial Trade Secrets 227

his former employer’s computer system qualied as property under the

wire fraud statute and a trade secret).

Mail and wire fraud convictions stemming from the theft of trade

secrets have been upheld even when charges under the National

Transportation of Stolen Property Act (hereinafter “NTSP act”) were

not applicable based on the facts of the case, 18 U.S.C. §§2314-15,

see infra, were rejected. See, e.g., Abbott v. United States, 239 F.2d 310

(5th Cir. 1956) (arming §1341 conviction, but nding insucient

evidence to sustain conviction under 18 U.S.C. § 2314 because

government failed to prove market value of map or how or who caused

the map to be transported). e mail and wire fraud statute’s broader

scope results from its concern for the theft of “property” generally, as

compared to the NTSP Act’s focus on the arguably narrower class of

“goods, wares and merchandise” used in§§2314 and 2315. See, e.g.,

Wang, 898 F. Supp. at 760 (holding that 18 U.S.C. §1343 applies to

items other than physical goods, wares, and merchandise).

Note: In 2010, in a series of cases, Skilling v. United States, 130 S.

Ct. 2896 (2010); Black v. United States, 130 S.Ct. 2963 (2010); and

Weyhrauch v. United States, 130 S. Ct. 2971 (2010), the Supreme Court

held that the honest services fraud statute, 18 U.S.C. § 1346, applies

only to bribery and kickback schemes. For a more detailed discussion

of 18 U.S.C.§§1341 and 1343, refer to USAM 9-43, and contact the

Fraud Section of the Criminal Division at (202) 514-7023 for further

information and guidance.

• Criminalcopyrightinfringement, 17U.S.C.§506and18U.S.C.

§ 2319, when the defendant stole and reproduced or distributed

copyrighted information. e Copyright Act does not preempt trade

secret or related charges if the defendant stole condential copyrighted

material. See Wang, 898 F. Supp. at 760-61 (holding that Copyright

Act did not preempt wire fraud prosecution for stealing condential

copyrighted material); Association of Am. Med. Colls. v. Princeton

Review, Inc., 332 F. Supp. 2d 11, 22-24 (D.D.C. 2004) (analyzing

issue and collecting cases).

• Interstatetransportationandreceiptofstolenpropertyorgoods,

the National Transportation of Stolen Property Act (hereinafter “NTSP

Act”), which punishes “[w]hoever transports, transmits, or transfers

in interstate or foreign commerce any goods, wares, merchandise,

228 Prosecuting Intellectual Property Crimes

securities or money, of the value of $5,000 or more, knowing the same

to have been stolen, converted or taken by fraud,” 18 U.S.C. §2314,

and “[w]hoever receives, possesses, conceals, stores, barters, sells, or

disposes” stolen property that has crossed a state or federal boundary

after being stolen, 18 U.S.C.§2315.

Assuming that particular stolen items qualify as goods, wares, or

merchandise, the courts agree that §§ 2314 and 2315 apply when a

defendant steals a tangible object — for example, a piece of paper or a

computer disk — that contains intellectual property. See, e.g., United

States v. Martin, 228 F.3d 1, 14-15 (1st Cir. 2000); United States v.

Walter, 43 M.J. 879, 884 (N.M. Ct. Crim. App. 1996) (“[C]ourts

will include intangible property under the [NTSP] act when tied to

tangible property and when the intangible property possesses some

business value.”); United States v. Brown, 925 F.2d 1301, 1308 n.14

(10th Cir. 1991) (holding that even though §2314 does not apply to

theft of intangible property through intangible means, §2314 would

apply to the theft of a piece of paper bearing a chemical formula, even if

the paper’s intrinsic value were insignicant and the item’s overall value

was almost wholly derived from the intangible intellectual property

contained in the chemical formula) (citing United States v. Stegora,

849 F.2d 291, 292 (8th Cir. 1988)) (dictum); United States v. Lyons,

992 F.2d 1029, 1033 (10th Cir. 1993) (holding that the defendant’s

theft of “software in conjunction with the theft of tangible hardware

distinguishes this case from Brown. Brown recognizes that the theft

of intangible intellectual property in conjunction with the theft of

tangible property falls within the ambit of§2314.”); United States v.

Lester, 282 F.2d 750 (3d Cir. 1960) (holding that originals and copies

of geophysical maps made by defendants on the victim’s own copying

equipment, with the victim’s own supplies, are covered under§2314);

United States v. Seagraves, 265 F.2d 876 (3d Cir. 1959) (facts similar

to Lester); United States v. Greenwald, 479 F.2d 320 (6th Cir. 1973)

(original documents containing trade secrets about re retardation

processes); cf. Hancock v. Decker, 379 F.2d 552, 553 (5th Cir. 1967)

(holding that state conviction for theft of 59 copies of a computer

program was supported by similar federal court rulings under§2314)

(citing Seagraves, 265 F.2d at 876).

IV. Theft of Commercial Trade Secrets 229

Courts are divided, however, on whether the NTSP Act applies to a

defendant who transfers intangible property through intangible means,

such as electronic data transmission or copying from one piece of paper

to another. One view is that it does not. In Brown, the defendant was

charged with transporting (by means unknown) the source code of a

computer program from Georgia to New Mexico, but the government

could not prove that the defendant had copied the source code onto

the victim’s diskettes or that he possessed any of the victim’s tangible

property. Brown, 925 F.2d at 1305-09. e Tenth Circuit held that 18

U.S.C.§2314 did not cover “[p]urely intellectual property,” such as

the source code appropriated by the defendant: “It can be represented

physically, such as through writing on a page, but the underlying,

intellectual property itself, remains intangible” and thus “cannot

constitute goods, wares, merchandise, securities or moneys which have

been stolen, converted or taken within the meaning of §§ 2314 or

2315.” Id. at 1307-08. In reaching its decision, the court relied on

Dowling v. United States, 473 U.S. 207 (1985), which held that property

that is “stolen” only in the sense that it is copyright infringing does not

fall under the NTSP Act. However, the Brown court recognized that

§2314 may apply where the item is tangible: “for § 2314 to apply there

must be some tangible item taken, however insignicant or valueless it

may be, absent the intangible component.” Brown, 925 F.2d at 1307-

08 n.14. e Tenth Circuit has noted this distinction in other cases.

See, e.g., United States v. Lyons, 992 F.2d 1029, 1033 (10th Cir. 1993)

(in a conviction for transporting stolen computer hardware, the value

of the stolen computer software could be considered for sentencing

notwithstanding Brown; “e fact that Mr. Lyons stole the software in

conjunction with the theft of tangible hardware distinguishes this case

from Brown.”), petition for reh’g denied, 997 F.2d 826 (10th Cir. 1993).

More recently, the Second Circuit reversed a conviction based on the

transmission of stolen source code because “the theft and subsequent

interstate transmission of purely intangible property is beyond the scope

of” § 2314. United States v. Aleynikov, 676 F.3d 71, 77 (2d Cir. 2012).

See also Section F. of Chapter II (discussing application of Dowling to

charging 18 U.S.C.§2314 for intellectual property crimes).

Other cases have approved of NTSP Act prosecutions for theft of

intangible property including by intangible means. See, e.g., United

230 Prosecuting Intellectual Property Crimes

States v. Alavi, No. CR07–429–PHX–NVW, 2008 WL 1971391 (D.

Ariz. May 2, 2008) (denying motion to dismiss § 2314 count based on

the claim that computer software is not “goods, wares, merchandise,

securities or money”; distinguishing application of Dowling); United

States v. Riggs, 739 F. Supp. 414, 420-21 (N.D. Ill. 1990) (Rejecting

defendant’s “disingenuous argument that he merely transferred

electronic impulses [albeit impulses containing computerized text les

belonging to Bell South] across state lines.… is court sees no reason

to hold dierently simply because [defendant] stored the information

inside computers instead of printing it out on paper. In either case, the

information is in a transferrable, accessible, even salable form.”)

• ArmsExportControlAct,22U.S.C.§§2778,andtheInternational

TracinArmsRegulations(ITAR),22C.F.R.§§120-130, which

prohibits the export or import of U.S. Munitions List items without

obtaining a license from the Secretary of State. See, e.g., United States

v. Reyes, 270 F.3d 1158, 1169 (7th Cir. 2001) (“Conviction on this

count required that the government prove beyond a reasonable doubt

that Reyes willfully exported or attempted to export an item on the

United States Munitions List without having rst obtained a license.”).

“Defense article” includes items or technical data designated on the

United States Munitions List, and “technical data recorded or stored

in any physical form, models, mockups, or other items that reveal

technical data directly relating to items designated [in the Munitions

List].” 22 C.F.R. § 120.6. Under USAM 9-90.620 Arms Export

Control Act—22 U.S.C. § 2778, “[u]nless the unlicensed shipment

has no relevance to the foreign relations of the United States (e.g.,

smuggling small quantities of weapons), prosecution of violations of

the Arms Export Control Act should not be undertaken without prior

approval of the National Security Division. In United States v. Meng,

No. CR 04-20216-JF (N.D. Cal. Aug. 29, 2007) the defendant was

convicted under both the Arms Export Control Act and § 1831 of the

Economic Espionage Act.

• False Statement, under 18 U.S.C. § 1001, may apply where the

defendant makes a material false statement to an agent during the

investigation. A statement is material under § 1001 if it has a “natural

tendency to inuence, or [be] capable of inuencing, the decision of

the decisionmaking body to which it was addressed.” United States v.

IV. Theft of Commercial Trade Secrets 231

Gaudin, 515 U.S. 506, 509 (1995). See generally Chung, 659 F.3d at

830 (in EEA prosecution, nding sucient evidence at trial to support

false statement conviction based on the defendant’s false statement that

“his boss ... had given him permission to take work documents home”).

• Stateandlocalcharges. Many states have laws that specically address

the theft of information. See, e.g., Uniform Trade Secrets Act. If a state

lacks a specic trade-secret law, its general theft statutes may apply.

Section 1838 of the EEA contains a non-preemption provision which

expressly recognizes that other federal and state remedies may apply

“for the misappropriation of a trade secret.”

232 Prosecuting Intellectual Property Crimes

233

Digital Millennium

17 U.S.C.§§1201-1205

A. Introduction

1. DMCA’s Background and Purpose

With the advent of digital media and the Internet as a means to distribute

such media, large-scale digital copying and distribution of copyrighted material

became easy and inexpensive. In response to this development, and to prevent

large-scale piracy of digital content over the Internet, in 1997 the World

Intellectual Property Organization (WIPO) responded with two treaties, the

pirates from defeating the digital locks that copyright owners use to protect

their digital content from unauthorized access or copying. Specically, Article

11 of the WIPO Copyright Treaty prescribes that contracting states

shall provide adequate legal protection and eective legal

remedies against the circumvention of eective technological

measures that are used by authors in connection with the exercise

of their rights under this Treaty or the Berne Convention and

that restricts acts, in respect of their works, which are not

authorized by the authors concerned or permitted by law.

See WIPO Copyright Treaty, Apr. 12, 1997, S. Treaty Doc. No. 105-17, art. 11

(1997); WIPO Performances and Phonograms Treaty, Apr. 12, 1997, S. Treaty

Doc. No. 105-17, art. 18 (1997) (same with respect to performers or producers

of phonograms). e United States signed these treaties on April 12, 1997,

and ratied them on October 21, 1998. See 144 Cong. Rec. 27,708 (1998)

(Resolution of Ratication of Treaties).

To implement these treaties, Congress enacted Title I of the Digital

Millennium Copyright Act (DMCA) on October 28, 1998, with the twin

234 Prosecuting Intellectual Property Crimes

goals of protecting copyrighted works from piracy and promoting electronic

commerce. See H.R. Rep. No. 105-551 (II), at 23 (1998); S. Rep. No. 105-

190, at 8 (1998); see also Universal City Studios, Inc. v. Corley, 273 F.3d 429,

440 (2d Cir. 2001); United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1129-30

(N.D. Cal. 2002). Congress accomplished these goals by enacting prohibitions

relating to the circumvention of copyright protection systems as set forth in

17 U.S.C. §1201, and the integrity of copyright management information

pursuant to 17 U.S.C. §1202. Cf. Microsoft Corp. v. AT&T Corp., 550 U.S.

437, 440 (2007) (“Congress is doubtless aware of the ease with which electronic

media such as software can be copied, and has not left the matter untouched.”)

(citing enactment of DMCA).

Criminal enforcement has largely focused on violations of the anti-

circumvention and anti-tracking prohibitions in 17 U.S.C. §1201, and thus

these are the main focus of this chapter. For a more complete discussion of the

provisions that protect the integrity of copyright management information, as

set forth in 17 U.S.C. §1202, see Section B.5. of this Chapter.

2. Key Concepts: Access Controls vs. Copy Controls,

Circumvention vs. Tracking

Section 1201 contains three prohibitions. First, it prohibits “circumvent[ing]

a technological measure that eectively controls access to a work protected

under this [copyright] title.” 17 U.S.C. §1201(a)(1)(A). Second, it prohibits

the manufacture of or tracking in products or technology designed to

circumvent a technological measure that controls access to a copyrighted work.

17 U.S.C. §1201(a)(2). ird, it prohibits the manufacture of or tracking

in products or technology designed to circumvent measures that protect a

noted more fully in Section C. of this Chapter, the DMCA provides several

exceptions.

Title I of the DMCA creates a separate private right of action on behalf

of “[a]ny person injured by a violation of section 1201 or 1202” in federal

district court. 17 U.S.C. § 1203(a). ese prohibitions are criminally

enforceable against any person who violates them “willfully and for purposes of

commercial advantage or private nancial gain,” excluding nonprot libraries,

archives, educational institutions, and public broadcasting entities as dened

by 17 U.S.C. §118(f). 17 U.S.C. §1204(a), (b). Although civil actions do not

require the claimant to establish that a DMCA violation was “willful” or for

V. Digital Milllenium Copyright Act 235

“commercial advantage or private nancial gain,” the substantive law dening

violations of §§ 1201 or 1202 is generally the same for both criminal and

civil actions. us, published decisions relating to whether a violation of these

DMCA sections has occurred in civil cases are instructive in criminal cases.

a. Access Controls vs. Copy/Use Controls

To understand the technical requirements of the DMCA’s criminal

prohibitions, it is rst important to understand what technology the DMCA

generally applies to, and what the DMCA outlaws. Congress intended Title I

of the DMCA to apply to copyrighted works that are in digital format and thus

could easily and inexpensively be accessed, reproduced, and distributed over the

Internet without the copyright owner’s authorization. e DMCA therefore

applies to what one might call a “digital lock”—a technological measure that

stored in digital form. ese digital locks are commonly called either “access

controls” or “copy controls,” depending on what function the digital lock is

designed to control.

e DMCA states that a digital lock, or “technological measure” (as the

DMCA refers to such locks), constitutes an access control “if the measure, in

the ordinary course of its operation, requires the application of information,

or a process or a treatment, with the authority of the copyright owner, to gain

access to the work.” 17 U.S.C. §1201(a)(3)(B). us, as the name suggests,

an access control prevents users from accessing a copyrighted work without

the author’s permission. For example, a technology that permits access to a

newspaper article on an Internet website only by those who pay a fee or have a

password would be considered an access control. See S. Rep. No. 105-190, at

11-12 (1998); e.g., CoxCom, Inc. v. Chaee, 536 F.3d 101, 110 (1st Cir. 2008)

(holding that cable company’s pay-per-view billing and delivery system that

scrambles pay-per-view programming unless subscribers choose to purchase

and view it constitutes an access control). In this example, the author (i.e.,

that allow the author to distinguish between those who have the author’s

permission to read the online article from those who do not. If a user does not

pay the fee or enter the password, then the user cannot lawfully read the article

or otherwise access it.

e DMCA also prescribes that a digital lock constitutes a copy control

“if the measure, in the ordinary course of its operation, prevents, restricts, or

236 Prosecuting Intellectual Property Crimes

otherwise limits the exercise of a right of a copyright owner under this title.”

17 U.S.C. § 1201(b)(2)(B). e rights of a copyright owner include the

exclusive rights to reproduce the copyrighted work, to prepare derivative works

based upon the copyrighted work, to distribute copies by sale or otherwise, to

perform the copyrighted work publicly, and to display the copyrighted work

publicly. 17 U.S.C. §106. In other words, such a digital lock prevents someone

from making an infringing use of a copyrighted work after the user has already

accessed the work. See S. Rep. No. 105-190, at 11-12 (1998); Universal City

Studios, Inc. v. Corley, 273 F.3d 429, 441 (2d Cir. 2001). Although some

courts will refer to such digital locks as “usage controls” because such locks

conceivably seek to control all infringing uses, in practice, these digital locks

typically control unauthorized copying of the work—hence the name “copy

control.”

To illustrate an example of a copy control, consider again the online

newspaper article referenced above. A technological measure on an Internet

website that permits a user to read (i.e., access) the online article but prevents

the viewer from making a copy of the article once it is accessed would be a

copy control. See S. Rep. No. 105-190, at 11-12 (1998). us, access and copy

controls are dierent kinds of digital locks that are each designed to perform

dierent functions. Whereas an access control blocks access to the copyrighted

work—such as a device that permits access to an article on an Internet website

only by those who pay a fee or have a password—a copy control protects the

from copying the article once it is accessed.

Although the DMCA’s distinction between an “access control” and a “copy

control” appears straightforward in principle, courts are not always consistent

in how they characterize a particular protection technology. For example, in the

1990s, the DVD industry developed the Content Scramble System (CSS)—

an encryption scheme incorporated into DVDs that employs an algorithm

congured by a set of “keys” to encrypt a DVD’s contents. For a DVD player

to display a movie on a DVD encoded with CSS, the DVD player must have

the “player keys” and the algorithm from the copyright owner. e Second

Circuit characterized this CSS technology as an “access control” because a

DVD player with the proper player keys and algorithm from the copyright

owner “can display the movie on a television or a computer screen, but does

not give a viewer the ability to use the copy function of the computer to copy

the movie or to manipulate the digital content.” Corley, 273 F.3d at 437. More

V. Digital Milllenium Copyright Act 237

than one decision out of the Northern District of California, however, viewed

the same technology as both an access control and a copy control. Apple, Inc. v.

Psystar Corp., 673 F. Supp. 2d 931, 941 (N.D. Cal. 2009), a’d in relevant part,

658 F.3d 1150 (9th Cir. 2011) (“Although Apple’s technological measure may

have been primarily aimed at controlling access, it also eectively protected

its right to copy.”); 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F.

Supp. 2d 1085, 1095 (N.D. Cal. 2004). Accordingly, prosecutors should be

careful how they characterize technological controls as access or copy controls,

and in some instances it may even be advisable for prosecutors to characterize

a particular copyright protection system as both.

b. Circumvention vs. Tracking in CircumventionTools

Section 1201(a) of the DMCA proscribes two kinds of conduct regarding

access controls: 1)circumvention of access controls, 17 U.S.C. §1201(a)(1),

and 2) tracking in technology primarily designed to facilitate circumvention

of access controls, 17 U.S.C. §1201(a)(2). Both of these prohibitions relating

to access controls are discussed more fully in Sections B.1. and B.2. of this

Chapter.

Unlike §1201(a), however, Congress did not ban the act of circumventing

copy controls. Instead, § 1201(b) only prohibits tracking in technology

primarily designed to facilitate the circumvention of copy controls. 17 U.S.C.

§1201(b)(1). Congress expressly chose not to prohibit the circumvention of

copy controls in the DMCA because circumventing a copy control is essentially

an act of copyright infringement that is already covered by copyright law. S.

Rep. No. 105-190, at 12 (1998).

us, § 1201(a)(1) (the “anti-circumvention provision”) prohibits the

actual use of circumvention technology to obtain access to a copyrighted

work without the copyright owner’s authority. “One of Congress’ purposes

behind enacting the DMCA was targeting the circumvention of technological

protections.” MGE UPS Sys., Inc. v. GE Consumer and Indus., Inc., 622 F.3d

361, 365 (5th Cir. 2010). In contrast, §1201(a)(2) and 1201(b)(1) (the “anti-

tracking provisions”) focus on the tracking in circumvention technology,

regardless of whether such technology ultimately leads a third party to

circumvent an access or copy control. See Davidson & Assocs. v. Jung, 422 F.3d

630, 640 (8th Cir. 2005); Corley, 273 F.3d at 440-41. And with respect to

the anti-tracking provisions, “although both sections prohibit tracking in

a circumvention technology, the focus of § 1201(a)(2) is circumvention of

238 Prosecuting Intellectual Property Crimes

technologies designed to prevent access to a work, and the focus of §1201(b)(1)

is circumvention of technologies designed to permit access to a work but prevent

copying of the work or some other act that infringes a copyright.” Davidson,

422 F.3d at 640 (emphasis in original); Ticketmaster L.L.C. v. RMG Techs., 507

F. Supp. 2d 1096, 1112 (C.D. Cal. 2007) (“Sections 1201(a)(2) and 1201(b)

(1) dier only in that 1201(a)(2), by its terms, makes it wrongful to trac in

devices that circumvent technological measures that control access to protected

works, while 1201(b)(1) makes it wrongful to trac in devices that circumvent

technological measures that protect rights of a copyright owner in a work.”)

(emphasis in original); Craigslist, Inc. v. Naturemarket, Inc., 694 F. Supp. 2d

1039, 1056 (N.D. Cal. 2010) (same).

e following chart illustrates the distinction:

Access Copy

Circumventing § 1201(a)(1) No DMCA violation, but potential

18U.S.C.§2319

Tracking § 1201(a)(2) § 1201(b)(1)

3. Dierences Between the DMCA and Traditional CopyrightLaw

Whereas copyright law focuses on “direct” infringement of a copyrighted

work, the DMCA focuses largely on the facilitation of infringement through

circumvention tools and services primarily designed or produced to circumvent

an access or copy control. In other words, the DMCA represents a shift in

focus from infringement to the tools of infringers.

Before the DMCA was enacted, copyright law had only a limited

application to the manufacture or tracking of tools designed to facilitate

of copying equipment, like the sale of other articles of commerce, does

not constitute contributory infringement if the product is widely used for

legitimate, unobjectionable purposes. Indeed, it need merely be capable of

substantial noninfringing uses.” Sony v. Universal City Studios, 464 U.S. 417,

442 (1984). Under this standard, a copy control circumvention tool would not

violate copyright law if it were “widely used for legitimate... purposes” or were

merely “capable of substantial noninfringing uses.” Id.

e DMCA shifts the focus from determining whether the downstream

use of equipment will be used for infringement, to determining whether it

V. Digital Milllenium Copyright Act 239

was primarily designed to circumvent an access or copy control—even if such

equipment were ultimately capable of substantial noninfringing uses. See 17

U.S.C. § 1201(a)(2)(A), (b)(1)(A). For example, with respect to software

primarily designed to circumvent copy controls on DVDs, courts have held

“that legal downstream use of the copyrighted material by customers is not a

defense to the software manufacturer’s violation of the provisions of §1201(b)

(1).” 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085,

1097-98 (N.D. Cal. 2004); see also Realnetworks, Inc. v. DVD Copy Control

Ass’n, 641 F. Supp. 2d 913, 943-44 (N.D. Cal. 2009) (“[T]he fair use of the

copyrighted material by end users is not a defense to, and plays no role in

determining, liability under the DMCA.”). us, although tracking in

circumvention technology that is capable of substantial noninfringing uses may

not constitute copyright infringement, it may still violate the DMCA if such

technology is primarily designed to circumvent access or copy controls. See

RealNetworks, Inc. v. Streambox, Inc., No. 2:99CV02070, 2000 WL 127311,

at *7 (W.D. Wash. Jan. 18, 2000).

e DMCA also added a new prohibition against circumventing access

controls, even if such circumvention does not constitute copyright infringement.

17 U.S.C. §1201(a)(1)(A). Prior to the DMCA, “the conduct of circumvention

[of access controls] was never before made unlawful.” S. Rep. No. 105-190, at

12 (1998); cf. Chamberlain Group, Inc. v. Skylink Techs., Inc., 381 F.3d 1178,

1195-96 (Fed. Cir. 2004). By the same token, the DMCA does not contain a

parallel prohibition against the use—infringing or otherwise—of copyrighted

works once a user has access to the work. United States v. Elcom Ltd., 203

F. Supp. 2d 1111, 1121 (N.D. Cal. 2002) (holding that “circumventing use

restrictions is not unlawful” under the DMCA); cf. S. Rep. No. 105-190, at 12

(1998) (“e copyright law has long forbidden copyright infringements, so no

new prohibition was necessary.”). e terms “bypass” or “avoid” in the statute

do not “encompass use of a copyrighted work subsequent to a circumvention

merely because that use would have been subject to a technological measure

that would have controlled access to the work, but for that circumvention.”

MGE UPS Sys., Inc. v. GE Consumer and Indus., Inc., 622 F.3d 361, 366 (5th

Cir. 2010).

Although the DMCA “targets the circumvention of digital walls guarding

copyrighted material (and tracking in circumvention tools), [it] does not

concern itself with the use of those materials after circumvention has occurred.”

Universal City Studios, Inc. v. Corley, 273 F.3d 429, 443 (2d Cir. 2001); MGE

240 Prosecuting Intellectual Property Crimes

UPS Sys., 622 F.3d at 366 (same); cf. 321 Studios, 307 F. Supp. 2d at 1097

(holding that “the downstream uses of the [circumvention] software by the

customers of 321 [the manufacturer], whether legal or illegal, are not relevant

to determining whether 321 itself is violating [the DMCA]”). At the same

time, the DMCA also cautions that “[n]othing in this section shall aect rights,

remedies, limitations, or defenses to copyright infringement, including fair

use, under this title.” 17 U.S.C. §1201(c)(1); Elcom, 203 F. Supp. 2d at 1120

(“Congress did not ban the act of circumventing the use restrictions ... because

it sought to preserve the fair use rights of persons who had lawfully acquired

a work”); MGE UPS Sys., 622 F.3d at 366 (applying the DMCA to the “use

of a copyrighted work subsequent to a circumvention ... would extend the

DMCA beyond its intended purposes to reach extensive conduct already well-

regulated by existing copyright laws”); United States v. Crippen, No. 09-703,

2010 WL 7198205, at *2 (C.D. Cal. Nov. 23, 2010) (“e plain meaning of

§1201(c) is clear; the law of copyright infringement (and fair use) is not altered

by Congress’ decision to create liability for the separate act of circumvention

in violation of § 1201(a).”). us, a criminal defendant who has violated the

DMCA by circumventing an access control has not necessarily infringed a

copyrighted work under copyright law. Accordingly, prosecutors must apply

traditional copyright law instead of the DMCA to prosecute infringing uses

of copyrighted works, including the circumvention of copy controls. By the

same token, to demonstrate a violation of the DMCA, prosecutors need not

establish copyright infringement, nor even an intent to infringe copyrights.

In addition, unlike in a civil copyright claim, a victim’s failure to register

its copyrighted work is not a bar to a DMCA action. See Section B.1.c. of this

Chapter.

4. Other DMCA Sections at Do Not Concern Prosecutors

Of the DMCA’s ve titles, the only one that need concern prosecutors

is Title I, which was codied at 17 U.S.C. §§ 1201-1205. e remaining

four titles concern neither criminal prosecutions nor those provisions of the

WIPO treaties that the DMCA was originally designed to implement. TitleII

concerns the liability of Internet service providers for copyright infringement

over their networks. It amended the copyright code by enacting a new §512,

which gives Internet service providers some immunity in return for certain

business practices, and requires them to obey certain civil subpoenas to identify

subscribers alleged to have committed infringement. Section 512 does not,

however, authorize criminal subpoenas for the same purpose.

V. Digital Milllenium Copyright Act 241

Title III of the DMCA claries that a lawful owner or lessee of a computer

may authorize an unaliated service provider to activate the computer to

service its hardware components. Title IV of the DMCA mandates a study of

distance learning; permits libraries and archives to use the latest technology to

preserve deteriorating manuscripts and other works; and permits transmitting

organizations to engage in ephemeral reproductions, even if they need to violate

the newly-added anti-circumvention features in the process. Finally, Title V of

the DMCA extends the scope of the Copyright Act’s protection to boat hulls.

For purposes of this Manual, all references to the DMCA concern Title I

unless the context demands otherwise.

B. Elements of the Anti-Circumvention and Anti-

Tracking Provisions

1. Circumventing Access Controls—17 U.S.C. §§1201(a)(1)

and1204

e DMCA prohibits “circumvent[ing] a technological measure that

eectively controls access to a work protected under this [copyright] title.” 17

U.S.C. §1201(a)(1)(A). To prove a violation of 17 U.S.C. §§1201(a)(1) and

1204, the government must establish that the defendant

1. willfully

2. circumvented

3. a technological measure that eectively controls access (i.e., an

access control)

4. to a copyrighted work

5. for commercial advantage or private nancial gain.

For purposes of the DMCA, prosecutors may look to the law of copyright

infringement for guidance regarding the “willfully” element and the “commercial

advantage” element. See Chapter II of this Manual.

Two cases from the Federal Circuit have read an additional element

into § 1201(a) oenses, holding that the unauthorized access must also

infringe or facilitate infringing a right protected by the Copyright Act to

establish violations of 17 U.S.C. § 1201(a)(1) and (a)(2). Storage Tech. Corp. v.

Custom Hardware Eng’g & Consulting, Inc. (“StorageTek”), 421 F.3d 1307,1318

(Fed. Cir. 2005) (quoting Chamberlain Group, Inc. v. Skylink Techs., Inc., 381

F.3d 1178, 1203 (Fed. Cir. 2004)). Although the results in Chamberlain and

242 Prosecuting Intellectual Property Crimes

StorageTek are consistent with Congress’s intent that §1201(a) apply to measures

controlling access to copyrighted works in digital form (see Section B.1.d. of

this Chapter), the courts reached those results using a awed analysis. Neither

the DMCA’s plain language nor its legislative history permits circumvention of

access controls or tracking in access or copy control circumvention devices to

enable a fair use, as opposed to an infringing use.

e Ninth Circuit recently declined to adopt the Federal Circuit’s

infringement nexus requirement, and explained that the Federal Circuit’s

approach “is contrary to the plain language of the statute.” MDY Indus., LLC v.

Blizzard Entm’t, Inc., 629 F.3d 928, 950 (9th Cir. 2010), as amended on denial

of reh’g, (Feb. 17, 2011). e Ninth Circuit further noted “that the legislative

history [of the DMCA] supports the conclusion that Congress intended to

prohibit even non-infringing circumvention and tracking in circumventing

devices.” Id.

e government has consistently argued that the DMCA prohibits the

manufacture and tracking in all circumvention tools, even those designed to

facilitate fair use. See Section C.10.d. of this Chapter. Additionally, unlike the

regional circuits, the Federal Circuit does not have the authority to develop a

body of case law on copyright law that is independent of the regional circuits.

StorageTek, 421 F.3d at 1311; Chamberlain, 381 F.3d at 1181. Accordingly,

until a regional circuit adopts the StorageTek-Chamberlain position regarding

the additional element to a § 1201(a) oense, prosecutors should oppose

any attempts to cite these decisions as meaningful precedent. If a defendant

does attempt to rely on these decisions, prosecutors are encouraged to contact

CCIPS at (202) 514-1026 for sample briefs and other guidance to oppose

them.

a. Circumventing

To “circumvent” an access control “means to descramble a scrambled

work, to decrypt an encrypted work, or otherwise to avoid, bypass, remove,

deactivate, or impair a technological measure, without the authority of the

the government rst must prove that the defendant 1) bypassed a technological

measure, and 2) did so without the authority of the copyright owner.

“Circumvention requires either descrambling, decrypting, avoiding,

bypassing, removing, deactivating or impairing a technological measure qua

technological measure.” I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys.,

V. Digital Milllenium Copyright Act 243

Inc., 307 F. Supp. 2d 521, 532 (S.D.N.Y. 2004); see also Egilman v. Keller &

Heckman, 401 F. Supp. 2d 105, 113 (D.D.C. 2005) (same); Universal City

Studios, Inc. v. Corley, 273 F.3d 429, 443 (2d Cir. 2001). In other words,

circumvention of an access control occurs when someone bypasses the

technological measure’s gatekeeping capacity, thereby precluding the copyright

owner from determining which users have permission to access the digital

copyrighted work and which do not. I.M.S., 307 F. Supp. 2d at 532. Arguably,

“a person circumvents a technological measure only when he armatively

performs an action that disables or voids the measure that was installed to

prevent them from accessing the copyrighted material.” Healthcare Advocates,

Inc. v. Harding, Earley, Follmer & Frailey, 497 F. Supp. 2d 627, 644 (E.D.

Pa. 2007) (emphasis added) (holding that law rm did not circumvent robot.

txt technological protection measure on Internet Archive website when such

measure malfunctioned and allowed access to archived images that otherwise

would have been blocked).

For example, in Corley, the Second Circuit characterized CSS, the scheme

for encrypting digital movies stored on DVDs, as an access control similar to

“a lock on a homeowner’s door, a combination of a safe, or a security device

attached to a store’s products.” Corley, 273 F.3d at 452-53. A licensed DVD

player would be, in this metaphor, the homeowner’s key to the door. Id. e

court held that defendant’s computer program, called “DeCSS,” circumvented

CSS because it decrypted the CSS algorithm to enable “anyone to gain access

to a DVD movie without using a [licensed] DVD player.” Id. at 453. DeCSS

functions “like a skeleton key that can open a locked door, a combination that

can open a safe, or a device that can neutralize a security device attached to

a store’s products.” Id. us, using DeCSS to play a DVD on an unlicensed

player circumvents an access control because it undermines the copyright

owner’s ability to control who can access the DVD movie. Id.

Circumvention does not occur, however, by properly using the technological

measure’s gatekeeping capacity without the copyright owner’s permission. R.C.

Olmstead, Inc. v. CU Interface LLC, 657 F. Supp. 2d 878, 889 (N.D. Ohio

2009) (“Simply put, CUI did not circumvent or bypass any technological

measures of the RCO software—it merely used a username and password-the

approved methodology—to access the software.”); Egilman, 401 F. Supp. 2d

at 113 (holding that the denition of circumvention is missing “any reference

to ‘use’ of a technological measure without the authority of the copyright

owner”); see also I.M.S., 307 F.Supp. 2d at 533 (“Whatever the impropriety of

244 Prosecuting Intellectual Property Crimes

defendant’s conduct, the DMCA and the anti-circumvention provision at issue

do not target this sort of activity.”). Using CSS as an example, a defendant does

not circumvent a DVD’s access control, CSS, by merely borrowing another

person’s licensed DVD player to view the DVD, even if the defendant did not

receive permission from the owner of the licensed DVD player to “borrow”

the player. No circumvention has occurred because the defendant would not

have bypassed CSS. In fact, he would have viewed the DVD exactly as the

have similarly held that a defendant who without authorization uses a valid

password to access a password-protected website containing copyrighted works

does not engage in circumvention because the defendant used an authorized

password rather than disabled the access control (here, the password protection

mechanism). See Ground Zero Museum Workshop v. Wilson, 813 F. Supp. 2d

678, 692 (D.Md. 2011); R.C. Olmstead, 657 F. Supp. 2d at 889; Egilman,

401 F. Supp. 2d at 113-14; I.M.S., 307 F. Supp. 2d at 531-33. But see Actuate

Corp. v. Int’l Bus. Machines, No. C-09-05892, 2010 WL 1340519, at *9 (N.D.

Cal. Apr. 5, 2010) (“hold[ing] that unauthorized distribution of passwords

and usernames avoids and bypasses a technological measure in violation of

sections 1201(a)(2) and (b)(1)”); Microsoft Corp. v. EEE Bus. Inc., 555 F.

Supp. 2d 1051, 1059 (N.D. Cal. 2008) (“By distributing a [software license

key] without authorization, [defendant] eectively circumvented Microsoft’s

technological measure to control access to a copyrighted work in violation of

[17 U.S.C. §1201(a)(2)].”). In this example, other charges might be available

if the defendant obtained information from a protected computer. I.M.S., 307

F. Supp. 2d at 524-26 (discussing possible violation of the Computer Fraud

and Abuse Act, 18 U.S.C. §1030(a)).

In addition, for there to be a circumvention pursuant to §1201(a)(3)(A),

the circumvention must occur “without the authority of the copyright owner.”

17 U.S.C. § 1201(a)(3)(A). A defendant who decrypts or avoids an access

control measure with the copyright owner’s authority has not committed a

“circumvention” within the meaning of the statute. See MDY Indus., LLC v.

Blizzard Entm’t, Inc., 629 F.3d 928, 954 n.16 (9th Cir. 2010), as amended on

denial of reh’g, (Feb. 17, 2011) (adopting the Second Circuit’s view in Corley

that § 1201(a)(3)(A) “plainly exempts from § 1201(a) liability those whom a

e fact that a purchaser has the right to use a purchased product does not

mean that the copyright owner has authorized the purchaser to circumvent the

V. Digital Milllenium Copyright Act 245

product’s access controls. For instance, a purchaser of a CSS-encrypted DVD

movie clearly has the “authority of the copyright owner” to view the DVD but

does not necessarily have the authority to view it on any platform capable of

decrypting the DVD, 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307

F. Supp. 2d 1085, 1096 (N.D. Cal. 2004) (holding “that the purchase of a

DVD does not give to the purchaser the authority of the copyright holder to

decrypt CSS”), nor “to perform non-licensed functions, such as copying DVD

content.” Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913,

934 (N.D. Cal. 2009); see also Davidson & Assocs. v. Jung, 422 F.3d 630, 641

(8th Cir. 2005) (holding that purchasers of interactive gaming software had

permission to use the game but lacked the copyright owner’s permission to

circumvent the encryption measure controlling access to the game’s interactive

mode). us, purchasers of products containing copyrighted works—by

virtue of that purchase alone—do not necessarily have the copyright owner’s

permission to circumvent a technological measure controlling access to the

copyrighted work.

b. Technological Measures at Eectively Control Access

(“Access Control”)

As already noted, 17 U.S.C. §1201(a) concerns technological measures

designed to prevent access to a copyrighted work—technology typically referred

to as “access controls.” A technological measure does not constitute an access

control under the DMCA unless it “eectively controls access to a work.” 17

U.S.C. § 1201(a)(1)(A). “[A] technological measure ‘eectively controls access

to a [copyrighted] work’ if the measure, in the ordinary course of its operation,

requires the application of information, or a process or a treatment, with

the authority of the copyright owner, to gain access to the work.” 17 U.S.C.

§1201(a)(3)(B).

An access control “eectively controls access to a work” if its ordinary

function and operation is to control access to a copyrighted work’s expression,

regardless of whether or not the control is a strong means of protection. See,

e.g., 321 Studios, 307 F. Supp. 2d at 1095.

Signicantly, courts have rejected the argument that the meaning of the

term “eectively” is based on how successful the technological measure is in

controlling access to a copyrighted work. See, e.g., id. (holding that the fact that

the CSS decryption keys permitting access to DVDs were “widely available

on the internet [sic]” did not aect whether CSS was “eective” under the

246 Prosecuting Intellectual Property Crimes

DMCA); Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913,

932 (N.D. Cal. 2009) (holding that the “allegation that CSS is no longer an

eective technological measure because it has already been cracked or hacked,

is of no moment”); Apple, Inc. v. Psystar Corp., 673 F. Supp. 2d 931, 941

(N.D. Cal. 2009), a’d in relevant part, 658 F.3d 1150 (9th Cir. 2011) (“’e

fact that circumvention devices may be widely available does not mean that a

technological measure is not, as the DMCA provides, eectively protecting the

rights of copyright owners in the ordinary course of its operation.’”) (quoting

Sony Computer Entm’t Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965

(N.D. Cal. 2006)). For example, protection “measures based on encryption or

scrambling ‘eectively control’ access to copyrighted works, although it is well

known that what may be encrypted or scrambled often may be decrypted or

unscrambled.” Universal City Studios, Inc. v. Reimerdes, 111 F.Supp. 2d 294,

318 (S.D.N.Y. 2000) (footnote omitted), a’d sub nom. Universal City Studios,

Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001).

Equating “eectively” with “successfully” “would limit the application of

the statute to access control measures that thwart circumvention, but withhold

protection for those measures that can be circumvented” and consequently “oer

protection where none is needed” while “withhold[ing] protection precisely

where protection is essential.” Id.; Divineo, 457 F. Supp. 2d at 965 (same); 321

Studios, 307 F. Supp. 2d at 1095 (comparing similar argument to the claim

that a deadbolt is ineective because skeleton keys are readily available on the

black market); DVD Copy Control Ass’n, 641 F. Supp. 2d at 932 (same); see also

MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 954 n.17 (9th Cir.

2010), as amended on denial of reh’g, (Feb. 17, 2011) (“e statutory denition

of the phrase ‘eectively control access to a work’ does not require that an

access control measure be strong or circumvention-proof. Rather, it requires

an access control measure to provide some degree of control over access to a

copyrighted work.”); Lexmark Int’l, Inc. v. Static Control Components, Inc., 387

F.3d 522, 549 (6th Cir. 2004) (“[A] precondition for DMCA liability is not

the creation of an impervious shield to the copyrighted work .... Otherwise, the

DMCA would apply only when it is not needed.”) (internal citations omitted).

Although the DMCA does not dene “access,” at least one court has

held that controlling access to a copyrighted work means controlling access

to the expression (e.g., controlling the ability to see or to read the actual

text of a copyrighted computer program, hear a copyrighted song, or watch

a copyrighted movie) contained in a copyrighted work. Lexmark, 387 F.3d

V. Digital Milllenium Copyright Act 247

at 547 (holding that an authentication sequence that prevented “access” to a

copyrighted computer program on a printer cartridge chip by preventing the

printer from functioning and the program from executing did not “control[]

access” under the DMCA because the copyrighted work’s expression (the

computer program) was nonetheless “freely readable”); Auto Inspection Services,

Inc. v. Flint Auto Auction, Inc., No. 06-15100, 2006 WL 3500868, at *8 (E.D.

Mich. Dec. 4, 2006) (holding that a “user detection feature” that “is a part

of the program itself and in no way controls access to the source code” does

not constitute an access control because “it merely alerts [plainti] as to who

[sic] is using the Program”). In the context of a computer program, the Sixth

Circuit held that an access control under the DMCA must control access to the

program’s copyrighted expression—i.e., control the ability to see or to read the

program’s code. Lexmark, 387 F.3d at 548.

On the other hand, a technological measure that controls only the function

of a copyrighted computer program but leaves the code freely readable is not

an access control under the DMCA. Compare id. at 547 (holding that there

is no precedent deeming a control measure as one that “eectively controls

access” under the DMCA “where the [purported] access-control measure

left the literal code or text of the computer program or data freely readable”)

and MDY Indus., LLC v. Blizzard Entm’t, Inc., 629 F.3d 928, 952 (9th Cir.

2010), as amended on denial of reh’g, (Feb. 17, 2011) (same), with Agfa

Monotype Corp. v. Adobe Sys., Inc., 404 F. Supp. 2d 1030, 1036 (N.D. Ill.

2005) (holding that font embedding bits are not technological measures that

“eectively control access” because they “have been available for free download

from the Internet” and are “not secret or undisclosed. Embedding bits are not

encrypted, scrambled or authenticated, and software applications ... need not

enter a password or authorization sequence to obtain access to the embedding

bits or the specication for the” font) and Davidson, 422 F.3d at 641 (holding

that a technological measure that controlled access to a computer program’s

expression that otherwise “was not freely available” “without acts of reverse

engineering” constituted an “access control” under the DMCA).

c. To a Copyrighted Work

e access control also must have controlled access to a copyrighted work.

See 17 U.S.C. § 1201(a)(1)(A), (2)(A)-(C) (referring repeatedly to “a work

protected under this title [17]”). e protection of a copyrighted work is an

essential element. See S. Rep. No. 105-190, at 28-29 (1998). e DMCA’s anti-

circumvention prohibition does not apply to someone who circumvents access

248 Prosecuting Intellectual Property Crimes

controls to a work in the public domain, like a book of Shakespeare, because

such a protection measure controls access to a work that is not copyrighted. Cf.

United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1131-32 (N.D. Cal. 2002).

A victim’s failure to register its copyrighted work is not a bar to a DMCA

action. See I.M.S. Inquiry Mgmt. Sys., Ltd. v. Berkshire Info. Sys., Inc., 307 F.

Supp. 2d 521, 531 n.9 (S.D.N.Y. 2004); Medical Broad. Co. v. Flaiz, No. Civ.A.

02-8554, 2003 WL 22838094, at *3 (E.D. Pa. Nov. 25, 2003) (nding that

“[w]hile a copyright registration is a prerequisite under 17 U.S.C. §411(a) for

an action for [civil] copyright infringement, claims under the DMCA ... are

simply not copyright infringement claims and are separate and distinct from

the latter”) (citation omitted).

d. How Congress Intended the Anti-Circumvention Prohibition

to Apply

Courts have acknowledged that, on its face, §1201(a)(1) prescribes that

one unlawfully circumvents an access control even where the ultimate goal of

such circumvention is fair use of a copyrighted work. See, e.g., Reimerdes, 111

F. Supp. 2d at 304 (holding that an unlawful circumvention of a technological

measure can occur even though “[t]echnological access control measures have

the capacity to prevent fair uses of copyrighted works as well as foul”). Although

Congress was concerned that the DMCA’s anti-circumvention prohibition

could be applied to prevent circumvention of access controls for legitimate fair

uses, Congress concluded that strong restrictions on circumvention of access

control measures were essential to encourage digital works because otherwise

such works could be pirated and distributed over the Internet too easily. See

Lexmark, 387 F.3d at 549.

For this reason, courts will strictly apply §1201(a) to copyrighted expression

stored in a digital format whereby, for instance, executing encrypted computer

code containing the copyrighted expression actually generates the visual and

audio manifestation of protected expression. Lexmark, 387 F.3d at 548 (holding

that Congress intended §1201(a) to apply where executing “encoded data on

CDs translates into music and on DVDs into motion pictures, while the program

commands in software for video games or computers translate into some other

visual and audio manifestation”); see also MDY Indus., LLC v. Blizzard Entm’t,

Inc., 629 F.3d 928, 954 (9th Cir. 2010), as amended on denial of reh’g, (Feb.

17, 2011) (dynamic non-literal elements of the “World of Warcraft” game

protected by the “Warden” program cannot be accessed without connecting to

V. Digital Milllenium Copyright Act 249

a “Blizzard” server’s log on program); Nintendo of Am. Inc. v. Chan, No. CV

09-4203, 2009 WL 2190186, at *3 (C.D. Cal. July 21, 2009) (Nintendo DS

security system controls access to Nintendo’s copyrighted DS video games by

repeatedly transferring information to gain access to the IPL and Boot Code

programs); 321 Studios, 307 F. Supp. 2d at 1095 (movies on DVDs protected

by an encryption algorithm (CSS) cannot be watched without a DVD player

that contains an access key decrypting CSS); Davidson, 422 F.3d at 641

(encrypted algorithm on computer game prevented unauthorized interactive

use of computer game online); Pearl Inv., LLC v. Standard I/O, Inc., 257 F.

Supp. 2d 326, 349 (D. Me. 2003) (“encrypted, password-protected virtual

private network” prevented unauthorized access to copyrighted computer

software); Sony Computer Entm’t Am., Inc. v. Gamemasters, 87 F. Supp. 2d 976,

981 (N.D. Cal. 1999) (game console prevented unauthorized operation of

video games); RealNetworks, Inc. v. Streambox, Inc., Civ. No. 2:99CV02070,

2000 WL 127311, at *3 (W.D. Wash. Jan. 18, 2000) (authentication sequence

prevented unauthorized access to streaming copyrighted “digital works” online).

On the other hand, Congress did not intend the DMCA to apply (and courts

are less likely to apply it) where executing a copyrighted computer program

creates no protectable expression (as it would for a work in digital form),

but instead results in an output that is purely functional. See, e.g., Lexmark,

387 F.3d at 548 (holding that a computer chip on a replacement printer

cartridge that emulates an authentication sequence executing a copyrighted

code on a manufacturer’s printer cartridge did not violate §1201(a) because

executing the code merely controls printer functions such as “paper feeding,”

“paper movement,” and “motor control” and therefore “is not a conduit to

protectable expression”); Chamberlain Group, Inc. v. Skylink Techs., Inc., 381

F.3d 1178, 1204 (Fed. Cir. 2004) (holding that use of a transmitter to emulate

a copyrighted computer code in a garage door opener did not violate §1201(a)

because executing the code merely performed the function of opening the

garage door).

Accordingly, prosecutors should bear in mind that courts are more inclined

to rule that a defendant violated §1201(a) if his conduct occurred in a context

to which Congress intended the statute to apply—i.e., when it involves an

access control that protects access to copyrighted expression stored in digital

form. For questions on this often technical point, prosecutors may wish to

consult CCIPS at (202) 514-1026.

250 Prosecuting Intellectual Property Crimes

e. Regulatory Exemptions to Liability Under § 1201(a)(1)

Before prosecuting a charge of unlawful access control circumvention,

§1201(a)(1)(A), prosecutors should conrm whether the defendant’s actions

fall within the Librarian of Congress’s latest regulatory exemptions.

Because Congress was concerned that the DMCA’s prohibitions against

circumventing access controls might aect citizens’ noninfringing uses of works

in unforeseeable and adverse ways, Congress created a recurring rulemaking

proceeding to begin two years after the DMCA’s enactment and every three

years thereafter. 17 U.S.C. § 1201(a)(1)(C), (D). us, the rst rulemaking took

place in 2000, the second was in 2003, the third was in 2006, and the fourth

occurred as an interim rulemaking in 2009 and was promulgated in nal form

in July of 2010. e fth DMCA rulemaking proceeding took place in 2012,

and concluded in October of 2012. Specically, the DMCA provides that its

prohibition on access circumvention itself, 17 U.S.C. § 1201(a)(1)(A), will not

apply to users’ control of certain types of works if, upon the recommendation of

the Register of Copyrights, the Librarian of Congress concludes that the ability

of those users “to make noninfringing uses of [a] particular class of work[]” is

“likely to be ... adversely aected” by the prohibition. 17 U.S.C. § 1201(a)(1)

(B). e statute makes clear, however, that any exceptions to § 1201(a)(1)(A)

adopted by the Librarian of Congress are not defenses to violations of the anti-

tracking provisions contained in § 1201(a)(2) and 1201(b). See 17 U.S.C.

§1201(a)(1)(E).

e current exemptions are eective beginning on October 28, 2012, and

they are as follows:

• Literary works, distributed electronically, that are protected by

technological measures which either prevent the enabling of read-aloud

functionality or interfere with screen readers or other applications

or assistive technologies when: (i) a copy of such a work is lawfully

obtained by a blind or other person with a disability provided that

the rights owner is remunerated, as appropriate, for the price of the

mainstream copy of the work as made available to the general public

through customary channels; or (ii) such work is a nondramatic literary

work, lawfully obtained and used by an authorized entity pursuant to

17 U.S.C. 121.

• Computerprogramsthatenablewirelesstelephonehandsetstoexecute

lawfully obtained software applications, where circumvention is

V. Digital Milllenium Copyright Act 251

accomplished for the sole purpose of enabling interoperability of such

applications with computer programs on the telephone handset.

• Computerprograms,intheformofrmwareorsoftware,thatenable

a wireless telephone handset originally acquired from the operator of

a wireless telecommunications network or retailer no later than ninety

days after the eective date of this exemption to connect to a dierent

wireless telecommunications network, if the operator of the wireless

communications network to which the handset is locked has failed to

unlock it within a reasonable period of time following a request by the

owner of the wireless telephone handset, and when circumvention is

initiated by the owner, an individual consumer, who is also the owner of

the copy of the computer program in such wireless telephone handset,

solely in order to connect to a dierent wireless telecommunications

network, and such access to the network is authorized by the operator

of the network.

• MotionpicturesonDVDsthatarelawfullymadeandacquiredand

that are protected by the Content Scrambling System where the

person engaging in circumvention believes and has reasonable grounds

for believing that circumvention is necessary because reasonably

available alternatives, such as noncircumventing methods or using

screen capture software as provided for in alternative exemptions,

are not able to produce the level of high-quality content required to

achieve the desired criticism or comment on such motion pictures,

and where circumvention is undertaken solely in order to make use

of short portions of the motion pictures for the purpose of criticism

or comment in the following instances: (i) noncommercial videos; (ii)

documentary lms; (iii) nonction multimedia ebooks oering lm

analysis; and (iv) education purposes in lm studies or other courses

requiring close analysis of lm and media excerpts.

• Motion pictures that are lawfully made and acquired via online

distribution services and that are protected by various technological

protection measures, where the person engaging in circumvention

believes and has reasonable grounds for believing that circumvention

is necessary because reasonably available alternatives, such as

noncircumventing methods or using screen capture software as provided

for in alternative exemptions, are not able to produce the level of high-

quality content required to achieve the desired criticism or comment

252 Prosecuting Intellectual Property Crimes

on such motion pictures, and where circumvention is undertaken

solely in order to make use of short portions of the motion pictures

for the purpose of criticism or comment in the following instances:

(i) noncommercial videos; (ii) documentary lms; (iii) nonction

multimedia ebooks oering lm analysis; and (iv) educational purposes

in lm studies or other courses requiring close analysis of lm and

media excerpts.

• MotionpicturesonDVDsthatarelawfullymadeandacquiredand

that are protected by the Content Scrambling System, where the

circumvention, if any, is undertaken using screen capture technology

that is reasonably represented and oered to the public as enabling the

reproduction of motion picture content after such content has been

lawfully decrypted, when such representations have been reasonably

relied upon by the user of such technology, when the person engaging

in the circumvention believes and has reasonable grounds for believing

that the circumvention is necessary to achieve the desired criticism or

comment, and where the circumvention is undertaken solely in order

to make use of short portions of the motion pictures for the purpose

of criticism or comment in the following instances: (i) noncommercial

videos; (ii) documentary lms; (iii) nonction multimedia ebooks

oering lm analysis; and (iv) educational purposes.

• Motion pictures that are lawfully made and acquired via online

distribution services and that are protected by various technological

protection measures, where the circumvention, if any, is undertaken

using screen capture technology that is reasonably represented and

oered to the public as enabling the reproduction of motion picture

content after such content has been lawfully decrypted, when such

representations have been reasonably relied upon by the user of such

technology, when the person engaging in the circumvention believes

and has reasonable grounds for believing that the circumvention is

necessary to achieve the desired criticism or comment, and where

the circumvention is undertaken solely in order to make use of short

portions of the motion pictures for the purpose of criticism or comment

in the following instances: (i) noncommercial videos; (ii) documentary

lms; (iii) nonction multimedia ebooks oering lm analysis; and

(iv) educational purposes.

V. Digital Milllenium Copyright Act 253

• Motion pictures and other audiovisual works on DVDs that are

protected by the Content Scrambling System, or that are distributed by

an online service and protected by technological measures that control

access to such works, when circumvention is accomplished solely to

access the playhead and/or related time code information embedded

in copies of such works and solely for the purpose of conducting

research and development for the purpose of creating players capable of

rendering visual representations of the audible portions of such works

and/or audible representations or descriptions of the visual portions

of such works to enable an individual who is blind, visually impaired,

deaf, or hard of hearing, and who has lawfully obtained a copy of such a

work, to perceive the work; provided however, that the resulting player

does not require circumvention of technological measures to operate.

See 37 C.F.R. § 201.40 (2012).

2. Tracking in Access Control Circumvention Tools and

Services—17 U.S.C. §§1201(a)(2) and 1204

In addition to prohibiting the circumvention of access controls, the

DMCA also prohibits the manufacture of, or tracking in, any technology

that circumvents access controls without the copyright owner’s permission.

17 U.S.C. §1201(a)(2). To prove a violation of 17 U.S.C. §§1201(a)(2) and

1204, the government must establish that the defendant

1. willfully

2. manufactured or tracked in

3. a technology, product, service, or part thereof

4. that either:

a. is primarily designed or produced for the purpose of

b. “has only limited commercially signicant purpose or use other

than” or

c. “is marketed by that person or another acting in concert with

that person with that person’s knowledge for use in”

5. circumventing an access control without authorization from the

6. for commercial advantage or private nancial gain.

For purposes of the DMCA, prosecutors may look to the law of

“commercial advantage” element, discussed in Chapter II of this Manual. For

254 Prosecuting Intellectual Property Crimes

a complete discussion of establishing the element regarding circumventing

an access control, see Sections B.1.a.-e. of this Chapter. e Federal Circuit’s

additional element for establishing a violation of § 1201(a)(2)—that the

unauthorized access must also infringe or facilitate infringing a right protected

by the Copyright Act—is discussed in Section B.1.

a. Tracking

Section 1201(a)(2) states that “[n]o person shall manufacture, import,

oer to the public, provide, or otherwise trac in” a technology or service

that unlawfully circumvents an access control. To “trac” in such technology

means to engage either in dealings in that technology or service or in conduct

that necessarily involves awareness of the nature of the subject of the tracking.

Universal City Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294, 325 (S.D.N.Y.

2000), a’d sub nom. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d

Cir. 2001). To “provide” technology means to make it available or to furnish it.

Id. e phrase “or otherwise trac in” modies and gives meaning to the words

“oer” and “provide.” Id. us, “the anti-tracking provision of the DMCA is

implicated where one presents, holds out or makes a circumvention technology

or device available, knowing its nature, for the purpose of allowing others to

acquire it.” Id. is standard for “tracking,” therefore, hinges on evaluating

the tracker’s purpose for making the circumvention technology available.

See id. at 341 n.257 (“In evaluating purpose, courts will look at all relevant

circumstances.”). Signicantly, however, the government need not prove “an

intent to cause harm” to establish the tracking element. Cf. Universal City

Studios, Inc. v. Corley, 273 F.3d 429, 457 (2d Cir. 2001).

is standard is particularly helpful for determining whether a defendant

has tracked online in unlawful circumvention technology. For example,

courts may view a defendant’s tracking to include oering circumvention

technology for download over the Internet, or posting links to websites

that automatically download such technology when a user is transferred by

hyperlink, where the purpose of such linking is to allow others to acquire the

circumvention technology. See, e.g., Reimerdes, 111 F. Supp. 2d at 325, 341

n.257 (holding that oering and providing for download a computer program

to circumvent DVD access controls for the purpose of disseminating the

program satises tracking element of §1201(a)(2)). In addition, at least one

court has found that posting a hyperlink to web pages “that display nothing

more than the [circumventing] code or present the user only with the choice of

commencing a download of [the code] and no other content” also constitutes

V. Digital Milllenium Copyright Act 255

“tracking” under the DMCA because the defendant’s express purpose in

linking to these web pages was to disseminate the circumventing technology.

Id. at 325.

In contrast, posting a link to a web page that happens to include, among

other content, a hyperlink for downloading (or transferring to a page for

downloading) a circumvention program would not, alone, constitute

“tracking” in the program “regardless of purpose or the manner in which

the link was described.” Id.; see also id. at 341 n.257 (“A site that deep links

to a page containing only [the circumventing program] located on a site that

contains a broad range of other content, all other things being equal, would

more likely be found to have linked for the purpose of disseminating [the

program] than if it merely links to the home page of the linked-to site.”). is

result is consistent with the general principle that a website owner cannot be

held responsible for all the content of the sites to which it provides links. Id.

at 325 n.180 (quotation omitted). us, posting a link (or “linking”) to a

circumvention program could constitute “tracking” if the person linking to

the program 1) knew that the program is on the linked-to site; 2) knew that

the program constituted unlawful circumvention technology; and 3) posted

the link for the purpose of disseminating that technology. See id. at 325, 341.

b. In a Technology, Product, Service, or Part ereof

Section 1201(a)(2) prohibits tracking “in any technology, product,

service, device, component, or part thereof” that unlawfully circumvents access

controls. is language is “all-encompassing: it includes any tool, no matter

its form, that is primarily designed or produced to circumvent technological

protection.” United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1123 (N.D.

Cal. 2002). is element is not limited to conventional devices but instead

includes “any technology,” including computer code and other software,

capable of unlawful circumvention. Reimerdes, 111 F. Supp. 2d at 317 & n.135.

In addition, the government satises this element even if only one “part” or

feature of the defendant’s technology unlawfully circumvents access controls.

See 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085,

1098 (N.D. Cal. 2004).

c. Purpose or Marketing of Circumvention Technology

Section 1201(a)(2) prohibits tracking in technology that unlawfully

circumvents access controls and either “is primarily designed or produced for

th[at] purpose,” “has only limited commercially signicant purpose or use other

256 Prosecuting Intellectual Property Crimes

than” such purpose; oris knowingly marketed for such purpose. 17 U.S.C.

§1201(a)(2)(A)-(C). us, “only one of the[se] three enumerated conditions

must be met” to satisfy this element. See 321 Studios, 307 F. Supp. 2d at 1094;

see also Dish Network L.L.C. v. Whitehead, No. 3:09-cv-532-J-32JRK, 2011

WL 6181732, at *5 (M.D. Fla. Dec. 13, 2011); EchoStar Satellite LLC v.

ViewTech, Inc., Case No. 07cv1273, 2011 WL 1522409, at *2 (S.D. Cal. April

20, 2011). And, as noted elsewhere, the fact that a particular circumvention

technology is capable of substantial noninfringing uses is not a defense to

tracking in technology that circumvents access controls and violates one of

the three conditions enumerated in § 1201(a)(2)(A)-(C). See Realnetworks,

Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913, 941 (N.D. Cal. 2009)

(“no grounding in law ... to assert a ‘fair use’ defense based on [circumvention

technology] being capable of substantial noninfringing use”); Universal City

Studios, Inc. v. Reimerdes, 111 F. Supp. 2d 294, 323-24 (S.D.N.Y. 2000), a’d

sub nom. Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001);

RealNetworks, Inc. v. Streambox, Inc., No. 2:99CV02070, 2000 WL 127311, at

*8 (W.D. Wash. Jan. 18, 2000).

i. Primarily Designed or Produced

Tracking in circumvention technology violates §1201(a)(2)(A) where its

“primary purpose” is to circumvent technological measures controlling access

to, for example, copyrighted video games (Davidson & Assocs. v. Jung, 422 F.3d

630, 641 (8th Cir. 2005); Sony Computer Entm’t Am., Inc. v. Gamemasters,

87 F. Supp. 2d 976, 987 (N.D. Cal. 1999)); copyrighted streaming video or

music content (Streambox, No. 2:99CV02070, 2000 WL 127311, at *7-*8);

copyrighted satellite programming (Dish Network, L.L.C. v. SatFTA, No. 5:08-

cv-01561, 2011 WL 856268, at *3-*4 (N.D. Cal. 2011 March 9, 2011));

and copyrighted movies encrypted onto DVDs (Universal City Studios, Inc.

v. Reimerdes, 111 F. Supp. 2d 294, 318-19 (S.D.N.Y. 2000), a’d sub nom.

Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001); 321 Studios

v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1098 (N.D. Cal.

2004); Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d 913, 933

(N.D. Cal. 2009)).

Whether a technology’s “primary purpose” is to circumvent an access

control is determined by the circumvention technology’s primary function,

not the tracker’s subjective purpose. DVD Copy Control Ass’n, 641 F. Supp.

2d at 940 (“it is the product’s function and not the designer’s motivation that

determines liability”); see also Reimerdes, 111 F. Supp. 2d at 319 (motivation

V. Digital Milllenium Copyright Act 257

of developer “immaterial” to whether the defendants “violated the anti-

tracking provision of the DMCA”). e defendant’s subjective motive may,

however, aect whether his conduct falls within one of the DMCA’s statutory

exceptions. Id. (Conduct at issue “prohibited [under DMCA] irrespective of

why the [circumvention technology] was written, except to whatever extent

motive may be germane to determining whether [defendants’] conduct falls

within one of the statutory exceptions.”). See Section C. of this Chapter for an

overview of these exceptions.

In Reimerdes, which concerned the CSS DVD-encryption scheme, the

court found that “(1) CSS is a technological means that eectively controls

access to plaintis’ copyrighted works, (2) the one and only function of [the

defendant’s program] is to circumvent CSS, and (3) defendants oered and

provided [the program] by posting it on their web site.” Reimerdes, 111 F.Supp.

2d at 319. e court held that it was “perfectly obvious” that the program

“was designed primarily to circumvent CSS.” Id. at 318. Defendants argued

that their program was not created for the “purpose” of pirating copyrighted

movies, but rather to allow purchasers of DVDs to play them on unlicensed

DVD players running the Linux operating system. Id. at 319. As the court

held, however, “whether the development of a Linux DVD player motivated

those who wrote [the program] is immaterial to the question” of whether the

defendants “violated the anti-tracking provision[s] of the DMCA.” Id.; see

also DVD Copy Control Ass’n, 641 F. Supp. 2d at 940. e tracking “of the

program is the prohibited conduct—and it is prohibited irrespective of why

the program was written.” Reimerdes, 111 F.Supp. 2d at 319. And it is equally

irrelevant for whom the program was written. See Sony Computer Entm’t Am.,

Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D. Cal. 2006) (“e fact that

users of mod chips must be technologically sophisticated is not evidence that

the purpose of the mod chips is not circumvention.”).

ii. Limited Commercially Signicant Purpose Other an

Circumvention

Whether a technology has only limited commercially signicant purpose

other than circumvention is a separate inquiry from whether its primary purpose

was to circumvent, and it requires a fact-specic inquiry that often hinges on

whether the circumvention technology is “free and available.” Some courts,

however, have ruled that a particular technology “is primarily designed or

produced for the purpose of circumventing” access controls (§1201(a)(2)(A))

and also “has only limited commercially signicant purpose” other than such

258 Prosecuting Intellectual Property Crimes

circumvention (§1201(a)(2)(B)). See, e.g., Davidson, 422 F. 3d at 641 (holding

that defendant’s circumvention technology “had limited commercial purpose

because its sole purpose was ... circumventing [the] technological measures

controlling access to Battle.net and the [computer] games”); Streambox, No.

2:99CV02070, 2000 WL 127311, at *8 (holding that defendant violated

§1201(a)(2)(A) and (a)(2)(B) by tracking in circumvention technology that

had “no signicant commercial purpose other than to enable users to access

and record protected content”). However, at least one court suggested that

whether a defendant violates §1201(a)(2)(B) “is a question of fact for a jury to

decide,” even where the court otherwise nds that the defendant has violated

§1201(a)(2)(A). 321 Studios, 307 F. Supp. 2d at 1098.

iii. Knowingly Marketed for Circumvention

When accused of having marketed technology for use in circumventing

access controls in violation of § 1201(a)(2)(C), defendants have raised First

Amendment defenses—particularly where only a part of a product circumvents

access controls—contending that marketing the product may include

dissemination of information about the product’s other, legal attributes.

Although a more complete discussion analyzing the DMCA’s validity under

the First Amendment is discussed in Section C.10.b. of this Chapter, it is

worth noting here that “the First Amendment does not protect commercial

speech that involves illegal activity,” even if that commercial speech is merely

instructions for violating the law. 321 Studios, 307 F. Supp. 2d at 1098-99

(citing Florida Bar v. Went For It, Inc., 515 U.S. 618, 623-24 (1995)); see also

Corley, 273 F.3d at 447 (citing United States v. Raymond, 228 F.3d 804, 815

(7th Cir. 2000) (holding that “First Amendment does not protect instructions

for violating the tax laws”)). us, knowingly marketing technology for use

in circumventing access controls in violation of §1201(a)(2)(C) constitutes

illegal activity, and hence, unprotected speech. 321 Studios, 307 F.Supp. 2d

at 1099 (“[A]s 321 markets its software for use in circumventing CSS, this

Court nds that 321’s DVD copying software is in violation of the marketing

provisions of §§1201(a)(2) and (b)(1).”).

3. Tracking in Tools, Devices, and Services to Circumvent Copy

Controls—17 U.S.C. §§1201(b)(1) and 1204

As noted above, the DMCA prohibits the manufacture or tracking in

any technology that circumvents copy controls without the copyright owner’s

V. Digital Milllenium Copyright Act 259

permission. 17 U.S.C. § 1201(b)(1). To prove a violation of 17 U.S.C.

§§1201(b)(1) and 1204, the government must establish that the defendant

1. willfully

2. manufactured or tracked in

3. a technology, product, service, or part thereof

4. that either:

a. “is primarily designed or produced for the purpose of”

b. “has only limited commercially signicant purpose or use other

than” or

c. “is marketed by that person or another acting in concert with

that person with that person’s knowledge for use in”

5. “circumventing”

6. “protection aorded by a technological measure that eectively

protects a right of a copyright owner under this title in a work or a

portion thereof”

7. “for commercial advantage or private nancial gain.”

See 17 U.S.C. §§ 1201(a)(2)(A)-(C), 1204. For purposes of the DMCA,

prosecutors may look to the law of copyright infringement for guidance

regarding the “willfully” element and the “commercial advantage” element. See

Chapter II of this Manual. In addition, because the second, third, and fourth

elements of a §1201(b) violation operate in the same way as do the comparable

elements of a §1201(a) violation, a complete discussion of those elements may

be found in Sections B.1. and B.2. of this Chapter.

a. Circumventing

To “circumvent protection aorded by a technological measure,” as set forth

in 17 U.S.C. §1201(b), “means avoiding, bypassing, removing, deactivating,

or otherwise impairing a technological measure.” 17 U.S.C. § 1201(b)(2)

(A). To establish this element, the government must show that the defendant

tracked in technology allowing the end user to bypass a copy or use control

that “eectively protects the right of a copyright owner.” 17 U.S.C. §1201(b)

(1), (b)(2)(B). Courts have found that the following technologies circumvent

copy controls: (1) a computer program that removes user restrictions from

an “ebook” to make such les “readily copyable” and “easily distributed

electronically,” United States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1118-19

(N.D. Cal. 2002); (2) technology that bypasses copy controls intended to

prevent the copying of streaming copyrighted content, RealNetworks, Inc. v.

260 Prosecuting Intellectual Property Crimes

Streambox, Inc., No. 2:99CV02070, 2000 WL 127311, at *6-*8 (W.D. Wash.

Jan. 18, 2000); (3) technology that bypasses copy controls intended to prevent

the copying of copyrighted Nintendo DS video games, Nintendo of Am. Inc. v.

Chan, No. CV 09-4203, 2009 WL 2190186, at *3 (C.D. Cal. July 21, 2009);

and (4)technology that bypasses a scheme intended to “control copying of

[encrypted] DVDs,” 321 Studios v. Metro Goldwyn Mayer Studios, Inc., 307

F. Supp. 2d 1085, 1097 (N.D. Cal. 2004). Further, at least two courts have

held that bypassing a DVD’s access and copy controls unlawfully “avoids and

bypasses” (i.e., circumvents) the DVD’s copy control pursuant to §1201(b)(2)

(A). Id. at 1098; Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp. 2d

913, 935 (N.D. Cal. 2009).

b. Technological Measure at Eectively Protects a Right

of a Copyright Owner Under is Title (“Copy Control”)

“[A] technological measure ‘eectively protects a right of a copyright

owner under this title’ if the measure, in the ordinary course of its operation,

prevents, restricts, or otherwise limits the exercise of a right of a copyright

owner under this title.” 17 U.S.C. §1201(b)(2)(B). e “rights of a copyright

owner” include all the exclusive rights set forth in 17 U.S.C. §106: the rights

to reproduce the copyrighted work, to prepare derivative works based upon

the copyrighted work, to distribute copies by sale or otherwise, to perform the

copyrighted work publicly, and to display the copyrighted work publicly. Elcom,

203 F. Supp. 2d at 1124. us, a technological measure “‘eectively protects

the right of a copyright owner’ if, in the ordinary course of its operation, it

prevents, restricts or otherwise limits the exercise of any of the rights set forth

in Section106.” See id. at 1124 (quoting 17 U.S.C. §1201(b)(2)(B)); Agfa

Monotype Corp. v. Adobe Sys., Inc., 404 F. Supp. 2d 1030, 1039 (N.D. Ill.

2005) (holding that computer font embedding bits do not protect the rights of

a copyright owner where “[s]uch embedding bits do not prevent copying, and

a computer program can simply proceed to copy the... [f]ont data regardless

of the setting of the bit”).

Notably, the government has successfully taken the position that although

fair use normally limits a copyright owner’s right to claim infringement,

§1201(b)(1) nonetheless prohibits tracking in all tools that circumvent copy

controls, even if such tools circumvent copy protections for the purpose of

facilitating fair uses of a copyrighted work. See, e.g., Elcom, 203 F. Supp. 2d at

1124 (“Nothing within the express language would permit tracking in devices

designed to bypass use restrictions in order to enable a fair use, as opposed

V. Digital Milllenium Copyright Act 261

to an infringing use.”). Hence, §1201(b)(1) bans tracking in all tools that

are primarily designed or produced for the purpose of circumventing copy

controls, regardless of whether the downstream use of such tools is infringing

or not. See id. “It is the technology itself at issue, not the uses to which the

copyrighted material may be put.” 321 Studios, 307 F. Supp. 2d at 1097; accord

Dish Network, L.L.C. v. SatFTA, No. 5:08-cv-01561, 2011 WL 856268, at

*4 (N.D. Cal. March 9, 2011) (holding defendant liable for § 1201(b)(1)

violations and explaining that “[w]hile the DMCA provides for a limited ‘fair

use’ exception for certain end users of copyrighted works, the exception does

not apply to manufacturers or trackers ….”) (quoting Realnetworks, Inc. v.

DVD Copy Control Ass’n, 641 F. Supp. 2d 913, 942 (N.D. Cal. 2009); Sony

Computer Entm’t Am., Inc. v. Divineo, Inc., 457 F. Supp. 2d 957, 965 (N.D.

Cal. 2006) (“downstream customers’ lawful or fair use of circumvention devices

does not relieve [defendant] from liability for tracking in such devices under

the DMCA”). is is consistent with Congress’s intent in enacting the DMCA:

“Congress did not ban the act of circumventing the use restrictions. Instead,

Congress banned only the tracking in and marketing of devices primarily

designed to circumvent the use restriction protective technologies. Congress

did not prohibit the act of circumvention because it sought to preserve the

fair use rights of persons who had lawfully acquired a work.” Elcom, 203 F.

Supp. 2d at 1120 (emphasis omitted); Realnetworks, Inc. v. DVD Copy Control

Ass’n, 641 F. Supp. 2d 913, 942 (N.D. Cal. 2009) (same); see also Universal

City Studios, Inc. v. Corley, 273 F.3d 429, 443 (2d Cir. 2001) (“[T]he DMCA

targets the circumvention of digital walls guarding copyrighted material (and

tracking in circumvention tools), but does not concern itself with the use of

those materials after circumvention has occurred.”) (emphasis and citations

omitted).

Accordingly, while it is not unlawful to circumvent a copy or usage control

for the purpose of engaging in fair use, it is unlawful under §1201(b)(1) to

trac in tools that allow fair use circumvention. Elcom, 203 F. Supp. 2d at

1125; DVD Copy Control Ass’n, 641 F. Supp. 2d at 942 (same). Further, “legal

downstream use of the copyrighted material by customers is not a defense to

the software manufacturer’s violation of the provisions of §1201(b)(1).” 321

Studios, 307 F. Supp. 2d at 1097-98.

262 Prosecuting Intellectual Property Crimes

4. Alternate §1201(b) Action—Tracking in Certain Analog

Videocassette Recorders and Camcorders

Congress’s decision to include a prohibition regarding analog technology

may be a non sequitur in an act entitled the “Digital Millennium Copyright

Act.” Nonetheless, §1201(k)(5) of the DMCA prescribes that any violation of

17 U.S.C. §1201(k)(1) regarding copy controls on certain analog recording

devices “shall be treated as a violation of” §1201(b)(1). Section 1201(k)(1)(A)

proscribes tracking in any VHS, Beta, or 8mm format analog video cassette

recorder or 8mm analog video cassette camcorder unless such recorder or

camcorder “conforms to the automatic gain control copy control technology.”

17 U.S.C. §1201(k)(1)(A)(i)-(iv). e same prohibition applies to any “analog

video cassette recorder that records using an NTSC format video input.” 17

U.S.C. §1201(k)(1)(A)(v). Section 1201(k)(1)(B) also prohibits tracking in

any VHS or 8mm format analog video cassette recorder if the recorder’s design

(previously conforming with § 1201(k)(1)(A)) was modied to no longer

conform with automatic gain control copy technology. 17 U.S.C. §1201(k)

(1)(B)(i). Similarly, the DMCA prohibits tracking in such an analog video

cassette recorder if it “previously conformed to the four-line colorstripe copy

control technology” but was later modied so that it “no longer conforms to

such technology.” 17 U.S.C. § 1201(k)(1)(B)(ii). In addition, the DMCA

requires “manufacturers that have not previously manufactured or sold VHS

[or 8mm] format analog video cassette recorder[s] to conform to the four-line

colorstripe copy control technology.” Id.

Notably, § 1201(k) does not (1) require analog camcorders to conform

to the automatic gain control copy control technology for video signals

received through a camera lens; (2) apply to the manufacture or tracking in

any “professional analog video cassette recorder;” or (3)apply to transactions

involving “any previously owned analog video cassette recorder” that had been

both legally manufactured and sold when new and also not later modied to

violate §1201(k). 17 U.S.C. §1201(k)(3)(A)-(C).

5. Falsifying, Altering, or Removing Copyright Management

Information—17U.S.C. §1202

Section 1202 prohibits anyone from knowingly falsifying, removing, or

altering “copyright management information”—such as a copyrighted work’s

title, copyright notice, or author—with the intent to induce, enable, facilitate,

or conceal infringement. 17 U.S.C. § 1202(a)(1), (b)(1), (c) (dening

V. Digital Milllenium Copyright Act 263

“copyright management information”). Section 1202 further prohibits

intentionally facilitating infringement by knowingly distributing or importing

for distribution (1) false copyright management information or (2) copyright

management information knowing that such information has been removed

or altered without authority. 17 U.S.C. §1202(a)(2), (b)(2). Finally, § 1202

prohibits anyone from intentionally facilitating infringement by distributing,

importing for distribution, or publicly performing copyrighted works, copies of

works, or phonorecords knowing that their copyright management information

has been removed or altered without authority. 17 U.S.C. §1202(b)(3).

us, while §1201 primarily targets circumvention devices and technology,

“Section 1202 imposes liability for specied acts. It does not address the

question of liability for persons who manufacture devices or provide services.”

H.R. Rep. No. 105-551 (I), at 22 (1998). Like §1201, however, to establish

a criminal violation of §1202, the government must prove two elements in

addition to those in the statute itself—that the defendant violated §1202 both

(1) willfully and (2) for purposes of commercial advantage or private gain. 17

U.S.C. §1204(a). Criminal enforcement of §1202 of the DMCA is rare, and

prosecutors are encouraged to contact CCIPS at (202) 514-1026 for guidance

when considering a charge under this provision.

C. Defenses

e DMCA provides for several statutory defenses, exceptions, and even

“exemptions” to the anti-circumventing and anti-tracking prohibitions set

forth in 17 U.S.C. §1201. As the following discussion demonstrates, these

defenses do not apply uniformly to the anti-circumvention (§1201(a)(1)(A))

and anti-tracking provisions (§1201(a)(2), (b)).

1. Statute of Limitations

Section 1204(c) of the DMCA states that “[n]o criminal proceeding shall

be brought under this section unless such proceeding is commenced within 5

years after the cause of action arose.” 17 U.S.C. §1204(c).

2. Librarian of Congress Regulations

e Librarian of Congress promulgates regulatory exemptions every three

years that apply only to §1201(a)(1)(A)’s prohibitions against circumventing

access controls. See Section B.1.e. of this Chapter.

264 Prosecuting Intellectual Property Crimes

3. Certain Nonprot Entities

Section 1204(b) exempts from criminal prosecution all nonprot libraries,

archives, educational institutions, or public broadcasting entities as dened by

17 U.S.C. §118(f). See also 17 U.S.C. § 1201(d) (listing other entities). e

exception set forth in §1201(d) for nonprot libraries, archives, and educational

institutions is not as broad as the exemption from criminal prosecution for

the same group of entities set forth in §1204(b), because the latter (1) also

includes “public broadcasting entities” and (2) precludes prosecution for the

anti-circumvention and the anti-tracking violations of §1201.

4. Information Security Exemption

“[A]ny lawfully authorized investigative, protective, information security,

or intelligence activity of an ocer, agent, or employee” or contractor of the

federal government or a state government is exempt from all three of §1201’s

prohibitions for information security work on “a government computer,

computer system, or computer network.” 17 U.S.C. § 1201(e). Congress

intended that the term “computer system” would have the same meaning in

§1201(e) as it does in the Computer Security Act. H.R. Conf. Rep. No. 105-

796, at 66 (1998), reprinted in 1998 U.S.C.C.A.N. 639, 643.

is exemption is narrower than it might rst appear. Congress intended

this exemption to permit law enforcement to lawfully disable technological

protection measures protecting copyrighted works (e.g., measures protecting

access to copyrighted computer software) to probe internal government

computer systems to ensure that they are not vulnerable to hacking. Id. at 65-

66. us, “information security” consists of “activities carried out in order to

identify and address the vulnerabilities of a government computer, computer

system, or computer network.” 17 U.S.C. §1201(e) (emphasis added); see also

H.R. Conf. Rep. No. 105-796, at 8.

5. Reverse Engineering and Interoperability of Computer Programs

Section 1201(f) contains three reverse engineering or “interoperability”

defenses for individuals using circumvention technology “‘for the sole purpose’

of trying to achieve ‘interoperability’ of computer programs through reverse

engineering.” Davidson & Assocs. v. Jung, 422 F.3d 630, 641-42 (8th Cir.

2005) (quoting 17 U.S.C. §1201(f)). Note that at least one court has held

that reverse engineering can satisfy the statutory fair use exception. Bowers v.

Baystate Techs., Inc., 320 F.3d 1317, 1325 (Fed. Cir. 2003).

V. Digital Milllenium Copyright Act 265

e key term for these defenses, “interoperability,” “means the ability of

computer programs to exchange information, and of such programs mutually

to use the information which has been exchanged.” 17 U.S.C. §1201(f)(4).

e scope of these exemptions is expressly limited to “computer programs” and

does not authorize circumvention of access controls that protect other classes

of copyrighted works, such as movies. Universal City Studios, Inc. v. Reimerdes,

82 F. Supp. 2d 211, 218 (S.D.N.Y. 2000).

e rst interoperability defense allows a person “who has lawfully

obtained the right to use a copy of a computer program... for the sole purpose

of identifying and analyzing those elements of the program that are necessary

to achieve interoperability of an independently created computer program with

other programs, and that have not previously been readily available to th[at]

person” to circumvent an access control without violating the DMCA’s anti-

circumvention prohibition set forth in §1201(a)(1)(A). 17 U.S.C. § 1201(f )

(1). By denition, this exemption does not apply to one who obtains a copy of

the computer program illegally.

Second, §1201(f)(2) exempts violations of the DMCA’s anti-tracking

provisions (§1201(a)(2), (b)) for those who “develop and employ technological

means” that are “necessary” to enable interoperability. Despite the statute’s

express requirement that this defense only applies “if such means are necessary

to achieve such interoperability,” 17 U.S.C. §1201(f)(2), at least one court has

held that “the statute is silent about the degree to which the ‘technological means’

must be necessary, if indeed they must be necessary at all, for interoperability.”

Lexmark Int’l, Inc. v. Static Control Components, Inc., 387 F.3d 522, 551 (6th

Cir. 2004).

ird, § 1201(f )(3) authorizes one who acquires information through

§ 1201(f)(1) to make this information and the technical means permitted

under § 1201(f)(2) available to others “solely for the purpose of enabling

interoperability of an independently created computer program with other

programs.” 17 U.S.C. § 1201(f)(3). Signicantly, § 1201(f)(3) “permits

information acquired through reverse engineering to be made available to

others only by the person who acquired the information.” Universal City Studios,

Inc. v. Reimerdes, 111 F. Supp. 2d 294, 320 (S.D.N.Y. 2000), a’d sub nom.,

Universal City Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001) (emphasis

added). Consequently, one court disallowed this defense because, inter alia,

the defendants “did not do any reverse engineering [themselves]. ey simply

took [the program] o someone else’s web site and posted it on their own.” Id.

266 Prosecuting Intellectual Property Crimes

None of these defenses apply if the defendant’s conduct also constituted

applicable law.” See 17 U.S.C. § 1201(f)(1)-(3); see also Lexmark, 387 F.3d at

551 (holding that defendant, which produced a computer chip that allowed

a remanufactured printer cartridge to interoperate with another’s originally

manufactured printer, did not commit infringement because the computer

program that defendant had copied from plainti was not copyrighted).

To establish a violation of the anti-tracking provisions, prosecutors need

not establish that the defendant’s motive for manufacturing or tracking in a

circumvention tool was to infringe or to permit or encourage others to infringe.

See Reimerdes, 111 F. Supp. 2d at 319. In contrast, to determine whether

defendants meet the interoperability exemption, prosecutors must determine

whether the defendant’s motive for developing or tracking the technological

means for circumventing an access or copy control was “solely for the purpose”

of achieving or enabling interoperability. Id. at 320.

Courts strictly apply the requirement that circumvention and dissemination

occur “solely for the purpose” of achieving interoperability and not to facilitate

a copyrighted computer game’s access controls for the purpose of developing

and disseminating a copy or “emulator” that was essentially identical to

the original but lacked the original’s access control, “constituted more than

enabling interoperability” under §1201(f )(1) and “extended into the realm

of copyright infringement.” Davidson & Assocs., Inc. v. Internet Gateway, Inc.,

334 F. Supp. 2d 1164, 1185-87 (E.D. Mo. 2004) (“e defendants’ purpose

in developing the bnetd server was to avoid the anti-circumvention restrictions

of the game and to avoid the restricted access to Battle.net. us, the sole

purpose of the [] emulator was not to enable interoperability.”), a’d, 422 F.3d

at 642 (“Appellant’s circumvention in this case constitutes infringement.”); cf.

Reimerdes, 111 F. Supp. 2d at 320 (holding that the purpose of [the defendant’s

program] was simply to decrypt DVD access controls and not, as defendants

claimed, to achieve interoperability between computers running Linux operating

system because [the program] also could be used to decrypt and play DVDs on

unlicensed players running the Windows operating system). In addition, where

the development (or distribution to the public) of circumvention technology

itself constitutes copyright infringement, the DMCA expressly precludes

reliance on §1201(f)(2) and (3). See id. (holding that “[t]he right to make the

information available extends only to dissemination ‘solely for the purpose’ of

V. Digital Milllenium Copyright Act 267

achieving interoperability as dened in the statute. It does not apply to public

dissemination of means of circumvention”) (footnote omitted).

Moreover, legislative history suggests that the “independently created

[computer] program” referenced in this exemption must not infringe the original

computer program and instead must be “a new and original work.” H.R. Rep.

No. 105-551 (II), at 42 (1998). us, if the defendant’s functionally equivalent

computer program is “new and original” only insofar as it lacks the original’s

access controls, then the defendant has not created an “independently created

computer program.” Davidson, 334 F. Supp. 2d at 1185, a’d, 422 F.3d at 642.

If, on the other hand, the defendant’s program actually performs functions that

the original program did not, courts are more inclined to nd that defendants

have satised the “independently created computer program” requirement.

Lexmark, 387 F.3d at 550 (holding that even though remanufacturer’s toner

cartridge chip contained “exact copies” of original manufacturer’s computer

program, it was nonetheless an “independently created computer program”

because it “contain[s] other functional computer programs beyond the copied”

original program). e independent program need not have already existed

before the defendant reverse-engineered the original program. Id. at 550-

51 (holding that “nothing in the statute precludes simultaneous creation of

an interoperability device and another computer program” so long as it is

“‘independently’ created”).

6. Encryption Research

Certain encryption research is exempted from liability under §1201(a) (but

not from §1201(b)). Reimerdes, 111 F. Supp. 2d at 321 n.154. For purposes of

this exemption, “encryption research” consists of “activities necessary to identify

and analyze aws and vulnerabilities of encryption technologies applied to

copyrighted works, if these activities are conducted to advance the state of

knowledge in the eld of encryption technology or to assist in the development

of encryption products.” 17 U.S.C. §1201(g)(1)(A). e phrase, “encryption

technologies,” “means the scrambling and descrambling of information using

mathematical formulas or algorithms.” 17 U.S.C. §1201(g)(1)(B).

e rst encryption research exemption is that it is not a violation of

the anti-circumvention provision (§ 1201(a)(1)(A)) where a defendant

“circumvent[s] a technological measure as applied to a copy, phonorecord,

performance, or display of a published work in the course of an act of good

faith encryption research if” four conditions are satised: (1) he “lawfully

268 Prosecuting Intellectual Property Crimes

obtained” the applicable encrypted published work; (2) the circumvention “is

necessary to conduct such encryption research;” (3)he “made a good faith eort

to obtain authorization before the circumvention;” and (4)the circumvention

does not constitute copyright infringement “or a violation of applicable law,”

including the Computer Fraud Abuse Act of 1986, 18 U.S.C. § 1030. 17

U.S.C. §1201(g)(2).

To determine whether a defendant qualies for this exemption, courts

consider the following non-exclusive factors: (1) whether the results of the

putative encryption research are disseminated in a manner designed to advance

the state of knowledge of encryption technology versus facilitation of copyright

infringement; (2) whether the person in question is engaged in legitimate

study of or work in encryption; and (3) whether the results of the research are

communicated in a timely fashion to the copyright owner. 17 U.S.C. §1201(g)

(3); see also Reimerdes, 111 F. Supp. 2d at 321.

e second encryption research exemption is that a defendant does

not violate the access control anti-tracking provision (§ 1201(a)(2)) for

developing and distributing tools, such as software, that are needed to conduct

permissible encryption research as described in the rst encryption research

exemption in §1201(g)(2). 17 U.S.C. §1201(g)(4); H.R. Rep. No. 105-551

(II), at 44 (1998). is exemption essentially frees an encryption researcher to

cooperate with other researchers, and it also allows one researcher to provide

the technological means for such research to another to verify the research

results. Id.

It is not a violation of §1201(a)(2) for a person to (1) “develop and employ

technological means to circumvent a technological measure for the sole purpose

of that person performing the acts of good faith encryption research described

in” §1201(g)(2) and (2) “provide the technological means to another person

with whom he or she is working collaboratively” for the purpose of either

conducting good faith encryption research or having another person verify

such research as described in §1201(g)(2). 17 U.S.C. §1201(g)(4).

is exemption is quite complex and has been relied upon infrequently in

reported decisions. For a report on the early eects of this exemption (or lack

thereof) on encryption research and on protection of content owners against

unauthorized access of their encrypted copyrighted works, see the “Report to

Congress: Joint Study of Section 1201(g) of e Digital Millennium Copyright Act”

prepared by the U.S. Copyright Oce and the National Telecommunications

V. Digital Milllenium Copyright Act 269

and Information Administration of the Department of Commerce pursuant

to §1201(g)(5), available at http://www.copyright.gov/reports/studies/dmca_

report.html.

7. Restricting Minors’ Access to the Internet

Section 1201(h) creates a discretionary exception, giving the court

discretion to waive violations of §1201(a)(1)(A) and 1201(a)(2) so that those

prohibitions are not applied in a way that “inadvertently make[s] it unlawful

for parents to protect their children from pornography and other inappropriate

material available on the Internet, or have unintended legal consequences for

manufacturers of products designed solely to enable parents to protect their

children.” H.R. Rep. No. 105-551 (II), at 45 (1998). Specically, §1201(h)

authorizes the court to “consider the necessity for its intended and actual

incorporation in a technology, product, service, or device, which (1) does

not itself violate the provisions of this title; and (2) has the sole purpose to

prevent the access of minors to material on the Internet.” 17 U.S.C. §1201(h).

Congress was concerned that if Internet ltering tools are developed in the

future that incorporate a part or component that circumvent access controls to

a copyrighted work “solely in order to provide a parent with the information

necessary to ascertain whether that material is appropriate for his or her child,

this provision authorizes a court to take into consideration the necessity for

incorporating such part or component in a suit alleging a violation of section

1201(a).” S. Rep. No. 105-190, at 14 (1998).

To date, no reported case has applied this discretionary exception.

8. Protection of Personally Identifying Information

Section 1201(i)(1) states that it is not a violation of §1201(a)(1)(A) to

circumvent an access control for the purpose of disabling les that collect

personally identiable information like “‘cookie les’—which are automatically

deposited on hard drives of computers of users who visit World Wide Web

sites.” Id. at 18. However, if a copyright owner conspicuously discloses

that its access control also contains personal data gathering capability, and

if the consumer is given the ability to eectively prohibit that gathering or

dissemination of personal information, then this exception does not apply and

no circumvention is permitted. H.R. Rep. No. 105-551 (II), at 45 (1998).

Further, if the copyright owner conspicuously discloses that neither the access

control nor the work it protects collect personally identifying information,

270 Prosecuting Intellectual Property Crimes

then no circumvention is permitted. 17 U.S.C. §1201(i)(2). Note that this

exception does not apply to the anti-tracking prohibitions.

9. Security Testing

A person who engages in good faith “security testing” does not violate

§ 1201(a). 17 U.S.C. § 1201(j). “Security testing” consists of “accessing a

computer, computer system, or computer network, solely for the purpose of good

faith testing, investigating, or correcting, a security aw or vulnerability, with

the authorization of the owner or operator of such computer, computer system,

or computer network.” 17 U.S.C. §1201(j)(1). Without such authorization,

a defendant cannot qualify for this exemption. Reimerdes, 111 F. Supp. 2d at

321. A defendant engaging in security testing does not violate §1201(a)(1)

(A) so long as such testing does not constitute copyright infringement nor a

violation of other applicable law such as the Computer Fraud and Abuse Act

of 1986. 17 U.S.C. §1201(j)(2). In evaluating this exemption, the DMCA

requires a court to consider whether the information derived from the security

testing (1) “was used solely to promote the security of the owner or operator

of [or shared directly with the developer of] such computer, computer system

or computer network, or” (2) “was used or maintained in a manner that does

not facilitate [copyright] infringement” or a violation of other applicable law.

17 U.S.C. §1201(j)(3).

Likewise, a defendant does not violate § 1201(a)(2) for tracking in a

“technological means for the sole purpose of performing the acts of security

testing” if the testing does not “otherwise violate section (a)(2).” 17 U.S.C.

§1201(j)(4).

10. Constitutionality of the DMCA

Civil and criminal defendants have repeatedly challenged the

constitutionality of Title I of the DMCA, particularly 17 U.S.C. §1201(a)

(2) and 1201(b). Defendants have repeatedly challenged Congress’s authority,

for example, to enact the DMCA pursuant to the Commerce Clause and

Intellectual Property Clause. None of these challenges has yet prevailed.

a. Congress’s Constitutional Authority to Enact §1201 of the DMCA

Congress enacted §1201 pursuant to its authority under the Commerce

Clause. See U.S. Const., art. I, § 8, cl. 3; H.R. Rep. No. 105-551 (II), at 22, 35

(1998). Federal courts have uniformly upheld this authority. See, e.g., United

V. Digital Milllenium Copyright Act 271

States v. Elcom Ltd., 203 F. Supp. 2d 1111, 1138 (N.D. Cal. 2002) (“Congress

plainly has the power to enact the DMCA under the Commerce Clause.”); 321

Studios v. Metro Goldwyn Mayer Studios, Inc., 307 F. Supp. 2d 1085, 1103 (N.D.

Cal. 2004) (same). Article I, Section 8, Clause 3 of the Constitution delegates

to Congress the power “[t]o regulate Commerce with foreign Nations, and

among the several States, and with the Indian Tribes.” Congress does not exceed

its Commerce Clause authority where a rational basis exists “for concluding

that a regulated activity suciently aected interstate commerce.” United

States v. Lopez, 514 U.S. 549, 558 (1995) (citations omitted). e DMCA

prohibits circumventing access controls and the tracking in technology that

facilitates circumvention of access or copy controls—the type of conduct that

has a substantial eect on commerce between the states and commerce with

foreign nations. See 321 Studios, 307 F. Supp. 2d at 1103. Congress created the

DMCA’s anti-tracking prohibitions to directly regulate specic items moving

in commerce (circumvention technology) and to protect channels of interstate

commerce, including electronic commerce. H.R. Rep. No. 105-551(II),

at 22 (1998). Most signicantly, to the extent that circumvention devices

enable criminals to engage in piracy by unlawfully copying and distributing

copyrighted works, the sale of such devices has a direct eect on suppressing

the market for legitimate copies of the works. See 321 Studios, 307 F. Supp.

2d at 1103; Elcom, 203 F. Supp. 2d at 1138. Accordingly, Congress had a

rational basis for concluding that §1201 regulates activity that substantially

aects interstate commerce and therefore acted within its authority under the

Commerce Clause. See Elcom, 203 F. Supp. 2d at 1138.

Courts have similarly rejected the argument that the DMCA violates the

Intellectual Property Clause. e Commerce Clause authorizes Congress to

enact legislation that protects intellectual property rights, even where the

Intellectual Property Clause alone does not provide sucient authority for such

legislation. Federal courts have long recognized that while each of the powers

of Congress is alternative to all of the others, “what cannot be done under one

of them may very well be doable under another.” United States v. Moghadam,

175 F.3d 1269, 1277 (11th Cir. 1999). Congress may thus use the Commerce

Clause as a basis for legislating within a context contemplated by another

section of the Constitution (like the Intellectual Property Clause) so long as

Congress does not override an otherwise existing Constitutional limitation.

Id. (holding the criminal anti-bootlegging statute, 18 U.S.C. § 2319A, valid

under the Commerce Clause even if it is beyond Congress’s authority under

the Intellectual Property Clause); compare Heart of Atlanta Motel v. United

272 Prosecuting Intellectual Property Crimes

States, 379 U.S. 241 (1964) (upholding public accommodation provisions of

the Civil Rights Act of 1964 as valid under the Commerce Clause despite the

fact that the Act may have reached beyond Congress’s authority under the

Fourteenth Amendment), and South Dakota v. Dole, 483 U.S. 203, 207 (1987)

(holding that Congress could rely on the Spending Clause to impose restrictions

that would otherwise exceed Congress’s power), with Railway Labor Executives’

Ass’n v. Gibbons, 455 U.S. 457 (1982) (striking down act by Congress under

Commerce Clause that violated Bankruptcy Clause’s uniformity requirement).

Further, the Intellectual Property Clause “itself is stated in positive terms,

and does not imply any negative pregnant” that would suggest “a ceiling on

Congress’ ability to legislate pursuant to other grants.” Moghadam, 175 F.3d

at 1280 (discussing constitutionality of the criminal anti-bootlegging statute,

18 U.S.C. § 2319A). Moreover, “[e]xtending quasi-copyright protection also

furthers the purpose of the Copyright Clause to promote the progress of the

useful arts.” Id.

e DMCA’s enactment pursuant to the Commerce Clause was valid

because it “is not fundamentally inconsistent with” the purpose of the Intellectual

Property Clause. Elcom, 203 F. Supp. 2d at 1139-41. Indeed, Congress “viewed

the [DMCA] legislation as ‘paracopyright’ legislation that could be enacted

under the Commerce Clause.” Id. at 1140. Moreover, protecting copyright

owners’ rights against unlawful piracy by preventing tracking in tools that

would enable widespread piracy and unlawful infringement (i.e., circumvention

tools) is consistent with the Intellectual Property Clause’s grant to Congress of

the power to “‘promote the useful arts and sciences’ by granting exclusive rights

to authors in their writings.” Id.

Specically, courts have rejected the common argument that the DMCA’s

ban on the sale of circumvention tools violates the Intellectual Property Clause’s

“limited Times” prohibition. at argument is based on the false premise

that the DMCA has the eect of allowing publishers to claim copyright-like

protection in copyrighted works, even after they pass into the public domain.

Prosecutors should vigorously oppose this awed argument. Nothing in the

DMCA permits a copyright owner to prevent his work from entering the public

domain, despite the expiration of the copyright. Id. at 1141. As discussed in the

right to reproduce and distribute copies of an original work of authorship, to

make derivative works, and to perform the work publicly for a limited time. See

supra Chapter II; see also Elcom, 203 F. Supp. 2d at 1141; 17 U.S.C. §§106,

V. Digital Milllenium Copyright Act 273

302, 303. When a copyright expires, so does any protectable intellectual

property right in a work’s expression. Elcom, 203 F. Supp. 2d at 1141. Upon

expiration, the user may copy, quote, or republish the expression without any

legally enforceable restriction on the use of the expression. Id. “Nothing within

the DMCA grants any rights to anyone in any public domain work. A public

domain work remains in the public domain[,] and any person may make use of

the public domain work for any purpose.” 321 Studios, 307 F. Supp. 2d at 1104

(internal quotation marks and citation omitted). Accordingly, the DMCA

does not extend any copyright protections beyond the statutory copyright

term merely by prohibiting the tracking in or marketing of circumvention

technology. Id.

b. e First Amendment

Criminal and civil DMCA defendants have raised both facial and “as

applied” First Amendment challenges. Although federal courts have uniformly

rejected such challenges, defendants continue to raise them in part because the

overbreadth and “as applied” First Amendment tests each can include a fact-

dependent component.

i. Facial Challenges

Facial First Amendment challenges to §1201—typically alleging that the

statute is unconstitutionally overbroad—fail for at least two reasons. First, the

DMCA does not expressly proscribe spoken words or patently expressive or

communicative conduct. See Roulette v. City of Seattle, 97 F.3d 300, 303 (9th

Cir. 1996). “[A] facial freedom of speech attack must fail unless, at a minimum,

the challenged statute is directed narrowly and specically at expression or

conduct commonly associated with expression.” Id. at 305 (citations and

internal quotation marks omitted); see also Virginia v. Hicks, 539 U.S. 113,

123 (2003).

Section 1201 of the DMCA, “[b]y its terms,” is not directed at expression

or conduct associated with expression. Elcom, 203 F. Supp. 2d at 1133. Instead,

§1201 is a law of general application focused on the circumvention of access

controls and the tracking in circumvention tools; §1201’s prohibitions are

not focused on speech. Id.; see also Anderson v. Nidorf, 26 F.3d 100, 103-04

(9th Cir. 1994) (holding that California’s anti-piracy statute is not subject to

facial challenge because, inter alia, the statute focused upon infringement for

commercial advantage or private nancial gain). Accordingly, on this basis

274 Prosecuting Intellectual Property Crimes

alone, “an overbreadth facial challenge [to §1201] is not available.” Elcom,

203 F. Supp. 2d at 1133.

Second, even were the DMCA directed at spoken words or expressive

conduct—which no court has yet held—such a nding would be insucient

to establish overbreadth as a matter of law. e defendant would still have to

independently establish that the DMCA is written so broadly that it infringes

unacceptably on the First Amendment rights of third parties. City Council v.

Taxpayers for Vincent, 466 U.S. 789, 798-99 (1984). e overbreadth doctrine

“is, manifestly, strong medicine,” to be employed “sparingly and only as a last

resort.” Broadrick v. Oklahoma, 413 U.S. 601, 613 (1973). For this reason, a

statute will be declared facially unconstitutional for overbreadth only if the

court nds a realistic danger that the statute itself will signicantly compromise

recognized First Amendment protections of parties not before the court. See

New York State Club Ass’n, Inc. v. City of New York, 487 U.S. 1, 11 (1988).

e DMCA neither compromises a recognized First Amendment protection

of third parties, nor is there a realistic danger that such a compromise would

occur. Moreover, §1201’s “plainly legitimate sweep” targets circumvention of

access controls and the manufacture or tracking in circumvention technology,

not speech. us, it is highly unlikely that defendants could establish the facts

necessary to claim that § 1201 is overbroad. See Elcom, 203 F. Supp. 2d at

1133.

ii. “As Applied” Challenges

First Amendment “as applied” challenges to § 1201 necessarily vary

according to the technology at issue in each defendant’s particular case. DMCA

defendants have often alleged that the DMCA violates the First Amendment

when applied to circumvention technology in the form of computer code.

Although it is arguable whether computer object code constitutes speech,

every federal court that has held that computer code is speech has nonetheless

ruled that the anti-tracking provisions do not violate the First Amendment

under an intermediate scrutiny standard because the DMCA (1) is content-

neutral; (2) furthers important governmental interests in promoting electronic

commerce and protecting the rights of copyright owners; and (3)is suciently

tailored to achieve these objectives without unduly burdening free speech. See,

e.g., Elcom, 203 F. Supp. 2d at 1126-28 (applying United States v. O’Brien, 391

U.S. 367, 376 (1968) (“When ‘speech’ and ‘nonspeech’ elements are combined

in the same course of conduct, a suciently important governmental interest

V. Digital Milllenium Copyright Act 275

in regulating the nonspeech element can justify incidental limitations on First

Amendment freedoms.”)).

e DMCA’s anti-tracking provisions are content neutral. See Universal

City Studios, Inc. v. Corley, 273 F.3d 429, 454 (2d Cir. 2001) (§1201(a)(2));

321 Studios, 307 F. Supp. 2d at 1100 (§1201(a)(2) and 1201(b)); Elcom, 203

F. Supp. 2d at 1128-29 (§ 1201(b)). e principal inquiry in determining

whether a statute is content neutral is “‘whether the government has adopted a

regulation of speech because of [agreement or] disagreement with the message

it conveys.’” Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 642 (1994) (quoting

Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989)). e government’s

purpose is the controlling measure. Id.

By this measure, the DMCA’s anti-tracking provisions are clearly

content-neutral. Congress intended the DMCA to target the non-speech,

functional components of circumvention technology, Corley, 273 F.3d at 454,

not to “stie[] speech on account of its message.” Turner, 512 U.S. at 641. e

DMCA is not a content-based statute that would require strict scrutiny under

the First Amendment. See 321 Studios, 307 F. Supp. 2d at 1100. In fact, “[t]he

reason that Congress enacted the anti-tracking provision of the DMCA had

nothing to do with suppressing particular ideas of computer programmers and

everything to do with functionality.” Universal City Studios, Inc. v. Reimerdes,

111 F. Supp. 2d 294, 329 (S.D.N.Y. 2000), a’d sub nom. Universal City

Studios, Inc. v. Corley, 273 F.3d 429 (2d Cir. 2001).

Ultimately, the DMCA is not concerned with whatever capacity

circumvention technology might have for conveying information to a person,

and that capacity is what arguably creates the speech component of, for example,

decrypting computer code. See Corley, 273 F.3d at 454. e DMCA would

apply to such code solely because of its capacity to decrypt, for instance, an

access control. Id. “at functional capability is not speech within the meaning

of the First Amendment.” Id.

A statute that is content neutral is subject to intermediate scrutiny and

hence satises the First Amendment “if it furthers an important or substantial

government interest; if the government interest is unrelated to the suppression

of free expression; and if the incidental restriction on alleged First Amendment

freedoms is no greater than is essential to the furtherance of that interest.”

Turner, 512 U.S. at 662 (quotation and citation omitted). e government’s

interest in preventing unauthorized copying of copyrighted works and

276 Prosecuting Intellectual Property Crimes

promoting electronic commerce are unquestionably substantial. See H.R.

Rep. No. 105-551 (II), at 23 (1998); Elcom, 203 F. Supp. 2d at 1129-30;

Corley, 273 F.3d at 454. Congress enacted the DMCA after evaluating a great

deal of evidence establishing that copyright and intellectual property piracy

are endemic, especially digital piracy. See S. Rep. No. 105-190, at 8 (1998).

us, by prohibiting circumvention of access controls and the tracking in

circumvention technology, “the DMCA does not burden substantially more

speech than is necessary to achieve the government’s asserted goals of promoting

electronic commerce, protecting copyrights, and preventing electronic piracy.”

See 321 Studios, 307 F. Supp. 2d at 1103 (internal quotation marks and citation

omitted).

Finally, courts have uniformly found that the DMCA’s anti-tracking

provisions meet the Supreme Court’s narrow tailoring requirement that

a content-neutral regulation of speech promote a substantial government

interest that would be achieved less eectively absent the regulation. See id.

at 1101. e DMCA’s numerous exceptions (see Section C. of this Chapter)

further demonstrate that Congress narrowly tailored the statute to balance, for

instance, the needs of law enforcement, computer programmers, encryption

researchers, and computer security specialists against the problems created

by circumvention technology. See 17 U.S.C. §1201(e)-(g), (j); Elcom, 203 F.

Supp. 2d at 1130-31.

c. Vagueness

Courts have also rejected challenges to the DMCA under the Fifth

Amendment on vagueness grounds. Vagueness may invalidate a statute if the

statute either (1) fails to provide the kind of notice that will enable ordinary

people to understand what conduct it prohibits, or (2) authorizes or encourages

arbitrary and discriminatory enforcement. City of Chicago v. Morales, 527

U.S. 41, 56 (1999). Defendants typically argue that the DMCA is vague

or otherwise inrm because it bans only those circumvention tools that are

primarily designed to circumvent access or copy controls to enable copyright

infringement, not those enabling fair uses. See, e.g., Elcom, 203 F. Supp. 2d

at 1122. is issue has arisen with respect to § 1201(b), which prohibits

tracking in any copy control circumvention technology. Id. at 1124.

Courts have held, however, that the DMCA is not unconstitutionally

vague, because it imposes a blanket ban on all circumvention tools regardless

of whether the ultimate purpose for their use is fair or infringing. Id. “Congress

V. Digital Milllenium Copyright Act 277

thus recognized that most uses of tools to circumvent copy restrictions would

be for unlawful infringement purposes rather than for fair use purposes and

sought to ban all circumvention tools that ‘can be used’ to bypass or avoid copy

restrictions.” Id. at 1125 (quoting S. Rep. No. 105-190, at 29-30). Moreover,

Congress’s intent to preserve fair use, see §1201(c), is not inconsistent with

a ban on tracking in circumvention technologies, even those that could be

used for fair use purposes rather than infringement. Elcom, 203 F. Supp. 2d at

1125. Although the DMCA may make certain fair uses in digital works more

dicult, the DMCA does not eliminate fair use and in fact expressly permits

it. See Elcom, 203 F. Supp. 2d at 1125; 17 U.S.C. § 1201(c)(1). “us, while

it is not unlawful to circumvent for the purpose of engaging in fair use, it

is unlawful to trac in tools that allow fair use circumvention.” Elcom, 203

F. Supp. 2d at 1125. Further, because the DMCA prohibits the tracking

of all circumvention tools, Congress need not expressly tie the use of the

tool to an unlawful purpose (as may be required, for instance, in a multi-

use device context). Id. Accordingly, the DMCA, “as written, allows a person

to conform his or her conduct to a comprehensible standard and is thus not

unconstitutionally vague.” Id. (citation omitted).

d. Fair Use

For a more detailed explanation of the fair use doctrine, see Section C.5. of

Chapter II of this Manual.

Defendants typically style their fair use defense to a DMCA violation as an

“as applied” First Amendment challenge. For example, trackers have raised

fair use challenges “as applied” to the First Amendment rights of third-party

purchasers of the tracker’s circumvention tools. is type of fair use defense

fails for at least three reasons. First, the challengers usually lack standing. “[A]

person to whom a statute may constitutionally be applied will not be heard

to challenge that statute on the ground that it may conceivably be applied

unconstitutionally to others, in other situations not before the Court.” Broadrick

v. Oklahoma, 413 U.S. 601, 610 (1973). ose who trac in circumvention

tools that they do not use cannot assert a fair use defense because they are not

engaging in any use—fair or infringing—of a copyrighted work. Simply put,

trackers lack standing to challenge the DMCA’s constitutionality based on its

application to the trackers’ customers.

Second, even a purchaser who could have standing because he did use a

copyrighted work cannot rely on the fair use defense, because the DMCA does

278 Prosecuting Intellectual Property Crimes

not present an issue of infringement. Fair use is an armative defense to copyright

infringement, something that the user can accomplish only after he has rst

circumvented a work’s copy controls. See, e.g., Elcom, 203 F. Supp. 2d at 1121.

e DMCA “targets the circumvention of digital walls guarding copyrighted

material (and tracking in circumvention tools), [it] does not concern itself

with the use of those materials after circumvention has occurred.” Corley, 273

F.3d at 443; United States v. Crippen, No. CR09-703PSG, 2010 WL 7198205,

at *2 (C.D. Cal. Nov. 23, 2010) (same) (granting the government’s motion

in limine to exclude evidence of fair use at trial where defendant was charged

with DMCA violations for modifying Microsoft Xbox gaming systems); see

also MGE UPS Sys., Inc. v. GE Consumer and Ind., Inc., 622 F.3d 361, 366

(5th Cir. 2010) (“Because § 1201(a)(1) is targeted at circumvention, it does

not apply to the use of copyrighted works after the technological measure has

been circumvented.”). us, the DMCA’s anti-tracking provisions are not

concerned with purchasers’ downstream use of circumvention tools. See Corley,

273 F.3d at 442; Realnetworks, Inc. v. DVD Copy Control Ass’n, 641 F. Supp.

2d 913, 943-44 (N.D. Cal. 2009); 321 Studios, 307 F. Supp. 2d at 1097-98.

ird, no court has held that the fair use doctrine is a categorical

constitutional requirement. Corley, 273 F.3d at 458 (“[T]he Supreme Court

has never held that fair use is constitutionally required.”). Fair use is a judicially-

created doctrine. Reimerdes, 111 F. Supp. 2d at 321. Fair use existed only at

common law until Congress codied it in the 1976 Copyright Act at 17 U.S.C.

§107, in order to maintain the common-law status quo. See H.R. Rep. No.

94-1476, at 66 (1976), reprinted in 1976 U.S.C.C.A.N. 5659, 5680.

e fact that the fair use doctrine accommodates First Amendment

protections—i.e., that certain fair uses may also be protected under the First

Amendment, cf. Eldred v. Ashcroft, 537 U.S. 186, 218-20 (2003); Harper &

Row Publishers, Inc. v. Nation Enters., 471 U.S. 539, 560 (1985)—does not

make the fair use doctrine and the First Amendment categorically coextensive.

See Elcom, 203 F. Supp. 2d at 1134 n.4 (“[ere] is no direct authority for

the proposition that the doctrine of fair use is coextensive with the First

Amendment, such that ‘fair use’ is a First Amendment right”).

Most signicantly, courts have rejected “the proposition that fair use, as

protected by the Copyright Act, much less the Constitution, guarantees copying

by the optimum method or in the identical format of the original.” Corley, 273

F.3d at 459. Fair use of copyrighted digital works is still possible under the

V. Digital Milllenium Copyright Act 279

DMCA, even though copying of such works may prove more dicult. 321

Studios, 307 F. Supp. 2d at 1102.

In addition, the DMCA does not place an impermissible nancial burden

on fair users’ First Amendment rights. Courts have found that this “nancial

burden” argument “is both an overstatement of the extent of the fair use

doctrine and a misstatement of First Amendment law.” Id. A statute’s nancial

burden on a speaker renders the statute unconstitutional only if such burden

was placed on the speaker because of the speech’s content, not because of the

speaker’s desire to make the speech. Id. (citations omitted). Section 1201 of

the DMCA does not eliminate fair use nor prevent anyone from engaging in

traditional methods of fair use such as “quoting from a work or comparing

texts for the purpose of study or criticism.” Elcom, 203 F. Supp. 2d at 1134.

Finally, courts have rejected the argument that the DMCA impairs an

alleged First Amendment fair use right to access non-copyrighted works in the

public domain, because the DMCA permits authors to use access and copy

controls to protect non-copyrighted works and copyrighted works alike. See,

e.g., 321 Studios, 307 F. Supp. 2d at 1102; Elcom, 203 F. Supp. 2d at 1134.

Neither the DMCA nor the presence of access or copy controls aect whether

or not a work is in the public domain. 321 Studios, 307 F. Supp. 2d at 1102.

D. Penalties

For the rst criminal violation of Title I of the DMCA (§§ 1201, 1202),

the maximum penalty is ve years’ imprisonment, a $500,000 ne or twice

the monetary gain or loss, or both imprisonment and a ne. 17 U.S.C. §§

1204, 3571(d). For subsequent oenses, the maximum penalty is ten years’

imprisonment, a $1 million ne or twice the monetary gain or loss, or both

imprisonment and a ne. Id. For a more complete discussion of sentencing

issues, see Chapter VIII of this Manual.

280 Prosecuting Intellectual Property Crimes

281

VI.

Counterfeit and Illicit Labels,

Counterfeit Documentation and

Packaging—18 U.S.C.§2318

A. Distinguished from Trademark

and Copyright Statutes

Creative works can be protected by criminal laws other than the

criminalizes knowingly tracking in counterfeit or illicit labels and counterfeit

documentation and packaging for certain types of copyrighted works. Although

§2318 regulates items that accompany copyrighted works, it is not a pure

Section 2318 also diers from civil and criminal trademark law. Although

counterfeit and illicit labels, documentation, and packaging often bear

counterfeit trademarks (tracking in which is prohibited by the criminal

trademark statute, 18 U.S.C. §2320), the use of a counterfeit mark is not an

element of a §2318 oense. Section 2318 also diers from §2320 in the types

of labels and packaging covered by each statute. Section 2320 criminalizes

tracking of labels and related labeling components bearing counterfeit

trademarks, where such labels are used, designed, or intended to be used with

any types of good or service, whereas §2318 covers only counterfeit labels (as

well as documentation and packaging) in connection with certain classes of

copyrighted works.

Section2318 originally addressed counterfeit labels for sound recordings,

but has evolved over time to address counterfeit labels, documentation, and

packaging for a broader class of copyrighted works. See Sections B.3., B.4., and

E.5. of this Chapter. As a result of 2004 amendments, § 2318 now prohibits

tracking in counterfeit labels for movies, music, software, copies of literary,

pictorial, graphic, or sculptural works, or works of visual art, or labels designed

282 Prosecuting Intellectual Property Crimes

to be used with documentation and packaging for any of the enumerated classes

of copyrighted works. 18 U.S.C. §2318(a)(1)(A). Section 2318 also prohibits

tracking in counterfeit documentation and packaging for the classes of works

listed above. 18 U.S.C. §2318(a)(1)(B). In 2006, Congress further expanded

§ 2318 to address tracking in what are known as “illicit” labels, which are

“genuine certicate[s], licensing document[s], registration card[s], or similar

labeling component[s]” that the copyright owner would normally use to verify

that a work is noninfringing (i.e., legitimate), but which are distributed or

intended for distribution without the owner’s permission, presumably to

facilitate infringement. 18 U.S.C. § 2318(b)(4). In 2008, the PRO-IP Act

revised § 2318’s restitution provision to refer to 18 U.S.C. § 2323, the general

forfeiture and restitution provision for IP oenses also created by the PRO-IP

Act. 18 U.S.C. § 2318(d). e PRO-IP Act also renumbered the subsections

within § 2318(a).

Sample indictments and jury instructions are provided in Appendix F of

this Manual.

B. Elements

To obtain a conviction under 18 U.S.C. § 2318, the government must

prove ve elements:

1. e defendant acted knowingly

2. e defendant tracked

3. In labels axed to, enclosing, or accompanying (or designed to

be axed to, enclose, or accompany) a phonorecord, computer

program, motion picture or other audiovisual work, literary,

pictorial, graphic, or sculptural work, or work of visual art, or

documentation or packaging for such works (i.e., tracked either

in documentation or packaging for such works itself, or in labels

for such documentation or packaging)

4. e documentation or packaging were counterfeit, or the labels

were counterfeit or illicit

5. Federal jurisdiction is satised because:

a. the oense occurred in special maritime territories or other

areas of special jurisdiction of the United States;

b. the oense used or intended to use the mail or a facility of

interstate or foreign commerce;

VI. Counterfeit and Illicit Labels 283

c. the counterfeit or illicit labels were axed to, enclosed, or

accompanied copyrighted materials (or were designed to); or

d. the documentation or packaging is copyrighted.

ese elements are reviewed in detail in the following sections.

1. e Defendant Acted “Knowingly”

Section 2318 is a general intent crime. e government must prove rst

that the defendant acted “knowingly.” is is less dicult than proving that

the defendant acted willfully, as with criminal copyright cases. See Chapter II,

Section B.2. of this Manual for a discussion of the “willful” standard in criminal

government to show only that the defendant knew that he was taking the

actions described in the statute. e government does not have to show that

the defendant knew his conduct was illegal. See Bryan v. United States, 524

U.S. 184, 193 (1998) (rearms oense) (“‘[K]nowingly’ merely requires proof

of knowledge of the facts that constitute the oense.”).

To establish knowledge in §2318 cases involving counterfeit labels, the

government does not have to prove that the defendant acted with fraudulent

intent. Congress eliminated that element in 1982, believing that such proof was

“superuous” because the government must already prove that the defendant

knew his labels were counterfeit. S. Rep. No. 97-274, at 9 (1981), reprinted

in 1982 U.S.C.C.A.N. 127, 135 (“In other words, it would be dicult to

conceive of a situation in which one could trac in articles knowing that they

are counterfeit without intending to defraud the purchaser.”). It is less clear

whether, and to what extent, a requirement of fraudulent intent may be assumed

in cases involving illicit labels, but the statute does not expressly require such

proof. Nonetheless, the government must prove that the defendant knew that

the labels, documentation, or packaging in which he tracked were counterfeit

or illicit. See, e.g., United States v. Teh, 535 F.3d 511, 519-20 (6th Cir. 2008);

United States v. Dixon, No. 84-5287, 1985 U.S. App. LEXIS 27076, at *9-

11 (4th Cir. Aug. 12, 1985); see also Microsoft Corp. v. Pronet Cyber Techs.,

Inc., 593 F.Supp.2d 876, 884 (E.D. Va. 2009) (“[Section] 2318’s legislative

history suggests that Congress was well aware that the amended statute only

required proof of knowledge that labels were counterfeit—namely, that the

labels appeared to be genuine, but were not.”).

It may also suce to prove that the defendant was willfully blind to the

fact that the items tracked were counterfeit or illicit. Although no published

284 Prosecuting Intellectual Property Crimes

cases specify that the government may satisfy §2318 through proof of willful

blindness (also known as “conscious avoidance” or deliberate ignorance), courts

have held that proving willful blindness generally suces to prove knowledge

in criminal cases. See United States v. Jewell, 532 F.2d 697, 699-704 (9th Cir.

1976) (discussing the history and use of “deliberate ignorance” instructions);

Microsoft Corp. v. Compusource Distribs., Inc., 115 F. Supp. 2d 800, 808-09 (E.D.

Mich. 2000) (citing evidence of defendant’s willful blindness as to authenticity

of software as supporting nding that he knew software was counterfeit); see

also Deborah Sprenger, Propriety of Instruction of Jury on “Conscious Avoidance”

of Knowledge of Nature of Substance or Transaction in Prosecution for Possession

or Distribution of Drugs, 109 A.L.R. Fed. 710 §2[a] (2005). “e knowledge

element of a crime such as the one charged here may be satised upon a

showing beyond a reasonable doubt that a defendant had actual knowledge or

deliberately closed his eyes to what otherwise would have been obvious to him

concerning the fact in question.” United States v. Brodie, 403 F.3d 123, 148

(3d Cir. 2005) (internal quotation marks and citation omitted) (Trading with

the Enemy Act of 1917 and Cuban Assets Control Regulations violations).

Willful blindness goes beyond negligence: the defendant himself must have

been “objectively aware of the high probability of the fact in question, and not

merely that a reasonable man would have been aware of the probability.” Id.

(internal quotation marks and citation omitted).

e government need not prove that the defendant knew that his conduct

met the jurisdictional elements listed in §2318(c), such as that the computer

program to which he had axed his counterfeit labels was copyrighted. See

Section B.5. of this Chapter.

2. e Defendant Tracked

In the second element of a §2318 oense, the government must prove

that the defendant tracked in labels, documentation, or packaging. e term

“trac” in § 2318 is dened by reference to the denition of “trac” used

in § 2320. See 18 U.S.C § 2320(f)(5) (“the term ‘trac’ means to transport,

transfer, or otherwise dispose of, to another, for purposes of commercial

advantage or private nancial gain, or to make, import, export, obtain control

of, or possess, with intent to so transport, transfer, or otherwise dispose of.”).

See also Chapter III, Section B.3. of this Manual for a discussion of the term

“trac” as an element of a § 2320 oense. e only dierence to note between

the application of the term trac in § 2318 and § 2320 is that §2320 punishes

attempts whereas §2318 does not, and therefore any discussion of attempted

VI. Counterfeit and Illicit Labels 285

tracking with regard to §2320 may not apply to §2318. On the other hand,

because the denition of “trac” in both statutes includes many acts that are

preparatory to distributing contraband—such as making it, obtaining it, and

possessing it with intent to trac—the omission of an attempt provision in

§2318 should not prevent the government from pursuing otherwise deserving

cases. us, labels seized during the search of a counterfeiting operation may

constitute part of the indicted conduct, whether or not the labels had yet been

axed to the works or transferred to distributors or customers.

3. Tracking in Labels Axed to, Enclosing, or Accompanying (or

Designed to be Axed to, Enclose, or Accompany) a Phonorecord,

Computer Program, Motion Picture or Other Audiovisual Work,

Literary, Pictorial, Graphic, or Sculptural Work, or Work of Visual

Art, or Tracking in Documentation or Packaging for Such Works

In the third element of a § 2318 oense, the government must prove

that the labels in which the defendant tracked were axed to, enclosing,

or accompanying—or designed to be axed to, enclose, or accompany—

phonorecords, motion pictures or other audiovisual works, computer software,

literary, pictorial, graphic, or sculptural works, or works of visual art. See 18

U.S.C. §2318(a)(1)(A), (b)(3) (dening the classes of copyrighted works); 17

U.S.C. §§101, 102 (same). Alternatively, the government may show that the

defendant tracked in documentation or packaging for one of the enumerated

class of works, or labels axed or designed to be axed to copyrighted

documentation and packaging. See 18 U.S.C. §2318(a)(1)(B), (b)(5).

e types of copyrighted works covered by the statute has expanded

signicantly over the past two decades. Before 2004, 18 U.S.C. §2318 applied

only to labels for movies, music, and software, and to documentation and

packaging only for computer software. e provisions relating to computer

software were added in 1996. As of 2004, however, § 2318 applies to labels,

documentation, and packaging for most types of copyrighted works that are

capable of being labeled or packaged. See 18 U.S.C. §2318(a)(1), (b)(5).

Counterfeit labels (or documentation or packaging) need not actually be

axed or attached to a copyrighted work to support a § 2318 charge, but

rather, need only be “axed to, enclosing, or accompanying, or designed to be

axed to, enclose, or accompany.” 18 U.S.C. §2318(a)(1) (emphasis added).

Nevertheless, some nexus between the labels (or documentation or packaging)

and copyrighted works—whether actual or intended—is still required.

286 Prosecuting Intellectual Property Crimes

Documentation and packaging still need only be “for” the enumerated

classes of copyrighted works. 18 U.S.C. § 2318(b)(5). Given the context,

the word “for” appears to have roughly the same meaning for documentation

and packaging that “axed to, enclosing, or accompanying, or designed to

be axed to, enclose, or accompany” has for labels. us, some physical

nexus with copyrighted works—whether actual or intended—is required for

documentation and packaging as well.

For a discussion of whether §2318 applies to labels, documentation, and

packaging in electronic form, see Section D.1. of this Chapter.

4. e Labels, Documentation, or Packaging Materials

Are Counterfeit or Illicit

In the fourth element, the government must prove that the packaging or

documentation is “counterfeit” or that the labels are “counterfeit” or “illicit.”

See18 U.S.C. §2318(a)(1)(A)-(B). “Counterfeit” is dened as something “that

appears to be genuine, but is not.” 18 U.S.C. §2318(b)(1), (b)(6). Courts have

determined labels to be counterfeit for purposes of § 2318 where, for example,

a defendant created the labels to accompany or apply to copies of Microsoft

products and reprinted a Microsoft product key for a dierent copy on the

label, Microsoft Corp. v. Pronet Cyber Techs., Inc., 593 F. Supp. 2d 876, 882

(E.D. Va. 2009); and where DVD labels “appeared to be ‘home made[,]’ were

of poor quality, contained misspellings, and were not centered,” United States

v. Teh, 535 F.3d 511, 520 (6th Cir. 2008).

Counterfeit is distinct from “bootlegged” or “pirated” in that counterfeits

are unauthorized copies of works that are made to appear legitimate, whereas

bootlegged recordings or pirated items do not pretend to be legitimate. See

United States v. Shultz, 482 F.2d 1179, 1180 (6th Cir. 1973) (“Counterfeit

tapes are tapes which are represented to be genuine articles of particular record

companies when, in truth, they are not. e process includes reproducing

the tape itself and also the recognized label of another record company. A

bootleg tape is a reproduction of someone else’s recording or recordings

marketed under a dierent label.”). See also 18 U.S.C. §2319A (addressing

the unauthorized recording and tracking of live musical performances, also

known as “bootlegging”); Chapter II of this Manual.

Counterfeit labels include those made when “counterfeiters have simulated

‘genuine’ labels that have not previously existed,” insofar as these simulated

labels share the same basic criminal purpose as any counterfeit product—

VI. Counterfeit and Illicit Labels 287

to defraud the consumer, the manufacturer, and society by trading o the

product’s apparent authenticity. See S. Rep. No. 97-274, at 9 (1981), reprinted

in 1982 U.S.C.C.A.N. 127, 135. “For example, cases have arisen where a

counterfeiter has produced packages and distributed videotapes of a lm which

have never been released in that form to the public. e term ‘counterfeit label’

includes such simulated labels.” Id. Except for the Shultz case, supra, the extent

to which such simulated labels are counterfeit for purposes of §2318 has rarely

been addressed in the courts. Prosecutors handling cases involving simulated

labels may nd it helpful to consult with the Computer Crime and Intellectual

Property Section at (202) 514-1026.

An “illicit” label, generally speaking, is a “genuine certicate, licensing

document, registration card, or similar labeling component” intended for use

with one of the enumerated classes of copyrighted works, that a defendant

distributed or used without the work it was intended to accompany or falsely

altered to indicate broader rights than originally intended. 18 U.S.C. §2318(b)

(4). Specically, an “illicit” label is one that is:

(A) used by the copyright owner to verify that [a copyrighted work of

the type enumerated above] is not counterfeit or infringing of any

(B) that is, without the authorization of the copyright owner [either]—

(i) distributed or intended for distribution not in connection with

the copy, phonorecord, or work of visual art to which such

labeling component was intended to be axed by the respective

(ii) in connection with a genuine certicate or licensing document,

knowingly falsied in order to designate a higher number of

licensed users or copies than authorized by the copyright owner,

unless that certicate or document is used by the copyright

owner solely for the purpose of monitoring or tracking the

of verifying that a copy or phonorecord is noninfringing.

18 U.S.C. §2318(b)(4). Under subsection (A), an illicit label may include any

of a broad category of labeling components, such as most types of identifying

labels, particularly those that include trademarks, seals, holograms, watermarks,

or other marks intended to show that a product is genuine. Although it is not

clear from the statute’s text and legislative history, presumably the denition

does not include generic labels, such as packing slips, that merely identify a

288 Prosecuting Intellectual Property Crimes

particular work, but which the copyright holder did not intend to certify the

work’s authenticity.

Subsection (B) identies two situations in which a labeling component is

“illicit.” First, a labeling component is illicit when it is distributed, without

the copyright holder’s permission, apart from the original copyrighted item

that the copyright owner intended the labeling component to accompany.

For example, individual “licensing packs” for software that contain various

labels, certicates of authenticity, and documentation and packaging would be

deemed illicit if they were sold without the original media they were intended

to accompany, or were sold with a pirated copy of the media.

Second, a genuine labeling component is illicit when a genuine certicate

of authenticity or similar licensing document has been knowingly falsied to

indicate a higher number of authorized users or copies. For example, business

software often comes in multi-user license packs that contain a single copy

of the software itself on CD-ROM and a license that permits the software to

be run for a certain number of users. If the licensing document for a ten-user

license pack were knowingly falsied to indicate authorization for 100 users,

the falsied licensing document would be illicit.

5. Federal Jurisdiction

e nal element of §2318 requires the government to establish federal

jurisdiction over the oense by proving any one of the following circumstances:

• e oense occurred in a special maritime, territorial, or aircraft

jurisdiction of the United States, §2318(c)(1)

• Use of or intent to use the mail or facilities of interstate or foreign

commerce in the commission of the oense, §2318(c)(2)

• Inthecaseofacounterfeitorillicitlabel,thelabelwasaxedto,enclosed,

or accompanied or designed to be axed to, enclose, or accompany

certain copyrighted works or a copy of these works: a phonorecord of

a copyrighted sound recording or musical work; a computer program;

a literary work; a pictorial, graphic or sculptural work; a work of visual

art; or copyrighted documentation or packaging, §2318(c)(3)

• In the case of counterfeit documentation or packaging, the

documentation or packaging itself was copyrighted, §2318(c)(4)

ese jurisdictional elements are listed disjunctively, and therefore any

one will suce to support a § 2318 charge. For example, where a defendant

tracked in counterfeit labels for DVDs, the jurisdictional basis for a § 2318

VI. Counterfeit and Illicit Labels 289

charge could be met by showing either that the labels were axed (or designed

to be axed) to DVD copies of a copyrighted motion picture, or that the

defendant used the mails or other facilities of interstate commerce to trac in

the labels, or that the defendant tracked in the special maritime jurisdiction

of the United States. In practice, the most likely basis for jurisdiction will be

nevertheless nd it easier to establish another basis for jurisdiction: a copyright

may be more burdensome to prove or an alternative basis may be relatively

clear. See Chapter II of this Manual, which discusses how to prove the existence

of a copyright.

e jurisdictional element in §2318(c)(3) for counterfeit or illicit labels that

accompany certain classes of works is worded unusually. It allows jurisdiction if

the labels were axed or designed to be axed to copies of sound recordings,

musical works, computer programs, motion pictures, audiovisual works, or

documentation and packaging, if those items were “copyrighted.” It also allows

jurisdiction if the labels were axed or designed to be axed to literary works,

pictorial, graphic or sculptural works, or works or visual art, but does not

indicate that these items must have been “copyrighted.” Compare §2318(c)(3)

(A)-(C), (G), with §2318(c)(3)(D)-(F). However, these latter classes of works

are subject to copyright protection, and §2318 intends these terms to have

the same meaning as in the copyright code. See 17 U.S.C. §102; 18 U.S.C.

§2318(b)(3). erefore, Congress’s omission of the word “copyrighted” from

§2318(c)(3)(D)-(F) was probably unintended, and therefore copyright should

be read as necessary to establish jurisdiction under § 2318(c)(3), even for

literary, pictorial, or visual art works.

e government need not prove the defendant knew that his actions fell

within the federal jurisdiction elements set forth in 18 U.S.C. § 2318(c).

us, it is unnecessary to prove, for example, that the defendant knew that

the copy of the computer program to which his counterfeit labels were axed

was copyrighted (see Section B.1. of this Chapter). Cf. United States v. Feola,

420 U.S. 671, 676 n.9 (1975) (“[T]he existence of the fact that confers

federal jurisdiction need not be one in the mind of the actor at the time he

perpetrates the act made criminal by the federal statute.”); United States v.

X-Citement Video, Inc., 513 U.S. 64, 72 n.3 (1994) (arming Feola as applied

to strictly jurisdictional facts); United States v. Yermian, 468 U.S. 63, 68-70

(1984) (holding that the plain language of 18 U.S.C. §1001, which is worded

290 Prosecuting Intellectual Property Crimes

similarly to §2318(a), indicates that Congress did not intend “knowingly and

willfully” to apply to jurisdictional element).

6. Venue

e proper venue for a § 2318 prosecution is addressed by general

principles governing venue in criminal cases. Particular attention should be

paid to oenses that involve the use of the mail or transportation in interstate

or foreign commerce, which will occur in most §2318 oenses.

C. Defenses

1. Statute of Limitations

Because § 2318 does not contain a specic statute of limitations, the

general ve-year statute of limitations for non-capital oenses applies. See 18

U.S.C. §3282.

2. First Sale (Does Not Apply)

Some defendants have sought to raise a “rst sale” defense to a § 2318

charge, particularly a charge involving illicit labels, which, by denition, are

genuine items that may have been obtained by the defendant legitimately.

Although the “rst sale” doctrine provides a valid defense to a charge of

permitting a person who has lawfully obtained title to a particular copy of a

work to transfer or dispose of that particular copy without authorization from

the copyright owner, Congress did not incorporate such a defense into §2318.

Indeed, for Congress to have done so would have eviscerated the purpose of

§2318’s illicit labels provision, which is designed to prohibit trac in genuine

labeling components that may be used to facilitate infringement. Courts have

rejected attempts to raise a rst sale defense in the context of § 2318. See

United States v. Harrison, 534 F.3d 1371, 1373 (11th Cir. 2008).

D. Special Issues

1. Electronic Copies of Labels, Documentation, or Packaging

Although a typical case under § 2318 generally involves labels, docu-

tmentation, or packaging in some sort of physical form, such as an adhesive

decal, a cardboard box, or a manual printed on paper, §2318 might also be

VI. Counterfeit and Illicit Labels 291

applied in certain limited circumstances to cases when either the “original”

or “legitimate” items, or the “counterfeit” or “illicit” copies, or both, are in

electronic or digital form. Section 2318(b)(5) denes documentation and

packaging as items which are “in physical form,” which would not prohibit

tracking in unauthorized copies of electronic documentation or manuals,

when the original or legitimate versions are only available in electronic form,

e.g., for download over the Internet. It is unclear whether the term “in physical

form” would include a digitally-formatted manual tangibly embodied on a

CD-ROM. Conduct involving unauthorized electronic copies of a physical

version of a documentation or packaging (such as image les scanned from

a paper manual or box), or of documentation that is legitimately distributed

on a CD-ROM, nevertheless may implicate §2318, either as evidence of a

substantive violation of the tracking provision, or as an act that aids or abets

such tracking or furthers a conspiracy to trac.

e House Report to the 2004 amendments also makes clear that §2318’s

criminal provisions do not apply to “electronic transmission” of “genuine”

licensing components, documentation, or packaging. See H.R. Rep. No. 108-

600, at 4 (2004) (stating that the amendments “shall not be construed to

apply... in any case, to the electronic transmission of a genuine certicate,

licensing document, registration card, similar labeling component, or

documentation or packaging”). is language suggests that the unauthorized

electronic distribution of labeling components that are purely electronic in

their original or legitimate form, such as electronic signatures or watermarks,

does not constitute criminal tracking under §2318 (although such conduct

may violate other criminal statutes). However, the statute is silent as to whether

§2318 applies to the electronic transmission of labeling components that are

not “genuine,” suggesting that it could be a criminal violation of §2318 to trac

in electronic les that contain unauthorized copies of labeling components,

where the original or legitimate labeling components were in physical form

(e.g., tracking in digital image les that contain a convincing reproduction

of label decals or product packaging, such as would be suitable for printing

additional counterfeit copies of the labels or packaging). Nevertheless, to

date courts have not addressed the extent to which §2318 may be applied in

situations involving purely electronic labeling components.

2. Advantages of Charging a §2318 Oense

A §2318 charge may be an appropriate adjunct or alternative charge when

the oense involves copyright or trademark infringement. In many cases, the

292 Prosecuting Intellectual Property Crimes

§2318 charge may even be preferable. e mens rea (knowledge) and minimum

threshold of illegal conduct (none) are both lower than the mens rea required

in criminal copyright charges (willfulness) and the monetary and numerical

thresholds for many criminal copyright charges. See Chapter II of this Manual.

e standard of proof may also be lower than for criminal trademark charges,

which require proof that any trademarks used on the counterfeit or illicit

labeling are identical to or substantially indistinguishable from one registered

with the U.S. Patent and Trademark Oce. See Chapter III of this Manual.

E. Penalties

Section 2318(a) provides for a ne or imprisonment or both. Forfeiture

and restitution are also available under § 2318(d).

1. Fines

Under §2318(a), a defendant may be “ned under this title [18],” which

is an indirect reference to 18 U.S.C. §3571 (“Sentence of ne”). Under 18

U.S.C. §3571, an individual can be ned up to $250,000 and an organization

can be ned up to $500,000, or either can be ned twice the oense’s pecuniary

gain or loss, without limit. 18 U.S.C. §3571(a)-(d).

2. Imprisonment

e maximum term of imprisonment is ve years. 18 U.S.C. §2318(a).

3. Restitution

Section 2318(d) species that restitution shall be subject to 18 U.S.C.

§ 2323, the general forfeiture and restitution provision for IP oenses

created by the PRO-IP Act. According to Section 2323(c): “[w]hen a person

is convicted of an oense under [§2318, inter alia], the court, pursuant to

sections 3556, 3663A, and 3664 of this title, shall order the person to pay

restitution to any victim of the oense as an oense against property referred

to in section 3663A(c)(1)(A)(ii).” In turn, 18 U.S.C. §3663A provides for

mandatory restitution to victims of certain crimes, including crimes against

property in Title 18, of which §2318 is one. 18 U.S.C. §3663A(c)(1)(A)

(ii). Section 5E1.1 of the U.S. Sentencing Guidelines Manual also provides

for restitution in cases where there is an identiable victim and restitution

is authorized under 18 U.S.C. § 3663A. Courts have armed restitution

orders for convictions under §2318. See United States v. Chay, 281 F.3d 682,

VI. Counterfeit and Illicit Labels 293

686 (7th Cir. 2002) (holding that an 18 U.S.C. §2318(a) oense is “a crime

against property covered by the Mandatory Victim Restitution Act (MVRA),

18 U.S.C. § 3663A” and arming an order of $49,941.02 in restitution);

United States v. Elouri, 62 Fed. Appx. 556 (5th Cir. 2003) (arming an order

on procedural grounds of $136,050 in restitution for a violation of §2318).

For more on restitution, see Chapter VIII of this Manual.

4. Forfeiture

Seizure, forfeiture, and destruction of items in connection with a violation

of § 2318 is governed by 18 U.S.C. § 2323. See 18 U.S.C. § 2318(d).

Section 2323(b) requires a court, in imposing a sentence for violation of

§ 2318, to order the defendant to forfeit all counterfeit or illicit labels or

other items the making or tracking of which is prohibited under §2318,

as well as any property used or intended to be used in the oense, and any

property constituting or derived from proceeds of the oense. Section2323

also authorizes civil forfeiture of such items, apart from a criminal proceeding.

For more on forfeiture, see Chapter VIII of this Manual.

5. Sentencing Guidelines

Section 2B5.3 is the applicable sentencing guideline. See Chapter VIII of

this Manual. Under §2B5.3, often the most signicant factor in the calculation

of a sentence is the “infringement amount.” See § 2B5.3(b)(1). In copyright

or trademark counterfeiting cases, the infringement amount is generally based

on the number of infringing items multiplied by the retail price of either the

genuine or infringing item. Because labels and packaging are generally not sold

separately through legitimate retail channels, however, § 2318 oenses raise

how such items should be valued for purposes of determining the infringement

amount, particularly where the labels or packaging at issue have not been

axed to actual copies or goods.

Application Note (2)(A)(vii) addresses valuation in cases under § 2318

involving such “unaxed” counterfeit or illicit labels (or other items):

(vii) A case under 18 U.S.C. § 2318 or § 2320 that involves

a counterfeit label, patch, sticker, wrapper, badge, emblem,

medallion, charm, box, container, can, case, hangtag,

documentation, or packaging of any type or nature (I) that has

not been axed to, or does not enclose or accompany a good

or service; and (II) which, had it been so used, would appear to

294 Prosecuting Intellectual Property Crimes

a reasonably informed purchaser to be axed to, enclosing or

accompanying an identiable, genuine good or service. In such

a case, the “infringed item” is the identiable, genuine good or

service.

§ 2B5.3 n. 2(A)(vii). us, in a determining a Guideline sentence in a § 2318

case, if a counterfeit or illicit label has not been axed to an actual copy of a

copyrighted work, but the court nds that the label, if it had been used, would

make it appear to a reasonably-informed purchaser that the item to which it

was axed was genuine, then the infringement amount should be determined

based on the value of the item to which the item was designed to be axed,

rather than the (generally much lower) value of the label itself.

Application Note 2(A)(vii) was added in 2006 in response to a provision

of the Stop Counterfeiting in Manufactured Goods Act, which directed the

Sentencing Commission to address how the infringement amount should be

calculated for oenses involving labels, documentation, and packaging, that

are not attached to or accompanying copyrighted works. See Pub. L. No. 109-

181, §1, 120 Stat. 285 (2006).

Prior to the 2006 Guidelines amendments, § 2B5.3 oered little guidance

as to how unattached labels or packaging should be valued, leading courts

to devise various theories for valuing such items for sentencing purposes. In

United States v. Bao, 189 F.3d 860, 862-63 (9th Cir. 1999), the government

seized 5,000 counterfeit manuals for software and counterfeit packaging

materials such as CD-ROM inserts and product registration cards in Bao’s

print shop. After Bao’s conviction under §2318 for tracking in counterfeit

software manuals, the district court sentenced him based on a retail value of

$50 per manual, the black market value of the software plus a manual. e

court’s theory was that the manual had no value apart from the software. Id.

at 862-63, 867. e Ninth Circuit vacated the sentence, holding that the

manuals’ retail value should have been $12 apiece, the retail value of other

comparable genuine manuals the victim sold separate from software. Id. at

866-67. In other words, the appropriate retail value was that of the counterfeit

documentation, not the thing the documentation was to accompany. Cf. U.S.

v. Guerra, 293 F.3d 1279, 1292 (11th Cir. 2002) (§ 2320 case holding that

“[t]he value of the bands and labels is inextricably intertwined with that of the

completed product, as the value of the counterfeit cigars derives primarily from

the degree to which the bands and labels bear marks that are indistinguishable

VI. Counterfeit and Illicit Labels 295

from the genuine marks. us, the district court did not err by considering

‘infringing items’ to be cigars rather than labels.”).

Just as the retail value might depend on how many products the defendant

had completed or could have completed readily, so might the number of

infringing items. Two appellate courts have ruled that “the number of infringing

items should correspond to the number of completed or nearly completed

counterfeit goods.” U.S. v. Guerra, 293 F.3d 1279, 1293 (11th Cir. 2002)

(citing United States v. Sung, 51 F.3d 92, 94-96 (7th Cir. 1995), appeal after

remand, 87 F.3d 194 (7th Cir. 1996), on remand to, 940 F. Supp. 172 (N.D.

Ill. 1996), rev’g trial court on other grounds, 114 F.3d 1192 (1997)). In both

these cases, the number of infringing items was held to be not the number of

infringing labels or packaging items, but rather the lower number of goods to

which the labels or packaging had been or could readily have been attached.

See id.

However, both these cases concerned sentencing under a previous version

of the counterfeit trademark criminal statute, 18 U.S.C. §2320, which did

not expressly apply to unattached labels or packaging, as both §2318 and the

current version of § 2320 now do. Under § 2318 (as well as § 2320), tracking

in counterfeit labels is not treated as an attempt to trac in goods to which the

labels might be axed, but as a separate and complete oense, and therefore,

a defendant’s sentence may properly be calculated based on the number of

labels involved, rather than only on those labels that have already been axed

to an actual product. Further, Application Note 2(A)(vii) provides that in

determining the infringement amount in § 2318 cases involving labels that, if

used, would lead a reasonable purchaser to believe the items to which the labels

were attached were genuine, the “infringed item” is the item to which the labels

would be attached. erefore, in such cases, the infringement amount should

be based on the retail value of such item, multiplied by the number of labels.

F. Other Charges to Consider

When confronted with a case that implicates counterfeit or illicit labels or

counterfeit documentation or packaging, prosecutors may want to consider

the following crimes for charges in addition to 18 U.S.C. §2318 or in lieu of

such charges if §2318’s elements cannot be met:

• Copyright infringement, 17 U.S.C. §506, 18 U.S.C. § 2319, for

any infringement of the underlying copyrighted goods. See, e.g., United

296 Prosecuting Intellectual Property Crimes

States v. Cohen, 946 F.2d 430, 433-34 (6th Cir. 1991) (arming

conviction under 18 U.S.C. §§ 2318-2319 for duplicating and

distributing copyrighted movies). A conspiracy or aiding-and-abetting

theory will sometimes be necessary. See Chapter II of this Manual.

• Trademark counterfeiting, 18 U.S.C. § 2320, because labels,

documentation, and packaging for copyrighted works often carry

counterfeit reproductions of federally registered trademarks. See, e.g.,

United States v. Beltran, 503 F.3d 1, 2-4 (1st Cir. 2007) (upholding

convictions under 18 U.S.C. §§2318-2320 for counterfeit DVDs and

VHS tapes); United States v. Hernandez, 952 F.2d 1110, 1113-14 (9th

Cir. 1991) (arming conviction under 18 U.S.C. §§2318-2320 for

counterfeit audio cassettes and audio cassette labels). See Chapter III of

this Manual.

• Mail or wire fraud, 18 U.S.C. §§1341, 1343, for schemes that involve

the use of the mails or wire, as long as there is a scheme to defraud.

Cf. United States v. Shultz, 482 F.2d 1179, 1180 (6th Cir. 1973)

(upholding convictions for mail fraud and counterfeit labels under an

earlier version of §2318, for causing the transportation of a counterfeit

stereo tape cartridge recording in interstate commerce with forged or

counterfeit label). e theory of fraud cannot be merely that the media

was copyrighted, but rather that the defendant must have intended

to defraud either his immediate purchaser or other downstream

purchasers. See Chapter II, Section F. of this Manual.

• Racketeer Inuenced and Corrupt Organizations (RICO), 18 U.S.C.

§§1961-1968, because §2318 violations serve as RICO predicate acts.

See§1961(1)(B). RICO charges must be approved by the Department’s

Organized Crime and Gang Section, which can be reached at (202)

514-3594.

• Bootleg sound recordings and music videos of live musical

performances, 18 U.S.C. §2319A. See Chapter II, Section F. of this

Manual.

297

VII.

Patent

A. Overview of Patent

Unlike copyright and trademark infringement, there are no criminal

penalties for committing patent infringement. Dowling v. United States, 473

U.S. 207, 227 (1985) (noting that “[d]espite its undoubted power to do

so,” Congress has not provided criminal penalties for patent infringement).

Congress instead has relied on provisions aording owners a civil cause of

action for patent infringement. Id. at 227 n.19. As set forth more fully below,

however, Congress has provided for two criminal provisions relating to patents:

forgery of letters patent, and false marking of patents.

As a threshold matter, it is worth revisiting the dierences between patents

and copyrights. Patent rights are available to anyone who invents “any new

and useful process, machine, manufacture, or composition of matter, or any

new and useful improvement thereof.” 35 U.S.C. §101. A patent grants an

inventor the right to exclude others from making, using, oering for sale, or

selling devices that embody the patented invention. See 35 U.S.C. §271(a);

Eldred v. Ashcroft, 537 U.S. 190, 216 (2003) (citing Sears, Roebuck & Co. v.

Stiel Co., 376 U.S. 225, 229 (1964)). e federal government’s authority to

grant patents stems from Article I, Section 8, Clause 8 of the U.S. Constitution,

known as the “Intellectual Property” or “Copyright and Patent” Clause, which

authorizes Congress to enact statutes that “promote the Progress of Science

and useful Arts, by securing for limited Times to Authors and Inventors the

exclusive Right to their respective Writings and Discoveries.” Congress rst

exercised this authority to grant patents in 1790, when Congress empowered

the federal government to issue letters patent. Act of Apr. 10, 1790, ch. 7, §1,

1 Stat. 109 (1790). Like their modern counterparts, “letters patent” contain

a short title of the invention and a “grant” to the patent owner (“patentee”),

and his or her heirs or assigns, of the right to exclude others from making,

using, oering for sale, or selling the invention throughout the United States

or importing the invention into the United States. Cf. Eldred, 537 U.S. at 216;

35 U.S.C. §154(a)(1). Currently, a patent grant lasts for a term beginning on

the date the U.S. Patent and Trademark Oce issues the patent and ending

298 Prosecuting Intellectual Property Crimes

20 years from the date on which the patentee led his or her application for a

patent grant. 35 U.S.C. §154(a)(2).

Although patents and copyrights share a common constitutional source

(and the concomitant requirement that these exclusive rights are for “limited

Times”), they dier in several meaningful respects. First, copyrights grant

an author the right to exclude certain uses of the author’s expression of an

idea contained in an “original work of authorship,” whereas patents grant an

author the right to exclude others from making, using, and selling devices

or processes that embody the claimed invention. See 17 U.S.C. § 102(a); 35

U.S.C. § 154(a)(1). Second, in exchange for granting the patentee this right

to exclude, the patentee must publicly disclose the invention. Eldred, 537 U.S.

at 216. “For the author seeking copyright protection, in contrast, disclosure is

the desired objective, not something exacted from the author in exchange for

the copyright.” Id. ird, a copyright gives the holder no monopoly on any

knowledge or idea; a reader of an author’s writing may make full use of any fact

or idea acquired by reading the writing. See 17 U.S.C. §102(b); Eldred, 537

U.S. at 217. A patent, on the other hand, gives the patentee a monopoly on his

invention to prevent the full use by others of the knowledge embodied in the

patent. See Eldred, 537 U.S. at 217.

It is also worth considering the dierence between a patent and a trade

secret. e rst dierence is naturally that trade secret information is protected

only if it is secret (see Chapter IV, Section B.3.a.ii. of this Manual), whereas

a patent is protected even after disclosure. During the patent process, a trade

secret contained in a patent application may lose its trade secret protection

through disclosure only to gain patent protection. (See Chapter IV, Section

C.1.b.ii. of this Manual.) Second, a patent gives its owner an exclusive right

to his invention, even against another who discovered the patented invention

independently, whereas a trade secret, like a copyright, gives its owner no

protection against independent discovery. ConFold Pac., Inc. v. Polaris Indus.,

433 F.3d 952, 958-59 (7th Cir. 2006) (Posner, J.).

B. Forgery of Letters Patent—18U.S.C.§497

Forging “letters patent” (described above) and knowingly passing o

counterfeit letters patent are prohibited by 18 U.S.C. §497:

Whoever falsely makes, forges, counterfeits, or alters any

letters patent granted or purporting to have been granted by

VII. Patent 299

the President of the United States; or Whoever passes, utters,

or publishes, or attempts to pass, utter, or publish as genuine,

any such letters patent, knowing the same to be forged,

counterfeited or falsely altered—Shall be ned under this title

or imprisoned not more than ten years, or both.

As of this writing, no published opinions reported an applicable oense

under this provision, although one court noted that Congress enacted the

statute to “criminalize[] activities likely to impugn the reputation or integrity

of the federal government regardless of whether the perpetrator intended

to defraud private citizens.” United States v. Reich, 479 F.3d 179, 189 (2d

Cir. 2007). e statute is one of many “designed to protect the integrity of

government functions” but “do[es] not include the intent to defraud as an

element of the crime of forgery.” United States v. Cowan, 116 F.3d 1360, 1363

(10th Cir. 1997).

C. False Marking of Patent—35U.S.C.§292

To protect patent holders and the public, Congress enacted the false

marking provision, 35 U.S.C. §292, which provides for both criminal and

civil actions against a defendant for false marking. Section 292(a) creates a

nancial punishment for three types of improper marking: (1) representing

that an article is patented when the patent is in fact held by another; (2)

marking as patented an article that is not patented; and (3) falsely claiming that

a patent application has been made or is pending. In 2011, the statute’s scope

was narrowed pursuant to the Leahy-Smith America Invents Act so that it is

no longer a violation of the statute where “[t]he marking of a product ... with

matter relating to a patent that covered that product but has expired.” 35 U.S.C.

§292(c). Section 16(b)(4) of the Act makes this and its other amendments to

the false marking statute applicable “to all cases, without exception, that are

pending on, or commenced on or after, the date of the enactment of this Act,”

on September 16, 2011. Leahy-Smith America Invents Act, Pub. L. No. 112-

29, § 16(b)(4), 125 Stat. 284, 329 (2011).

Congress prohibits false marking in part because a properly marked

patented article provides the public with “a ready means of discerning the status

of the intellectual property embodied in an article of manufacture or design.”

Bonito Boats, Inc. v. under Craft Boats, Inc., 489 U.S. 141, 162 (1989). is

is consistent with federal patent policy, which recognizes an “important public

300 Prosecuting Intellectual Property Crimes

interest in permitting full and free competition in the use of ideas which are

in reality a part of the public domain.” Lear, Inc. v. Adkins, 395 U.S. 653, 670

(1969). “Acts of false marking deter innovation and stie competition in the

marketplace.” Forest Group, Inc. v. Bon Tool Co., 590 F.3d 1295, 1302 (Fed.

Cir. 2009). False marking harms that public interest because it “misleads the

public into believing that a patentee controls the article in question (as well as

like articles), externalizes the risk of error in the determination, placing it on

the public rather than the manufacturer or seller of the article, and increases

the cost to the public of ascertaining whether a patentee in fact controls the

intellectual property embodied in an article.” Clontech Labs., Inc. v. Invitrogen

Corp., 406 F.3d 1347, 1356-57 (Fed. Cir. 2005) (footnote omitted); see also

Calderwood v. Manseld, 71 F. Supp. 480, 482 (N.D. Cal. 1947) (noting that,

under §50, the former version of §292, one purpose of the “false marking”

statute was to “penalize those who would palm o upon the public unpatented

articles, by falsely and fraudulently representing them to have been patented”).

Section 292(a)’s rst prohibition protects patent holders by prohibiting

an individual, without a patent holder’s consent, from marking or using in

advertising for a product:

the words “patent,” “patentee,” or the like, with the intent of

counterfeiting or imitating the mark of the patentee, or of

deceiving the public and inducing them to believe that the

thing was made, oered for sale, sold, or imported into the

United States by or with the consent of the patentee.

35 U.S.C. §292(a).

Section 292(a)’s second and third paragraphs protect the public from false

or misleading patent claims. e second paragraph prohibits individuals from

marking or using in advertising the word “patent” in connection with any

“unpatented article” for the purpose of deceiving the public. Clontech, 406 F.3d

at 1352. For §292 to apply, the mismarked article must “actually exist” and

“be completed.” Lang v. Pac. Marine & Supply Co., 895 F.2d 761, 765 (Fed.

Cir. 1990).

Although not dened in the statute, an “unpatented article” is one that is

not covered by any claim of any of the patents marked on the article. Or, as

the Federal Circuit has held, an “unpatented article” means that “the article

in question is not covered by at least one claim of each patent with which the

article is marked. us, in order to determine if an article is ‘unpatented’ for

VII. Patent 301

purposes of section 292, it must be rst determined whether the claims of a

patent cover the article in question.” Clontech, 406 F.3d at 1352 (emphasis

added). Although earlier courts consistently had found no violation of §292

“by a patentee who marks patented articles with more patents than actually

cover the item,” Genlyte omas Grp. LLC v. National Serv. Indus., Inc., 262

F. Supp. 2d 753, 756 (W.D. Ky. 2003) (internal citations and quotations

omitted), the Federal Circuit’s decision in Clontech appears to have foreclosed

this interpretation of an “unpatented article.” Brinkmeier v. Graco Children’s

Products Inc., 684 F. Supp. 2d 548, 551 (D. Del. 2010) (“e court rejects

Defendant’s contention that no actionable mismarking can occur if the product

at issue is covered by at least one claim of the patents listed.”); DP Wagner Mfg.

Inc. v. Pro Patch Sys., Inc., 434 F. Supp. 2d 445, 455 (S.D. Tex. 2006) (holding

that the Federal Circuit’s construction of “unpatented article” is controlling,

“notwithstanding the fact that other courts may have interpreted the term

dierently in the past”).

Prior to the 2011 passage of the Leahy-Smith America Invents Act, the

Federal Circuit had held that “an article covered by a now-expired patent is

‘unpatented.’” Pequignot v. Solo Cup Co., 608 F.3d 1356, 1361 (Fed. Cir. 2010);

see also Bonito Boats, 489 U.S. at 159 (An article that “has been freely exposed to

the public ... stands in the same stead as an item for which a patent has expired

or been denied: it is unpatented and unpatentable”). “us, as with a never-

patented article, an article marked with an expired patent number imposes on

the public ‘the cost of determining whether the involved patents are valid and

enforceable.’” Pequignot, 608 F.3d at 1362 (quoting Clontech, 406 F.3d at 1357

n.6). However, as already noted, the Act amended the false marking statute

so that this conduct no longer constitutes a violation of §292(a). 35 U.S.C.

§292(c).

Notably, “the omission of ‘applicable patents’ from a label listing patents

purporting to cover the contents of a box of course cannot, in itself, be a

violation of the false marking statute.” Arcadia Mach. & Tool, Inc. v. Sturm,

Ruger & Co., 786 F.2d 1124, 1125 (Fed. Cir. 1986) (emphasis in original).

In the same vein as § 292(a)’s second paragraph, the third paragraph

prohibits individuals from marking or using in advertising the words “patent

applied for” or “patent pending” for the purpose of deceiving the public when

a patent application has neither been made nor is pending. 35 U.S.C. §292(a).

302 Prosecuting Intellectual Property Crimes

Section 292(a) imposes a ne of not more than $500 for every oense.

35 U.S.C. §292(a). us, “the statute’s plain language requires the penalty

to be imposed on a per article basis,” not on a “per decision” nor a “time-

based approach.” Forest Group, 590 F.3d at 1301-04 (reversing district court’s

holding that penalty be imposed for each “decision” to mark multiple articles

falsely). “Section 292 clearly requires a per article ne.” Id. at 1302. e “per

article” unit of prosecution is consistent with the purpose behind the statute

because “[t]he more articles that are falsely marked[,] the greater the chance

that competitors will see the falsely marked article and be deterred from

competing.” Id. at 1303.

Signicantly, the statute was amended in 1952 to remove any minimum

ne. Id. at 1302. us, “district courts have the discretion to assess the per

article ne at any amount up to $500 per article.” Id. Courts, for example,

have the discretion to impose a penalty of a fraction of a penny per article.

Id. at 1304. As a result, courts may use their “discretion to strike a balance

between encouraging enforcement of an important public policy and imposing

disproportionately large penalties for small, inexpensive items produced in

large quantities.” Id. Because the ne for an infraction of 35 U.S.C. § 292 is

a criminal ne, that ne is increased by 18 U.S.C. § 3571 to a maximum of

$5,000 for individuals ($10,000 for corporations) or twice the monetary gain

or loss. See 18 U.S.C. § 3571(b)(2), (b)(7), (c)(2), (c)(7), (d).

Prior to the Leahy-Smith America Invents Act, §292(b) provided for a civil

qui tam remedy, which enabled any person to sue for the statutory penalty set

forth in §292(a) and retain one-half of the recovery, leaving the other half “to

the use of the United States.” 35 U.S.C. §292(b) (2010); Boyd v. Schildkraut

Giftware Corp., 936 F.2d 76, 79 (2d Cir. 1991); Filmon Process Corp. v. Spell-

Right Corp., 404 F.2d 1351, 1355 (D.C. Cir. 1968) (holding that “§292(b),

while penal, is not a criminal statute”). “e patentee is given this remedy to

protect his patent position, and as a practical matter, the patentee is the only

likely enforcer of it, as recovery requires proof that the statements were made

without his consent.” Filmon, 404 F.2d at 1355.

e Leahy-Smith America Invents Act made two substantive changes

impacting the predecessor statute’s qui tam remedy. First, it eliminated the qui

tam action. e Act added to section 292(a) that “[o]nly the United States may

sue for the penalty authorized by this subsection,” and removed the qui tam

action from section 292(b). America Invents Act §16(b)(1) & (2). Second, the

Act replaced the qui tam remedy with a civil compensatory damages action: “A

VII. Patent 303

person who has suered a competitive injury as a result of a violation of this

section may le a civil action in a district court of the United States for recovery

of damages adequate to compensate for the injury.” 35 U.S.C. §292(b).

However, because criminal prosecutions pursuant to § 292 are rare,

reported qui tam actions under the predecessor version of the false marking law

are still helpful authority for interpreting the false marking statute in criminal

cases. For example, at least one court rejected a private enforcement pursuant

to §292(b) because, inter alia, “the patent markings about which Plaintis

complain were found on the packaging, and not on the product.” Rainworks

Ltd. v. Mill-Rose Co., 609 F. Supp. 2d 732, 739 (N.D. Ohio 2009) (holding

that “[b]ecause marking the outer packaging, when marking the product could

be done, is insucient for the notice requirements of 35 U.S.C. §287(a),

the actions of Defendants ... are equally insucient for false marking liability

under the penal statute, 35 U.S.C. §292(a)”). In other words, if the marking

is insucient to meet patent law’s notice requirement, then the marking is also

insucient to support a claim under false marking statute.

Consistent with the express language of the statute, courts have held that 35

U.S.C. §292(a) requires the government to prove that the defendant intended

to deceive or counterfeit. See Arcadia, 786 F.2d at 1125 (arming holding that

false marking statute was not violated where there was no evidence of intent

to deceive). us, accidental or unintentional mismarking is not a violation.

London v. Everett H. Dunbar Corp., 179 F. 506, 510 (1st Cir. 1910) (holding

that interpreting patent claims is not an exact science, and hence where one

“has an honest, though mistaken, belief that upon a proper construction of

the patent it covers the article which he marks,” the requisite intent to deceive

would not be shown); Brose v. Sears, Roebuck & Co., 455 F.2d 763, 768-69 (5th

Cir. 1972) (same).

“Intent to deceive is a state of mind arising when a party acts with sucient

knowledge that what it is saying is not so and consequently that the recipient

of its saying will be misled into thinking that the statement is true.” Clontech,

406 F.3d at 1352 (citing Seven Cases v. United States, 239 U.S. 510, 517-18

(1916)). Using “objective standards,” the prosecution may establish a rebuttable

presumption of the requisite intent to deceive where the government proves

both (1) the fact of misrepresentation and that (2) the party making it had

knowledge of its falsity. See id. (citing Norton v. Curtiss, 433 F.2d 779, 795-

96 (C.C.P.A. 1970)); Pequignot, 608 F.3d at 1362-63 (“the combination of a

false statement and knowledge that the statement was false creates a rebuttable

304 Prosecuting Intellectual Property Crimes

presumption of intent to deceive the public, rather than irrebuttably proving

such an intent”). A defendant’s “mere assertion” that he did not intend to

deceive will not allow him to rebut the presumption. Pequignot, 608 F.3d at

1363; Clontech, 406 F.3d at 1352, 1353 n.2 (noting that “the inference of intent

to deceive cannot be defeated with blind assertions of good faith where the

patentee has knowledge of mismarking”). By the same token, “mere knowledge

that a marking is false is insucient to prove intent if [the defendant] can

prove that it did not consciously desire the result that the public be deceived.”

Pequignot, 608 F.3d at 1363. “us, a good faith belief that an action is

appropriate ... can negate the inference of a purpose of deceiving the public.”

Id. at 1364 (holding that advice of counsel and purpose other than deceiving

the public sucient to rebut presumption of intent to deceive).

In addition, “[w]here the article marked is obviously very remote from the

patent referred to in justication of the marking, this dierence alone may be

sucient to show an intention to deceive; but where the dierence is slight,

and the question of the breadth of the invention or of the claims is so close

as to permit of an honest dierence of opinion,” then proof of such intent

is more dicult. London, 179 F. at 510. Hence, to show knowledge of the

misrepresentation, the government must show beyond a reasonable doubt that

the articles in question were in fact mismarked, and that defendant did not

have a reasonable belief that the articles were properly marked (i.e., covered by

a patent or patent application). Cf. Clontech, 406 F.3d at 1352-53.

D. No Prosecution for Interstate Transportation or

Receipt of Stolen Property—18 U.S.C. §§2314,

2315

e interstate transportation of stolen property statute, 18 U.S.C. §2314,

does not allow prosecution of a person for the interstate distribution of patent-

infringing goods when the only theory for the property’s being stolen is that

it infringes a patent. See Dowling v. United States, 473 U.S. 207, 227 (1985)

(dicta). e same dicta would likely apply to the interstate receipt of stolen

property (18 U.S.C. § 2315).

305

VIII.

Penalties, Restitution,

and Forfeiture

A. Introduction

is Chapter discusses the penalties for intellectual property crime,

concentrating on the statutory sentencing factors, the United States Sentencing

Guidelines (the “Guidelines”), restitution, and forfeiture.

e Supreme Court’s seminal decision in United States v. Booker, 543

U.S. 220 (2005), changed the landscape of federal criminal sentencing. In

Booker, the Supreme Court held that mandatory application of the Guidelines

violated the Sixth Amendment right to trial by jury. Accordingly, the Supreme

Court made the Guidelines advisory and excised the statutory provision which

allowed departures only under certain very limited circumstances. See 18

U.S.C. § 3553(b)(1).

e Guidelines still occupy a central role in sentencing, but are now

just one of several statutory factors courts must consider. See 18 U.S.C. §

3553(a). Generally, sentencing courts will rst consult the Guidelines, which

will normally include calculating an advisory range of imprisonment. See

Booker, 543 U.S. at 264; Gall v. United States, 552 U.S. 38, 46 (2007); Rita

v. United States, 551 U.S. 338, 347-48 (2007); see also United States v. Crosby,

397 F.3d 103, 111 (2d Cir. 2005) (“[T]he excision of the mandatory aspect

of the Guidelines does not mean that the Guidelines have been discarded.

On the contrary, sentencing judges remain under a duty with respect to the

Guidelines--not the previously imposed duty to apply the Guidelines, but

the continuing duty to ‘consider’ them, along with the other factors listed

in section 3553(a).”). e Guidelines are not entitled to greater weight than

the other § 3553(a) factors. See Gall, 552 U.S. at 51 (deferential abuse-of-

discretion standard applies to sentencing decisions both inside and outside of

Guidelines range). After a Guideline determination is made, sentencing courts

then consider all of § 3553(a) factors. See id. at 50.

Appellate courts now review federal sentences for “reasonableness.” Booker,

543 U.S. at 260-61. is is both a procedural and a substantive inquiry. A

306 Prosecuting Intellectual Property Crimes

sentence may be unreasonable if the sentencing court commits procedural

error by, among other things, failing to consider all of the factors in §3553(a),

or treating the Guidelines as mandatory. Gall at 51. Substantive reasonableness

is based on the totality of the circumstances, including any variance from

the Guidelines range. Id. But while a sentencing court may presume that a

Guidelines sentence is reasonable, see Rita, 551 U.S. at 347, a non-Guidelines

sentence based upon consideration of all of the § 3553 factors may also be

reasonable. See Gall, 552 U.S. at 51 (reviewing courts “must give due deference

to the district court’s decision that the §3553(a) factors, on a whole, justify the

extent of the variance”).

B. e Statutory Sentencing Factors

is subsection discusses how courts have used the following §3553(a)

sentencing factors in intellectual property cases:

(a) Factors to be considered in imposing a sentence.--e

court shall impose a sentence sucient, but not greater than

necessary, to comply with the purposes set forth in paragraph

(2) of this subsection. e court, in determining the particular

sentence to be imposed, shall consider--

(1) the nature and circumstances of the oense and the

history and characteristics of the defendant;

(2) the need for the sentence imposed--

(A) to reect the seriousness of the oense, to promote

respect for the law, and to provide just punishment

for the oense;

(B) to aord adequate deterrence to criminal conduct;

defendant; and

(D) to provide the defendant with needed educational

or vocational training, medical care, or other

correctional treatment in the most eective manner;

(3) the kinds of sentences available;

VIII. Penalties, Restitution, and Forfeiture 307

(4) the kinds of sentence and the sentencing range

established for--

(A) the applicable category of oense committed by

the applicable category of defendant as set forth in

the guidelines--

(i) issued by the Sentencing Commission pursuant

to section 994(a)(1) of title 28, United States

Code, subject to any amendments made to

such guidelines by act of Congress (regardless

of whether such amendments have yet to be

incorporated by the Sentencing Commission

into amendments issued under section 994(p)

of title 28); and

(ii) that, except as provided in section 3742(g), are

in eect on the date the defendant is sentenced;

(B) in the case of a violation of probation or supervised

release, the applicable guidelines or policy

statements issued by the Sentencing Commission

pursuant to section 994(a)(3) of title 28, United

States Code, taking into account any amendments

made to such guidelines or policy statements

by act of Congress (regardless of whether such

amendments have yet to be incorporated by the

Sentencing Commission into amendments issued

under section 994(p) of title 28);

(5) any pertinent policy statement--

(A) issued by the Sentencing Commission pursuant to

section 994(a)(2) of title 28, United States Code,

subject to any amendments made to such policy

statement by act of Congress (regardless of whether

such amendments have yet to be incorporated by

the Sentencing Commission into amendments

issued under section 994(p) of title 28); and

308 Prosecuting Intellectual Property Crimes

(B) that, except as provided in section 3742(g), is in

eect on the date the defendant is sentenced.

(6) the need to avoid unwarranted sentence disparities

among defendants with similar records who have been

found guilty of similar conduct; and

(7) the need to provide restitution to any victims of the

oense.

18 U.S.C. § 3553(a). While courts need not engage in “robotic incantation” of

the § 3553(a) factors, see Crosby, 397 F.3d at 113, Booker and its progeny have

spurred sentencing courts to emphasize and articulate their reliance on these

statutory factors, notwithstanding the applicable Guidelines range.

is is clearly evident in intellectual property cases. Sentencing courts have

used the § 3553(a) factors to justify sentences above the Guidelines range. See

United States v. Williams, 526 F.3d 1312, 1322-23 (11th Cir. 2008) (in trade

secret case, arming sentence above the Guidelines range considering §3553(a)

factors, including: (i) that the defendant lied to the court about her criminal

history; (ii) that the defendant was well-educated and did not require vocational

education; (iii) the need to protect trade secrets; and (iv) the tremendous harm

to the victim had the defendant succeeded); United States v. Bailey, 286 Fed.

Appx. 678, 682 (11th Cir. 2008) (in copyright infringement case, sentencing

court relied on § 3553(a) evaluation to sentence above the Guidelines range

where defendant violated supervised release conditions, highlighting a need

for deterrence in light of the defendant’s three consecutive release violations);

United States v. Sow, 180 Fed. Appx. 278, 278-79 (2d Cir. 2006) (in arming

sentence, noting “the District Court found that ‘it is clearly Congress’ policy

decision to treat seriously and punish with signicant sentences these sorts of

intellectual property and music pirating oenses,’ which relates directly to the

‘seriousness of the oense.’ See 18 U.S.C. § 3553(a)(2)(A).”).

Courts also have used § 3553(a) analysis to support Guidelines sentences,

including when defendants have complained that a correctly calculated

Guidelines range is itself unfair. See United States v. omas, 331 Fed. Appx. 263,

265 (4th Cir. 2009) (in trademark counterfeiting case, arming Guidelines

sentence supported by § 3553(a) evaluation that considered defendant’s

“lengthy involvement in counterfeit tracking, his decision to involve his

family members in the illegal activity and the scale of his operations,” and also

distinguished defendant’s case from that of his co-conspirators who received

VIII. Penalties, Restitution, and Forfeiture 309

lighter sentences); United States v. Four Pillars Enter. Co., 253 Fed. Appx. 502,

513 (6th Cir. 2007) (arming Guidelines sentence meted out by district

court considering § 3553(a) factors, including: (i) victim impact statements;

(ii) the ongoing nature of the scheme; (iii) the defendants’ ability to pay a

ne; and (iv) the defendants’ use of the trade secret owner’s own employee for

economic espionage); United States v. Lozano, 490 F.3d 1317, 1324-25 (11th

Cir. 2007) (in trademark counterfeiting case, arming a Guidelines sentence

supported by § 3553(a) factors and further nding that even if the Guidelines

calculation were erroneous, the sentence would still have been reasonable

based on the § 3553(a) factors, especially the seriousness of the oense—a

ve-year counterfeiting operation that resulted in at least ten seized shipments

of counterfeit cell phone parts; continued even after the defendants knew they

were under investigation; and was international, stretching from China to

Central America); United States v. Sagendorf, 445 F.3d 515, 518 (1st Cir. 2006)

(arming a Guidelines sentence where the district court rejected defendant’s

contention that the Guidelines range was unfairly high, citing as part of a

§3553(a) the seriousness of the oense and the need for general deterrence,

even though specic deterrence might have required less).

Finally, courts have used § 3553(a) factors to support sentences below

the Guidelines range. See United States v. Jiang, No. 09-CR-34, 2009 WL

3254434, at *2 (E.D.N.Y. October 9, 2009) (in trademark counterfeiting case,

imposing 30-month sentence, substantially below the 70-87 month Guidelines

range, citing § 3553(a) factors, including defendant’s “strong work history

and many friends and supporters in the community,” the adequacy of the

sentence to achieve both “general” and “specic” deterrence, the defendant’s

limited employment prospects and his remorse, even while acknowledging

that such violations “destroy American commerce”); United States v. Kim, No.

07-0170-S-BLW, 2008 U.S. Dist. LEXIS 80043, at *6-7 (D. Idaho May 8,

2008) (in trademark counterfeiting case, imposing a 1-month sentence, below

the 10-16 month Guidelines range, because of § 3553(a) factors, including the

nature of oense—the sale of t-shirts in a remote location at prices far below

those of genuine goods—and the history and characteristics of the defendant

—55, married with ve children, all U.S. citizens, with no criminal history and

unlikely to reoend, and facing deportation were a longer sentence imposed);

United States v. Arman, No. 04-C-6617, 2006 U.S. Dist. LEXIS 4592, at

*3-6 (N.D. Ill. February 2, 2006) (in trademark counterfeiting case, imposing

sentence substantially below the Guidelines range based on consideration of

§3553(a) factors: (i) no health and safety concerns—defendant sold counterfeit

310 Prosecuting Intellectual Property Crimes

cameras; (ii) trademark owner not harmed because counterfeits were obviously

not genuine; and (iii) no apparent link to organized crime).

e common theme from these cases is that sentencing courts now ignore

or trivialize the § 3553(a) factors at their peril. See Gall, 552 U.S. at 50-51;

United States v. Kononchuk, 485 F.3d 199, 204-06 (3rd Cir. 2007) (in trademark

counterfeiting case, remanding for resentencing because district court merely

gave “rote statement” of § 3553(a) factors in imposing probationary sentence

substantially below the Guidelines range, while declining to address any of

the government’s “cogent” objections, including (i) the disparity in treatment

with co-conspirator who was far less culpable and also cooperated fully, but

also received a sentence of probation, (ii) the sophistication of the defendant’s

scheme, and (iii) the inappropriateness of the court’s oer to impose probation

if the defendant, who had wealthy in-laws, would pay restitution on an

accelerated schedule).

C. Sentencing Guidelines

is subsection addresses the interpretation and application of the United

States Sentencing Guidelines (U.S.S.G.) in intellectual property prosecutions,

primarily §2B1.1 for Economic Espionage Act cases, §2B5.3 for all other

intellectual property oenses, and §3B1.3 for crimes in which the defendant

abused a position of trust or used a special skill. is subsection should be read

in conjunction with the sections covering penalties in the chapters that present

the substantive oenses, as well as with the chapter on victims’ rights.

As with other crimes, prosecutors should generally continue to seek

sentences within the Guidelines range in intellectual property prosecutions.

e intellectual property Guidelines have been intricately fashioned through

amendment and re-amendment, often incorporating and reacting to court

decisions. For general guidance on this issue, prosecutors should consult

Attorney General Eric Holder’s Memorandum on Department Policy on

Charging and Sentencing (May 19, 2010), available at http://www.justice.

gov/oip/holder-memo-charging-sentencing.pdf, which supersedes all prior

memoranda, as well as USAM 9-27.710-760.

For assistance with any sentencing issues specic to intellectual property

crimes, please call CCIPS at (202) 514-1026 for assistance.

VIII. Penalties, Restitution, and Forfeiture 311

1. Oenses Involving Copyright (Including Bootleg Music,

Camcorded Movies, and the Unauthorized Use of Satellite, Radio,

and Cable Communications), Trademark, Counterfeit Labeling,

and the DMCA

a. Applicable Guideline is §2B5.3

Sentencing calculations for the following oenses are governed by U.S.S.G.

§2B5.3:

• Criminal copyright infringement, 17 U.S.C. §506, 18 U.S.C. §2319

• Criminal violations of the Digital Millennium Copyright Act (DMCA),

17 U.S.C. §1204

• Tracking in counterfeit labels, illicit labels, and counterfeit

documentation or packaging, 18 U.S.C. §2318

• Tracking bootleg audio and video recordings of live musical

performances, 18 U.S.C. §2319A

• Unauthorized recording of motion pictures in a movie theater, 18

U.S.C. §2319B

• Tracking in counterfeit trademarked, service-marked, or certication-

marked goods, services, and labels, documentation, and packaging for

goods and services, 18 U.S.C. §2320

• Unauthorized reception of cable and satellite service, 47 U.S.C.

§§553(b)(2), 605 and 18 U.S.C. §2511

e Guidelines’ Statutory Index, U.S.S.G. App. A, refers these statutes to

U.S.S.G. §2B5.3.

Section 2B5.3 has been amended a number of times over the last decade.

For example, on May 1, 2000, it was amended to “ensure that the applicable

guideline range for a defendant convicted of a crime against intellectual

property” would be “suciently stringent to deter such a crime and to

adequately reect” consideration of “the retail value and quantity of the items

with respect to which the crime against intellectual property was committed.”

No Electronic eft (NET) Act of 1997, Pub. L. No. 105-147,§2(g), 111

Stat. 2678 (1997). Among other things, the May 2000 amendments increased

the applicable base oense level from 6 to 8 and increased the number and type

of special oense characteristics to include not only the infringement amount,

but also characteristics for manufacturing, uploading, or importing infringing

items; for infringement not committed for commercial advantage or private

nancial gain; and for risk of serious bodily injury or possession of a dangerous

312 Prosecuting Intellectual Property Crimes

weapon in connection with the oense. See U.S.S.G. App. C (Amendments

590, 593).

On October 24, 2005, § 2B5.3 was amended under emergency amendment

authority, pursuant to the Family Entertainment and Copyright Act of 2005,

which: (i) created a new intellectual property oense, “Unauthorized recording

of Motion pictures in a Motion picture exhibition facility,” codied at 18 U.S.C.

§ 2319B; and (ii) directed the United States Sentencing Commission (the

“Commission”) to “review and, if appropriate, amend the Federal sentencing

guidelines and policy statements applicable to persons convicted of intellectual

property rights crimes ....” Family Entertainment and Copyright Act of 2005,

Pub. L. No. 109-9, §§ 102(a), 105(a), 119 Stat. 218, 218-220, 222-23 (2005).

Among other things, the October 2005 amendment: (i) added a new specic

oense characteristic (2) addressing infringement of pre-release works; (ii)

renumbered oense characteristics (2)-(4) as oense characteristics (3)-(5); (iii)

claried the denition of uploading for technical purposes; (iv) claried that the

court can estimate the infringement amount using any relevant information;

and (v) provided a reference in the Guidelines’ statutory index, Appendix A,

assigning the new camcording oense, 18 U.S.C. § 2319B, to § 2B5.3. See

U.S.S.G. App. C (Amendment 675). On November 1, 2006, the amendment

was repromulgated as permanent, with slight changes to the denition of

uploading contained in the original. See U.S.S.G. App. C (Amendment 687).

On September 12, 2006, § 2B5.3 was amended again under emergency

amendment authority, pursuant to the Stop Counterfeiting in Manufactured

Goods Act, which directed the Commission to consider items, such as

counterfeit labels and DMCA circumvention devices, that merely facilitate

infringement. See Stop Counterfeiting in Manufactured Goods Act, Pub. L.

No. 109-181, § 1, 120 Stat. 285, 287-88 (Mar. 16, 2006). e September

2006 amendment provided that in cases under 18 U.S.C. § 2318 or § 2320

involving counterfeit labels, the infringement amount is based on the retail

value of the infringed items to which the labels would have been axed. See

U.S.S.G. App. C (Amendment 682). On November 1, 2007, the amendment

was repromulgated as permanent, adding a provision addressing downward

departures for overstated infringement amounts, and several provisions

concerning DMCA violations: (i) making § 2B5.3 the applicable guideline;

(ii) clarifying that the infringement amount is the retail value of the work

accessed; (iii) adding a 2-level enhancement under § 2B5.3; and (iv) making

the application of the special skill adjustment under § 3B1.3 discretionary.

VIII. Penalties, Restitution, and Forfeiture 313

See U.S.S.G. App. C (Amendment 704); see also Section E.5. of Chapter III

(Trademark) of this Manual.

On November 1, 2009, § 2B5.3 was amended again, this time responding

to the Prioritizing Resources and Organization for Intellectual Property (PRO-

IP) Act of 2008, which added statutory sentencing enhancements to 18 U.S.C.

§ 2320 providing that if an oender causes or attempts to cause serious bodily

injury, the statutory maximum term of imprisonment is increased from 10

years to 20 years; if the oender causes or attempts to cause death, the statutory

maximum is increased to any term of years (or to life). See PRO-IP Act, Pub.

L. No. 110-403, § 205, 122 Stat. 4256, 4261-62 (2008). e November 2009

amendment: (i) claried that the enhancement in § 2B5.3(b)(5), which applies

when the oense involved the risk of serious bodily injury, also applies when the

oense involved the risk of death; and (ii) increased the minimum oense level

in such a situation from level 13 to level 14. See U.S.S.G. App. C (Amendment

735). is brought § 2B5.3 back into parallel with § 2B1.1, reecting the

Commission’s prior judgment that “aggravating conduct in connection with

infringement cases should be treated under the guidelines in the same way it is

treated in connection with fraud cases.” Id. (Amendment 590).

As is discussed in Section C.2. of this Chapter, U.S.S.G. § 2B1.1 is the

applicable Guideline for the Economic Espionage Act.

b. Base Oense Level

e base oense level under U.S.S.G. §2B5.3 is 8.

c. Adjust the Oense Level According to the “Infringement Amount”—

U.S.S.G. §2B5.3(b)(1)

Under U.S.S.G. §2B5.3(b)(1), the base oense level is adjusted according

to the “infringement amount,” an estimate of the magnitude of infringement.

“Similar to the sentences for theft and fraud oenses, the sentences for defendants

convicted of intellectual property oenses should reect the nature and

magnitude of the pecuniary harm caused by their crimes. Accordingly, similar

to the loss enhancement in the theft and fraud guideline, the infringement

amount in subsection (b)(1) serves as a principal factor in determining the

oense level for intellectual property oenses.” U.S.S.G. §2B5.3 cmt. backg’d.

e mechanics of calculating the infringement amount are covered in U.S.S.G.

§2B5.3 cmt. n.2.

314 Prosecuting Intellectual Property Crimes

i. Formula

e infringement amount is generally calculated by multiplying the

number of infringing goods by the goods’ retail value. See U.S.S.G. §2B5.3

cmt. n.2(A),(B).

If the defendant infringed dierent types of items, the infringement amount

is the sum of the individual infringement amounts for each type of item. Id.

cmt. n.2(D). e infringement amount for each type of item is calculated

independently of the others, including whether the retail value should be that

of an infringing (counterfeit) item or an infringed (legitimate) item. Id. See

Section C.1.c.iii. of this Chapter. e individual infringement amounts are

then aggregated into a total infringement amount, which is plugged into the

loss table in U.S.S.G. §2B1.1. See Section C.1.c.v. of this Chapter.

ii. Number of Infringing Items

e number of infringing items may be easy to calculate. Victims or their

representatives can often help verify the number when the number depends

on whether an item’s copyright or trademark has been registered. For a list

of industry associations that represent victims, consult Appendix G of this

Manual or call CCIPS at (202) 514-1026. When the number of infringing

items is dicult or impossible to calculate, however, reasonable estimates are

allowed. See U.S.S.G. § 2B5.3, cmt. n.2(E). See also Section C.1.c.iv. of this

Chapter.

In cases under 18 U.S.C. § 2318 or § 2320, which involve counterfeit

labels that have not been axed to, or packaging that does not actually enclose

or accompany, a good or service, count as the infringing items those labels

and packaging which, “had [they] been so used, would appear to a reasonably

informed purchaser to be axed to, enclosing or accompanying an identiable,

genuine good or service.” U.S.S.G. § 2B5.3, cmt. n.2(A)(vii). In DMCA

cases, count as the infringing items those “circumvention devices” which were

used or designed to “access ... [a] copyrighted work.” Id. cmt. n.2(A)(viii).

“‘Circumvention devices’ are devices used to perform the activity described in

17 U.S.C. 1201(a)(3)(A) and 1201(b)(2)(A).” Id. cmt. n.1.

A recurring question is whether the infringement amount should include all

the infringing items that the defendant acquired or only those that he provided

to another, such as a customer or co-conspirator. For the oenses of tracking

in counterfeit goods and labels, the infringement amount should include all

VIII. Penalties, Restitution, and Forfeiture 315

items the defendant acquired because the term “trac” is dened to include

obtaining control over an infringing item with the “intent to ... transport,

transfer, or otherwise dispose of ” it. 18 U.S.C. §§ 2320(f)(5), 2318(b)(2).

is applies equally if the defendant is convicted of attempting or conspiring

to trac in counterfeit goods. See 18 U.S.C. § 2320(a).

Similarly, criminal copyright infringement includes the unauthorized

“reproduction or distribution” of copyrighted works (emphasis added), and thus

the infringement amount includes all infringing items, regardless of whether

they were transferred to others. 17 U.S.C. § 506(a)(1)(B). e bootlegging

and camcording statutes also criminalize the production of infringing items,

regardless of distribution. See 18 U.S.C. §§ 2319A(a)(1), 2319B(a). Finally,

the DMCA prohibits the production of infringing items—by circumventing

protective technological measures—and does not require distribution. See 17

U.S.C. § 1201(a)(1)(A).

Still open is the question of whether and to what extent to include items

that are incomplete, such as items in the process of production. is issue is

discussed at length in Section E.5. of Chapter III of this Manual (sentencing

issues concerning counterfeit marks).

iii. Retail Value

e major issues with determining the retail value are what to do when

the items have not been fully manufactured, how to value items that facilitate

infringement, which market should be used for reference, and whether to use

the value of a counterfeit or a legitimate item. ese questions are addressed

below.

Incompletely Manufactured Items

How to value items whose manufacture is incomplete is treated in Section

E.5. of Chapter III and E.5. of Chapter VI of this Manual.

Items that Facilitate Infringement Such as Labels and DMCA

Circumvention Devices

For cases under 18 U.S.C. § 2318 or § 2320 involving counterfeit labels

or packaging, the infringement amount is based on the retail value of the

infringed item, which is the “identiable, genuine good or service” to which

the label would have been axed or the packaging would have enclosed or

accompanied. U.S.S.G. § 2B5.3 cmt. n.2(A)(vii). For DMCA cases, the

316 Prosecuting Intellectual Property Crimes

infringement amount is also based on the retail value of the infringed item,

which is the “price the user would have paid to access lawfully the copyrighted

work, and the ‘infringed item’ is the accessed work.” Id. cmt. n.2(A)(viii).

Choosing the Correct Market

“[T]he ‘retail value’ of an infringed item or an infringing item is the

retail price of that item in the market in which it is sold.” U.S.S.G. §2B5.3

cmt. n.2(C). To dene the relevant market in which the items are sold, the

government should focus on the market’s geographic location, whether it

exists on the Internet or in real-world storefronts, and whether it is sold in a

legitimate market or a black market.

Infringing/Counterfeit vs. Infringed/Authentic Retail Values

Infringing items often trade for much less than authentic items. Using

the retail value of one rather than the other can easily mean the dierence

between months and years in prison, if not between prison and probation.

Consequently, whether to use the retail value of counterfeit or authentic items

is often the predominant issue at sentencing.

e general rule of tting the punishment to the harm applies to selecting

the retail value. Intellectual property crimes create four basic types of harm: (1)

the fraud on consumers who were tricked into buying something inauthentic

(at the defendant’s prices); (2) the legitimate income that rights holders lost (at

legitimate prices) when consumers mistakenly bought the defendant’s items;

(3) the rights holders’ inability to control the use of their property, whether

consumers were defrauded or not; and (4) the defendant’s unjust enrichment

(at the defendant’s prices) by using the rights-holder’s intellectual property

unlawfully.

To value these harms, the law simplied the inquiry into whether the

defendant caused or was likely to have caused the victim to lose sales. If so, the

maximum measure of harm is the victim’s lost sales, which are valued at the

victim’s own prices. If not, the maximum measure of harm is the defendant’s

gain, which is valued at what the defendant took in, at his own prices. And if

the counterfeit price is hard to determine, then the harm should be computed

at the legitimate item’s price for ease of calculation.

Originally, the Guidelines directed courts to account for these harms by using

only the retail value of infringing (counterfeit) items. See U.S.S.G.§2B5.3(b)

(1) & cmt. n.1 & backg’d (1998). But this approach was dicult to apply when

VIII. Penalties, Restitution, and Forfeiture 317

infringing content, such as pirated software or music, had been distributed for

free over the Internet, thereby resulting in an infringement amount of $0. Nor

did the Guidelines explain how to calculate the retail value of the infringing

items when that value was dicult to determine. Notwithstanding the original

Guidelines’ silence as to a legitimate item’s retail value, courts recognized its

relevance in a variety of circumstances. e Second Circuit claried that high-

quality fakes should be valued at the retail price and lower-quality fakes should

be valued at the counterfeit price. See United States v. Larracuente, 952 F.2d

672, 674-75 (2d Cir. 1992). Other courts recognized that a genuine item’s

price could help determine a counterfeit item’s retail value when it otherwise

was dicult to determine. See, e.g., United States v. Bao, 189 F.3d 860, 866-67

(9th Cir. 1999).

On May 1, 2000, the Guidelines caught up to the case law by concentrating

on the harm the defendant caused, whether he displaced the victim’s legitimate

sales, and how hard it is to calculate the counterfeit’s value. See U.S.S.G. App.

C (Amendments 590, 593). Application Note 2(A) to U.S.S.G. §2B5.3 now

instructs the court to use the retail value of an authentic item if any one of the

following situations applies:

e infringing item “is, or appears to a reasonably informed

purchaser to be, identical or substantially equivalent to the infringed

item,” U.S.S.G. § 2B5.3 cmt. (n.2(A)(i)(I))

Dierences in appearance and quality therefore matter if they could be

ascertained by “a reasonably informed purchaser.” Id. An infringing item that

could fool only an uninformed purchaser would be valued at the counterfeit

retail value. See United States v. Park, 373 Fed. Appx. 463, 464 (5th Cir 2010)

(district court did not clearly err in using retail value of infringed items to

calculate Guidelines range after receiving expert testimony that infringing

items “would have appeared to a reasonably informed purchaser to be identical

or substantially equivalent to the infringed items”); United States v. Alim, 256

Fed. Appx. 236, 240-41 (11th Cir. 2007) (same); United States v. Lozano,

490 F.3d 1317, 1322-23 (11th Cir. 2007) (same); United States v. Yi, 460

F.3d 623, 636-638 (5th Cir. 2006) (district court erred in using retail value

of infringed items in part because the infringed and infringing items did not

appear “virtually indistinguishable to a reasonably informed purchaser”).

318 Prosecuting Intellectual Property Crimes

e infringing item is a digital or electronic reproduction,

U.S.S.G. §2B5.3 cmt. n.2(A)(i)(II)

For digital or electronic reproductions, use the retail value of the authentic

item regardless of whether the reproductions appear authentic to a reasonably

informed purchaser. A counterfeit movie DVD with an obviously counterfeit

label is valued at the authentic item’s retail value, even though nobody would

be confused into mistaking the counterfeit for an authentic DVD. Because

a digital or electronic reproduction is a perfect substitute for the real thing,

whether its outer trappings look legitimate or not, the Commission reasoned

that in such cases, “the sale of an infringing item results in a displaced sale of

the legitimate, infringed item,” making it appropriate to use the value of the

infringed items for Guidelines calculations. U.S.S.G. App. C (Amendment

593). Moreover, the guideline simply does not distinguish between types of

digital reproduction, such as when the digital or electronic reproduction is

not a perfect substitute because its quality was degraded, as with a camcorded

movie or a musical song that has been reproduced at a lower sampling rate than

CD quality.

e counterfeit was sold at 75% or more of the authentic item’s retail

price, U.S.S.G. § 2B5.3 cmt. n.2(A)(ii)

e Commission reasoned that counterfeits sold at steep discounts should

not be valued the infringed items’ price because “the greatly discounted price

at which [the counterfeits are] sold suggests that many purchasers of infringing

items would not, or could not, have purchased the infringed item in the absence

of the availability of the infringing item.” U.S.S.G. App. C (Amendment 593).

erefore, counterfeits sold at “not less than 75% of the retail price of the

infringed item” may be valued at the infringed items’ price. Id.; see also Yi, 460

F.3d at 637-38 (district court erred in using value of infringed items in part

because the infringing items sold for well below 75% of the infringed items’

retail price).

e counterfeit’s retail value “is dicult or impossible to determine

without unduly complicating or prolonging the sentencing

proceeding,” U.S.S.G. § 2B5.3 cmt. n.2(A)(iii)

Another enumerated situation permitting use of the infringed items’ retail

value is when the counterfeit’s retail is “dicult or impossible to determine

without unduly complicating or prolonging the sentencing proceeding.”

U.S.S.G. § 2B5.3 cmt. n.2(A)(iii); see also Yi, 460 F.3d at 638 (district court

VIII. Penalties, Restitution, and Forfeiture 319

erred in using value of infringed items in part because “the retail values of many

of the infringing items were not only known to the government but presented at

trial”). Moreover, as is discussed in Section C.1.c.iv. of this Chapter, reasonable

estimates of the counterfeit retail prices are acceptable, but speculative guesses

or overly time-consuming calculations are not.

e oense involved illegal interception of satellite cable signals

in violation of 18 U.S.C. §2511, where “the ‘retail value of the

infringed item’ is the price the user of the transmission would have

paid to lawfully receive that transmission, and the ‘infringed item’

is the satellite transmission rather than the intercepting device,”

U.S.S.G. § 2B5.3 cmt. n.2(A)(iv)

See United States v. Brereton, 196 Fed. Appx. 688, 691-93 (10th Cir. 2006)

(district court did not clearly err in relying on expert testimony that purchasers

of pirated DIRECTV access cards had “viewing habits like those in the top

ten percent of all DIRECTV customers” and then using the cost for that level

of access as the “retail value of the infringed item”). e Commission did not

specify why it cited only 18 U.S.C. § 2511 and not other statutes criminalizing

the illegal interception of satellite cable signals, such as 47 U.S.C. §§553(b)

(2) and 605, but neither did it exclude them from the rule’s application. See

U.S.S.G. App. C (Amendment 593).

e retail value of the authentic good is a better approximation of

the harm than the value of the counterfeit, U.S.S.G. § 2B5.3 cmt.

n.2(A)(v)

See Lozano, 490 F.3d at 1322-23 (district court did not clearly err in

using retail value of infringed item after nding this provided a more accurate

assessment of the pecuniary harm to the rights holder than the value of the

infringing items); Yi, 460 F.3d at 637 (error to use infringed items’ retail

value because it was “not at all clear on which record evidence, if any, the

district court based its assessment that the infringed item value provides a more

accurate assessment of the pecuniary harm to the trademark owners”).

e oense involves the display, performance, publication,

reproduction, or distribution of a work being prepared for commercial

distribution. In a case involving such an oense, the ‘retail value

320 Prosecuting Intellectual Property Crimes

of the infringed [authentic] item’ is the value of that item upon its

initial commercial distribution, U.S.S.G. § 2B5.3 cmt. n.2(A)(vi)

is is part of the Sentencing Commission’s solution to the so-called

“pre-release problem”—that is, how to value an infringing copyrighted work

whose infringement occurred before the rights-holder put the authentic work

on the market itself. Confronted with widely diverging estimates of the harm

caused by pre-release piracy, the Commission determined that a pre-release

work’s retail value should equal its anticipated legitimate retail value, but that

a 2-point upward adjustment should be added for all pre-release oenses. See

U.S.S.G. §2B5.3(b)(2). See also Section C.1.d. of this Chapter.

A case under 18 U.S.C. § 2318 or § 2320 that involves a counterfeit

label, patch, sticker, wrapper, badge, emblem, medallion, charm,

box, container, can, case, hangtag, documentation, or packaging of

any type or nature (I) that has not been axed to, or does not enclose

or accompany a good or service; and (II) which, had it been so used,

would appear to a reasonably informed purchaser to be axed to,

enclosing or accompanying an identiable, genuine good or service. In

such a case, the “infringed item” is the identiable, genuine good or

service, U.S.S.G. § 2B5.3 cmt. n.2(A)(vii)

e Sentencing Commission was responding to the directive in the Stop

Counterfeiting in Manufactured Goods Act that it address situations in

which “the item in which the defendant tracked was infringing and also

was intended to facilitate infringement in another good or service, such as a

counterfeit label, documentation, or packaging ....” See U.S.S.G. Appendix C

(Amendment 682); cf. United States v. Sung, 87 F.3d 194, 196 (7th Cir. 1996)

(prior to Amendment 682, holding that defendant could only be held liable

for the counterfeit shampoo bottles he actually lled, unless the district court

found with “reasonable certainty” that he had intended to ll the rest).

A case under 17 U.S.C. §§ 1201 and 1204 in which the defendant

used a circumvention device. In such an oense, the ‘retail value of

the infringed item’ is the price the user would have paid to access

lawfully the copyrighted work, and the ‘infringed item’ is the accessed

work, U.S.S.G. § 2B5.3 cmt. n.2(A)(viii)

is was the Sentencing Commission’s response to the directive in the Stop

Counterfeiting in Manufactured Goods Act that it address situations in which

“the item in which the defendant tracked was not an infringing item but

VIII. Penalties, Restitution, and Forfeiture 321

rather was intended to facilitate infringement, such as an anti-circumvention

device (sic) ....” See U.S.S.G. App. C (Amendment 704). is applies only if

the “defendant used a circumvention device and thus obtained unauthorized

access to a copyrighted work.” Id. If the defendant “violated 17 U.S.C. §§

1201 and 1204 by conduct that did not include use of a circumvention device

... the infringement amount would be determined by reference to the value of

the infringing item, which in these cases would be the circumvention device.”

Id.

If any one of the above situations applies, the retail value is that of the

infringed (legitimate) item.

If none of these situations apply, the retail value is that of the infringing

(counterfeit) item. See U.S.S.G. §2B5.3 cmt. n.2(B) & backg’d; id. App. C

(Amendment 593). is includes cases involving the unlawful recording of a

musical performance in violation of 18 U.S.C. §2319A. U.S.S.G. §2B5.3

cmt. n.2(B).

iv. Determining Amounts and Values—

Reasonable Estimates Allowed

Any relevant source of information is appropriate in determining the

infringing or infringed item’s retail value. Actual prices are preferable, such

as prices determined from the defendant’s price list, prices charged during

undercover buys, or actual retail prices for specic items in the legitimate

manufacturer’s catalogue. Approximations may be necessary, however, and

they may include estimations of the average counterfeit prices in the market or

region as determined by experts, or the average retail price for a product line in

the manufacturer’s catalogue.

e same rule applies when determining the number of infringing items:

actual counts are preferable, but approximations are appropriate. U.S.S.G.

§2B5.3 explicitly states that reasonable estimates are acceptable. On October

24, 2005, on a temporary, emergency basis, and on November 1, 2006,

permanently, Application Note 2(E) was added to U.S.S.G. §2B5.3:

(E) Indeterminate Number of Infringing Items.—In a case in

which the court cannot determine the number of infringing

items, the court need only make a reasonable estimate of

the infringement amount using any relevant information,

including nancial records.

322 Prosecuting Intellectual Property Crimes

See U.S.S.G. App. C (Amendment 675, 687). e reference to nancial

records is likely an incorporation of the Tenth Circuit’s holding in Foote. See

United States v. Foote, 413 F.3d 1240, 1251 (10th Cir. 2005) (allowing analysis

of defendant’s bank records to aid in determining infringement amount); see

also United States v. Sweeney, 611 F.3d 459, 474 (8th Cir. 2010) (holding that

district did not clearly err under § 2B5.3 in making a “reasonable estimate” of

the infringement amount by starting with the gross revenues of the defendants’

company, which sold cable television descramblers); United States v. Beydoun,

469 F.3d 102, 105-06 (5th Cir. 2006) (noting under §2B5.3 only a reasonable

estimate of copyright infringement was required).

Although statistical precision is preferable, it is not necessary. For example,

in Sweeney, the defendants argued that the government had not proved that any

of the 178,260 descramblers it sold over a three-year period were “actually used

to intercept cable signals illegally,” and the “correct infringement amount was

therefore $0.” Sweeney, 611 F.3d at 474. Rejecting this as “sophistry,” the Court

found that, under the methodology set out in U.S.S.G. § 2B5.3, cmt. n.2(E),

“[i]t [was] perfectly reasonable to infer that the majority of these descramblers

were in fact used to steal cable programming,” even though “the exact number

and value of stolen cable transmissions [were] unknown ....” Id.

Although U.S.S.G. § 2B5.3 speaks only of estimating the number of

infringing items, there is no reason to believe that it abrogates earlier law allowing

the estimation of retail values. E.g., United States v. Brereton, 196 Fed. Appx.

688, 692-93 (10th Cir. 2006) (citing Foote, nding that district court did not

clearly err in making reasonable estimate of retail value of pirated DIRECTV

access cards); Foote, 413 F.3d at 1251 (“[d]istrict courts have considerable

leeway in assessing the retail value of the infringing items, and need only make

a reasonable estimate of the loss, given the available information”) (internal

quotation marks and citation omitted); United States v. Slater, 348 F.3d 666,

670 (7th Cir. 2003) (conrming that district courts have “considerable leeway

in assessing the retail value of the infringing items” and that courts “need only

make a reasonable estimate of the loss, given the available information,” citing

the former U.S.S.G. §2F1.1, now replaced by §2B1.1).

v. Cross-Reference to Loss Table in U.S.S.G. §2B1.1

Once calculated, the infringement amount sets the scope of the enhancement

in U.S.S.G. §2B5.3(b)(1):

VIII. Penalties, Restitution, and Forfeiture 323

• An infringement amount below or up to $2,000 results in

no increase;

• An infringement amount above $2,000 and up to $5,000

results in a 1-level increase; and

• An infringement amount above $5,000 increases the oense

level according to the loss table in U.S.S.G. §2B1.1(b)(1)

(eft, Embezzlement, Receipt of Stolen Property, Property

Destruction, and Oenses Involving Fraud or Deceit).

When consulting U.S.S.G. §2B1.1, look only to the loss table in subsection

(b)(1); other portions of that guideline—including the base oense level, other

oense enhancements, and the commentary—are inapplicable. See U.S.S.G.

§1B1.5(b)(2). Moreover, U.S.S.G. §2B5.3(b)(1)’s citation to the loss table in

U.S.S.G. §2B1.1 does not mean that the infringement amount should equal

the victim’s loss. Rather, the infringement amount approximates the victim’s

loss, but need not equal it. SeeUnited States v. Bao, 189 F.3d 860, 867 (9th Cir.

1999) (nding that district court properly calculated the amount for the loss

table in U.S.S.G. § 2F1.1 – which has since been replaced by U.S.S.G. § 2B1.1

– by using the retail value of the counterfeit items and not the loss derived from

their production); United States v. Cho, 136 F.3d 982 (5th Cir. 1998) (same);

U.S.S.G. Appendix C (Amendments 590, 593) (discussing infringement

amount as similar to loss and an approximation of harm); cf. United States v.

Koczuk, 252 F.3d 91, 97 (2d Cir. 2001) (in wildlife case, citing Cho, nding

that calculation using loss table in U.S.S.G. § 2F1.1 should be based on retail

price of endangered species involved, not economic loss caused by oense).

On this technical point, United States v. Sung, 51 F.3d 92, 95 (7th Cir. 1995)

is incorrect when it confuses the infringement amount with the loss incurred.

Although the infringement amount is often characterized as describing the

“loss” to the victim, it is not necessary for the government to show that the

105 (defendant, who produced booklets of counterfeit cigarette rolling papers

with the intent to sell them, was accountable even if he “never sold a single

infringing booklet”); United States v. Powell, 139 Fed. Appx. 545 (4th Cir.

2005) (applying 2003 Guidelines, nding enhancement under §2B1.1 table

based on infringement amount of more than $250,000 was proper even though

the victim suered no pecuniary loss; sentence vacated and remanded on other

grounds).

324 Prosecuting Intellectual Property Crimes

d. Pre-release Piracy Increases the Oense Level by2—U.S.S.G.

§2B5.3(b)(2)

Distribution of a copyrighted item before it is legally available to the

consumer is more serious than the distribution of already available items.

U.S.S.G. App. C (Amendment 675, 687). Consequently, eective October

24, 2005, on a temporary, emergency basis, and permanently on November 1,

2006, the Sentencing Commission added a 2-level enhancement for oenses

that involve the display, performance, publication, reproduction, or distribution

of a work being prepared for commercial distribution. See U.S.S.G. §2B5.3(b)

(2). A “[w]ork being prepared for commercial distribution” has the meaning

given in 17 U.S.C.§506(a)(3). U.S.S.G. §2B5.3 cmt. n.1. See also Chapter

II of this Manual.

e 2-level increase for pre-release piracy applies not only to the online

pre-release oense set forth in 17 U.S.C. §506(a)(1)(C) (which by denition

involves pre-release piracy over publicly-accessible computer networks), but

also to any copyright crimes under § 506(a)(1)(A) or (B) that involve pre-

release piracy done through any other medium, such as a § 506(a)(1)(A)

conviction for selling pirated pre-release movie DVDs.

e. Manufacturing, Importing, or Uploading Infringing Items Increases

the Oense Level by 2—U.S.S.G. §2B5.3(b)(3) [before October 24,

2005: §2B5.3(b)(2)]

e oense level is increased by 2 levels if the oense involves the

“manufacture, importation, or uploading of infringing items.” U.S.S.G.

§ 2B5.3(b)(3). If, after applying § 2B5.3(a), (b)(1), (b)(2), and the 2-level

increase in (b)(3), the oense level is less than 12, then it must be increased to

12. U.S.S.G.§2B5.3(b)(3).

is upward adjustment reects the need to punish those who introduce

infringing goods into the stream of commerce. U.S.S.G. App. C (Amendments

590, 593).

Uploading is particularly troublesome because it not only introduces

infringing items into the stream of commerce, but also enables further

infringement of the works. U.S.S.G. App. C (Amendments 590, 593).

“‘Uploading’ means making an infringing item available on the Internet or

a similar electronic bulletin board with the intent to enable other persons to

(A) download or otherwise copy the infringing item; or (B) have access to

VIII. Penalties, Restitution, and Forfeiture 325

the infringing item, including by storing the infringing item as an openly

shared le. ‘Uploading’ does not include merely downloading or installing an

infringing item on a hard drive on a defendant’s personal computer unless the

infringing item is an openly shared le.” U.S.S.G. § 2B5.3 cmt. n.1 (Nov.

1, 2006). (Before the October 24, 2005 temporary, emergency amendments,

made permanent on November 1, 2006 with minor changes, “uploading” was

dened in § 2B5.3’s rst and third application notes. e 2005 and 2006

amendments consolidated the denition into the rst application note and

claried the circumstances in which loading a le onto a computer hard drive

constitutes uploading. See U.S.S.G. App. C (Amendments 675, 687).)

Manufacturing and importing infringing items are also singled out for

a 2-level increase because those actions introduce infringing items into the

stream of commerce. U.S.S.G. §2B5.3 and App. C (Amendments 590, 593).

Although the Guidelines do not dene “manufacturing,” the important

distinction is between manufacturing (which gets the 2-level increase) and mere

distribution and tracking (which do not get an increase unless the conduct

also involved importation or uploading). See United States v. Gray, 446 Fed.

Appx. 569, 570 (4th Cir. 2011) (per curiam) (district court did not clearly err in

applying manufacturing enhancement to defendant who “not only bought and

resold infringing materials, but ... personally created infringing materials using

equipment found in his home”); Brereton, 196 Fed. Appx. at 693 (nding that

defendant’s reprogramming of pirated DIRECTV access cards before selling

them justied manufacturing enhancement).

Manufacturing should encompass not only the production of counterfeit

trademarked hard goods, but also the performance of counterfeit service-

marked services and the production and reproduction of pirated copyrighted

works under 17 U.S.C. §506; counterfeit labels under 18 U.S.C. § 2318;

bootleg music recordings under 17 U.S.C. §2319A; camcorded movies under

18 U.S.C. §2319B; and illegal circumvention devices under 17 U.S.C. §1204.

If a defendant conspired with or aided and abetted another person who

manufactured, uploaded, or imported infringing items, the defendant can

qualify for this 2-level increase even if he did none of these things himself.

e increase is triggered by whether the oense involved manufacturing,

importation, or uploading, not whether the defendant performed these

tasks. See U.S.S.G. §2B5.3(b)(3) (“If the oense involved the manufacture,

326 Prosecuting Intellectual Property Crimes

importation, or uploading ...”) (emphasis added); U.S.S.G. § Ch. 2

(Introductory Commentary) (“Chapter Two pertains to oense conduct.”).

f. Oense Not Committed for Commercial Advantageor Private

Financial Gain Reduces the Oense Levelby 2—U.S.S.G.

§2B5.3(b)(4)

e fourth oense characteristic, located in guideline § 2B5.3(b)(4),

decreases the oense level by 2 levels if the oense was not committed for

commercial advantage or private nancial gain, but the resulting oense level

cannot be less than 8.

e defendant bears the burden of proving that he is entitled to this oense

characteristic, because it is structured as a decrease rather than an increase.

See generally United States v. Perez, 418 Fed. Appx. 829, 836 (11th Cir. 2011)

United States v. Ameline, 409 F.3d 1073, 1086 (9th Cir. 2005) (en banc);

United States v. Dinges, 917 F.2d 1133, 1135 (8th Cir. 1990); United States v.

Kirk, 894 F.2d 1162, 1164 (10th Cir. 1990); United States v. Urrego-Linares,

879 F.2d 1234, 1238-39 (4th Cir. 1989); United States v. Herbst, No. 10-CR-

1008-LRR, 2011 WL 794507, at *12 (D. Iowa March 1, 2011).

For a detailed discussion of what qualies as conduct done for the purposes

of commercial advantage or private nancial gain, see Section B.4. of Chapter

II (Copyright) of this Manual. e interpretation of commercial advantage and

private nancial gain in copyright cases applies equally to U.S.S.G. §2B5.3 for

any type of intellectual property crime because the statutory and Guidelines

denitions are nearly identical. Compare U.S.S.G. §2B5.3 cmt. n.1 (dening

terms) with 17 U.S.C. §101 (same).

g. Oense Involving a Counterfeit Drug Increases the Oense Level

by 2—U.S.S.G. § 2B5.3(b)(5) (eective November 1, 2013)

In an amendment scheduled to take eect November 1, 2013, if the oense

involved a counterfeit drug, the oense level is increased by 2. See U.S.S.G.

§ 2B5.3(b)(5). is will replace the existing § 2B5.3(b)(5), which will be

renumbered § 2B5.3(b)(6).

In March 2011, the Oce of the Intellectual Property Enforcement

Coordinator transmitted a range of legislative proposals to Congress including

a number or recommendations to enhance certain Guidelines, including those

for counterfeit drugs. See Administration’s White Paper on Intellectual Property

Enforcement Legislative Recommendations (March 2011) (“White Paper”),

VIII. Penalties, Restitution, and Forfeiture 327

available at http://www.whitehouse.gov/sites/default/les/ip_white_paper.pdf.

In response, the Food and Drug Administration Safety and Innovation Act,

Pub. L. No. 112-144, § 717(b), 126 Stat. 993, 1076 (July 9, 2012), directed

the United States Sentencing Commission to review existing penalties for

violations of 18 U.S.C. § 2320, and included a general recommendation that

the applicable Sentencing Guidelines be increased, particularly for counterfeit

drug oenses.

On April 10, 2013, the Commission voted to amend § 2B5.3 to provide

the new two-level enhancement when the oense involves a counterfeit drug.

is amendment will go into eect on November 1, 2013, unless Congress

and the President act to disapprove it. Because the guidelines are advisory only,

though, this amendment can be cited before then to courts as a reason for

varying from the current guidelines. See, e.g., United States v. Mateos, 623 F.3d

1350 (11th Cir. 2010) (Justice O’Connor, sitting by designation, holding that

forthcoming changes to the sentencing guidelines inform both the sentencing

and reviewing courts on the appropriate sentencing in a given case).

h. Oense Involving Risk of Death or Serious Bodily Injury or Possession

of a Dangerous Weapon Increases the Oense Level by 2—U.S.S.G.

§2B5.3(b)(5)

If the oense involved conscious or reckless risk of death or serious bodily

injury or possession of a dangerous weapon, the oense level is increased by 2.

U.S.S.G.§2B5.3(b)(5). If the resulting oense level is less than 14, then it must

be increased to level 14. See, e.g., United States v. Maloney, 85 Fed. Appx. 252

(2d Cir. 2004) (applying 2-level enhancement for possession of a dangerous

weapon in connection with conviction under 18 U.S.C. §2318(a),(c)(3) and

§2, even though defendant was acquitted at trial of a felon-in-possession of

a rearm charge). is subsection was last amended in response to the PRO-

IP Act of 2008 to include oenses involving risk of death. U.S.S.G. App. C

(Amendment 735); PRO-IP Act of 2008, Pub. L. No. 110-403, § 205, 122

Stat. 4256, 4262 (2008). is brought § 2B5.3 back into parallel with §2B1.1,

reecting the Commission’s prior judgment that “aggravating conduct in

connection with infringement cases should be treated under the guidelines in

the same way it is treated in connection with fraud cases.” U.S.S.G. App. C

(Amendment 590).

328 Prosecuting Intellectual Property Crimes

is enhancement was partially motivated by the health and safety risks

from counterfeit consumer products such as counterfeit batteries, airplane

parts, and pharmaceuticals. See U.S.S.G. App. C (Amendments 590, 593).

On April 10, 2013, the Commission voted to amend § 2B5.3 by adding a

new § 2B5.3(b)(5) for oenses involving counterfeit drugs and renumbering

the current § 2B5.3(b)(5) as § 2B5.3(b)(6). is amendment will go into eect

on November 1, 2013, unless Congress and the President act to disapprove it.

i. Oense Involving Counterfeit Military Goods and Services Under

Certain Conditions Increases the Oense Level by 2 and Sets a

Minimum Oense Level of 14—U.S.S.G. § 2B5.3(b)(7) (eective

November 1, 2013)

In an amendment scheduled to take eect November 1, 2013, if the

oense involves counterfeit military goods and services the use, malfunction,

or failure of which is likely to cause the disclosure of classied information,

impairment of combat operations, or other signicant harm to a combat

operation, a member of the Armed Forces, or to national security, the oense

level is increased by 2, and if the resulting oense level is less than level 14,

then it is increased to level 14. See U.S.S.G. § 2B5.3(b)(7) (proposed). e

proposed amendment also adds Commentary to § 2B5.3 to clarify that “other

signicant harm to a member of the Armed Forces” means signicant harm

other than serious bodily injury or death. If a military good or service is likely

to cause serious bodily injury or death, one would still apply § 2B5.3(b)(5)(A)

(conscious or reckless risk of serious bodily injury or death) [after November

1, 2013, § 2B5.3(b)(6)(A)].

Responding in part to the Administration’s White Paper, the National

Defense Authorization Act for Fiscal Year 2012, Pub. L. No. 112-81, § 818(h),

125 Stat. 1298, 1497 (December 31, 2011), amended 18 U.S.C. § 2320 to add

a new subsection (a)(3) that prohibits tracking in counterfeit military goods

and services, the use, malfunction, or failure of which is likely to cause serious

bodily injury or death, the disclosure of classied information, impairment of

combat operations, or other signicant harm to a combat operation, a member

of the Armed Forces, or national security.

On April 10, 2013, the Commission voted to amend § 2B5.3 to provide

the new two-level enhancement and the new minimum oense level of 14 for

oenses involving counterfeit military goods and services with the aggravating

circumstances set out above and make the corresponding amendment to the

VIII. Penalties, Restitution, and Forfeiture 329

Commentary. ese amendments will go into eect on November 1, 2013,

unless Congress and the President act to disapprove them. Because the

guidelines are advisory only, though, these amendments can be cited before

then to courts as a reason for varying from the current guidelines. See, e.g.,

Mateos, 623 F.3d 1350 (Justice O’Connor, sitting by designation, holding that

forthcoming changes to the sentencing guidelines inform both the sentencing

and reviewing courts on the appropriate sentencing in a given case).

j. Decryption or Circumvention of Access Controls May Increase the

Oense Level—U.S.S.G. §3B1.3

e 2-level enhancement for use of a special skill under U.S.S.G. §3B1.3

“may apply” if the defendant decrypted or circumvented access controls.

U.S.S.G. §2B5.3 cmt. n.3. On November 1, 2007, the Commission changed

this enhancement from mandatory to discretionary, after determining that

“not every case involving de-encryption or circumvention requires the level

of skill contemplated by the special skill adjustment.” Id. (Amendment 704).

Because the note quoted above refers only to the circumvention of access

controls, it is unclear whether the special skill enhancement also applies to

decrypting or circumventing copy controls. ere is no policy-related reason

to treat access and copy controls dierently at sentencing. In fact, U.S.S.G.

§3B1.3 applies to any defendant who commits an intellectual property crime

while using a special skill. See Section C.2.i. of this Chapter for a more detailed

description of what constitutes a special skill.

is enhancement may not be assessed for use of a special skill if the

adjustment under U.S.S.G. §3B1.1 (Aggravating Role) is also assessed. See

U.S.S.G. §3B1.3.

k. Departure Considerations

e fourth application note for § 2B5.3 states that a departure may

be warranted if the oense level determined under § 2B5.3 “substantially

understates or overstates the seriousness of the oense,” such as: (i) when the

oense substantially harmed the victim’s reputation in a way that is otherwise

unaccounted for, including in calculating the infringement amount; (ii)

when the oense was in connection with, or in furtherance of, a national or

international organized criminal enterprise; and/or (iii) when the method used

to calculate the infringement amount overstates the actual pecuniary harm to

the victim. ese three examples, however, are not exclusive. U.S.S.G. §2B5.3

330 Prosecuting Intellectual Property Crimes

cmt. n.4 (noting that this is a “non-exhaustive list of factors” in considering

departures); id. App. C (Amendments 590, 593, 704). On November 1, 2007,

the Commission modied Application Note 4 to address downward as well as

upward departures. Id. (Amendment 704); see United States v. Neuman, 406

Fed. Appx. 847, 852 (5th Cir. 2010) (nding that district court did not abuse

its discretion in basing sentence on infringement amount instead of restitution

amount where it was clear from the record that the court had duly considered

that disparity, and had rejected a downward departure, under U.S.S.G. §2B5.3

cmt. n.4(C).

On April 10, 2013, the Commission voted to amend the Commentary to

§ 2B5.3 to add a new departure consideration for any oense sentenced under

§ 2B5.3 providing that a departure may be warranted if the oense resulted

in death or serious bodily injury. See U.S.S.G. 2B5.3 cmt. n.4(D) (proposed).

is amendment will go into eect on November 1, 2013, unless Congress

and the President act to disapprove it. Because the guidelines are advisory only,

though, this amendment can be cited before then to courts as a reason for

varying from the current guidelines. See, e.g., Mateos, 623 F.3d 1350 (Justice

O’Connor, sitting by designation, holding that forthcoming changes to the

sentencing guidelines inform both the sentencing and reviewing courts on the

appropriate sentencing in a given case).

l. Vulnerable Victims—U.S.S.G. §3A1.1(b)

Intellectual property crime defendants are likely to qualify for an upward

adjustment under U.S.S.G. §3A1.1(b) if they knew or should have known that

they were selling counterfeit products to vulnerable victims. A prime example

of this would be selling counterfeit pharmaceuticals that are distributed or

redistributed to sick patients. See United States v. Milstein, 401 F.3d 53, 74 (2d

Cir. 2005) (arming vulnerable victim adjustment for distributing counterfeit

and misbranded drugs “to doctors, pharmacists, and pharmaceutical

wholesalers, knowing that those customers would distribute the drugs to

women with fertility problems and to Parkinson’s disease patients”).

m. No Downward Departure for the Victim’s Participation

in Prosecution

e court may not depart downward on the ground that the victim

participated in the prosecution. In United States v. Yang, 281 F.3d 534 (6th

Cir. 2002), cert. denied, 537 U.S. 1170 (2003), on appeal after new sentencing

hearing, 144 Fed. Appx. 521 (6th Cir. 2005), a prosecution for theft of trade

VIII. Penalties, Restitution, and Forfeiture 331

secrets, mail fraud, wire fraud, and money laundering, the trial court departed

downward 14 levels on the ground that the victim participated too much

in the prosecution, specically in calculating the loss it suered. e Sixth

Circuit reversed, concluding that “the victim’s participation in the prosecution

is wholly irrelevant to either the defendant’s guilt or the nature or extent of his

sentence,” and is therefore not a permissible basis for a downward departure.

Yang, 281 F.3d at 545-46.

2. Oenses Involving the Economic Espionage Act (EEA)

a. Applicable Guideline is §2B1.1, Except for Attempts

and Conspiracies

Unlike most other intellectual property oenses, which are sentenced

under U.S.S.G. §2B5.3, completed EEA oenses (both §1831 and §1832)

are sentenced under U.S.S.G. §2B1.1. See U.S.S.G. App. A. e choice of

U.S.S.G. §2B1.1 instead of U.S.S.G. §2B5.3 likely reects the idea that EEA

oenses are primarily about stolen property rather than infringement. e

supercial dierence between stealing and infringement is that one physically

dispossesses the victim of his property and the latter does not. However, the

EEA punishes those who steal trade secrets without dispossessing the victim

of his trade secret, and even after a trade secret is physically stolen, the victim

may still use the information itself. e overlap between misappropriation and

infringement therefore makes U.S.S.G. §2B1.1 an interesting t for the EEA.

An EEA attempt or conspiracy is sentenced under U.S.S.G. § 2X1.1

(Conspiracies, Attempts, and Solicitations), which uses the oense level

calculated under U.S.S.G. §2B1.1 and decreases the base oense level 3 levels

“unless the defendant completed all the acts the defendant believed necessary

for successful completion of the substantive oense or the circumstances

demonstrate that the defendant was about to complete all such acts but for

apprehension or interruption by some similar event beyond the defendant’s

control.” U.S.S.G. § 2X1.1(b)(1), (2). e 3-point reduction will rarely

apply in EEA attempt cases resulting from undercover stings because in those

operations the defendant has generally completed all necessary acts short of the

actual receipt of what the defendant believed was a trade secret.

b. Base Oense Level—U.S.S.G. §2B1.1(a)

e base oense level for a completed EEA crime is 6. U.S.S.G. §2B1.1(a)

(2).

332 Prosecuting Intellectual Property Crimes

c. Loss—U.S.S.G. §2B1.1(b)(1)

e defendant’s sentence is driven largely by the value of the misappropriated

property. Under U.S.S.G.§2B1.1(b)(1), the oense level increases according

to the amount of the loss.

i. Use Greater of Actual or Intended Loss

is loss gure is “the greater of actual loss or intended loss.” U.S.S.G.

§ 2B1.1 cmt. n.3(A). “Actual loss” is “the reasonably foreseeable pecuniary

harm that resulted from the oense,” whereas “intended loss (I) means the

pecuniary harm that was intended to result from the oense; and (II) includes

intended pecuniary harm that would have been impossible or unlikely to occur

(e.g., as in a government sting operation, or an insurance fraud in which the

claim exceeded the insured value).” Id. cmt. n.3(A)(i-ii).

ii. Reasonable Estimates Acceptable

Whatever method is chosen to calculate loss, the government’s calculation

need not be absolutely certain or precise. “e court need only make a

reasonable estimate of the loss.” U.S.S.G. §2B1.1 cmt. n.3(C).

iii. Methods of Calculating Loss

Guideline §2B1.1’s application notes outline a number of general methods

for calculating the loss, many of which are included as methods to estimate the

loss:

• “[T]he reasonably foreseeable pecuniary harm that resulted from the

oense,” U.S.S.G. §2B1.1 cmt. n.3(A)(i)

• “e fair market value of the property unlawfully taken, copied, or

destroyed; or, if the fair market value is impracticable to determine or

inadequately measures the harm, the cost to the victim of replacing

that property,” Id. n.3(C)(i)

• “In the case of proprietary information (e.g., trade secrets), the cost

of developing that information or the reduction in value of that

information that resulted from the oense,” Id. n.3(C)(ii)

• “e cost of repairs to damaged property,” Id. n.3(C)(iii)

• “e approximate number of victims multiplied by the average loss to

each victim,” Id. n.3(C)(iv)

• “e reduction that resulted from the oense in the value of equity

securities or other corporate assets,” Id. n.3(C)(v)

VIII. Penalties, Restitution, and Forfeiture 333

• “More general factors, such as the scope and duration of the oense

and revenues generated by similar operations,” Id. n.3(C)(vi)

• “[T]he gain that resulted from the oense as an alternative measure of

loss[,] only if there is a loss but it reasonably cannot be determined,”

Id. n.3(B)

On November 1, 2009, the Commission amended Application Note 3(C),

adding the word “copied” to subdivision (i), and inserting a new subdivision

(ii) dealing specically with proprietary information. U.S.S.G. App. C

(Amendment 726). e rst change addressed situations in which the owner of

proprietary information actually retains possession, but because the information

is unlawfully copied and/or disseminated, the information’s value declines. In

such a case, the court may use the fair market value of the copied information

in calculating loss. e second change was simply an eort to provide some

direct explanation of how to estimate loss in a trade secrets case. Id.

Nevertheless, in a trade secrets case, calculating the loss can be complicated.

First, consider the situations under which the defendant can be convicted: (a)

merely conspiring to misappropriate a trade secret that the victim has not fully

exploited to create a product; (b) receiving a trade secret, but not using the

trade secret; (c) stealing a trade secret at no cost; (d) stealing a trade secret

for an agreed-upon bribe; (e) receiving a trade secret and using it to create a

product that has not been completed; (f) receiving a trade secret, using it to

create a product, introducing the product, but not yet selling it; (g) receiving

a trade secret, using it to create a product, and selling the product at a loss; (h)

receiving the trade secret, using it, and selling the product at a prot, while the

victim continues to prot from its own sales; and (i) receiving the trade secret,

using it, and selling a product that displaces the victim’s sales. ese situations

do not exhaust the possibilities. ey illustrate, however, several complicating

factors:

• whether the defendant paid anything for the secret;

• whether the defendant was paid anything for the secret;

• whether the defendant used the secret;

• whether the defendant used the secret and made money from its use;

and

• whether the victim’s sales decreased, increased, or increased at a lower

rate than they would have had the misappropriation not occurred.

334 Prosecuting Intellectual Property Crimes

e nal complicating factor is that trade secrets are, by denition, not

traded in an open market that allows the easy calculation of a trade secret’s

price or value.

e variety of misappropriation scenarios, the variety of evidence available,

and the broad principles of valuing trade secrets in criminal and civil law lead

to one clear recommendation: prosecutors, agents, and courts should consider

the variety of methods by which a trade secret can be valued, develop whatever

evidence is reasonably available, and then be pragmatic about choosing which

method to use, as long as it is equitable, appropriately punitive, and supported

by the evidence. e cases bear this out.

Criminal Cases

Few reported federal criminal decisions describe how to value trade secrets,

but those that do tend to focus on the trade secret’s research and development

costs.

In United States v. Four Pillars Enter. Co., 253 Fed. Appx. 502, 512 (6th

Cir. 2007), the defendant company stole more than sixty adhesive formulas

from victim Avery Dennison. At sentencing, an Avery employee testied that

the research and development costs for the formula totaled $869,300. e

Sixth Circuit found no error in the district court’s decision to accept this cost

model.

In United States v. Ameri, 412 F.3d 893 (8th Cir. 2005), an employee stole

his employer’s proprietary software, which the evidence showed was at the heart

of a $10 million contract, had no veriable fair market value because it was not

available separately, alternatively had a fair market value of $1 million per copy,

and was developed for about $700,000. Id. at 900. Faced with these gures,

the Eighth Circuit armed the trial court’s loss estimate of $1.4 million, which

appears to be the $700,000 in development costs times 2, the number of copies

the defendant made. Id. at 900-01.

Finally, United States v. Kwan, No. 02 CR. 241(DAB), 2003 WL 22973515

(S.D.N.Y. Dec. 17, 2003), considered whether “proprietary” “hotel contact

lists, hotel rate sheets, travel consortium contact lists, travel consortium rate

sheets, and cruise operator rate sheets”—all useful in the travel industry—met

the jurisdictional threshold for interstate transportation of stolen property

under 18 U.S.C. §2314 by being worth more than $5,000. Id. at *1. e

court found most persuasive an argument for a value over $5,000 based on

VIII. Penalties, Restitution, and Forfeiture 335

the documents’ cost of production, which it estimated by noting the salary of

people who created the documents and the amount of time they would have

spent gathering the information and creating the documents. Id. at *9 & n.12.

In all these cases, the loss or market value was dened largely by development

costs.

Some civil trade secret cases have measured the replacement cost using

the victim’s research and development costs. See Salsbury Labs., Inc. v. Merieux

Labs., Inc., 908 F.2d 706, 714-15 (11th Cir. 1990) (holding that research

and development costs for misappropriated vaccine were a proper factor to

determine damages); cf. University Computing Co. v. Lykes-Youngstown Corp.,

504 F.2d 518, 538 (5th Cir. 1974) (holding that development costs should be

taken into consideration with a number of factors, including “the commercial

context in which the misappropriation occurred”). But see Softel, Inc. v. Dragon

Med. & Scientic Commc’ns, Inc., 118 F.3d 955, 969 (2d Cir. 1997) (holding

that it is usually appropriate to measure damages based on development costs

and importance of secret to plainti only after a defendant completely destroys

the value of the trade secret).

An interesting exception to using development costs to value trade secrets is

United States v. Pemberton, 904 F.2d 515 (9th Cir. 1990), in which a legitimate

buyer’s price was selected. After the defendant was convicted for receiving

stolen property, namely technical landscape and irrigation design drawings

for a 450-acre commercial development, the trial court had to select among

valuation methods, including valuing the drawings at what the drawings were

purportedly worth to defendant—zero; the $1,200 cost of the materials on

which they were drawn; the $65,000 cost of replacing the drawings in full; and

the $118,400 contract price for the drawings (80 percent of the full contract

price, given that the drawings were 80 percent complete when stolen). Id. at

516 & n.1, 517. Without a price from an open market, since the drawings were

unique, the appellate court armed the trial court’s choice of the $118,400

contract price. Id. at 517.

Why use the buyer’s price in Pemberton rather than the development costs,

as had been done in the Wilson, Ameri, and Kwan cases? ere appear to be three

dierences. First, in Pemberton the buyer’s price came from a legitimate market

transaction rather than a black-market transaction that would have undervalued

the property. Second, in Pemberton, the buyer’s price was apparently higher

than the development costs. ird, and this is related to the second point, in

Pemberton the drawings that were stolen likely could have been used for one

336 Prosecuting Intellectual Property Crimes

project only, the real estate development by the legitimate buyer, whereas the

trade secrets in Wilson, Ameri, and Kwan included general information that

could have been used over and over again by illegitimate buyers. Research and

development costs for a one-o project are likely to be less than the legitimate

buyer’s price (since this is the only opportunity the trade-secret holder can

recover his overhead), whereas research and development costs for a replicable

product or service will likely exceed a legitimate buyer’s price (since the trade-

secret holder can recover his overhead through repeated sales).

Another possible measure of loss in trade secrets cases is actual pecuniary

loss. In United States v. Wilkinson, 590 F.3d 259 (4th Cir. 2010), the defendant

pled guilty to several charges, including conspiracy to steal trade secrets, for

his scheme to obtain fuel contracts from the Defense Energy Support Center

(DESC) by paying a competitor’s employee for condential bid information

which would enable the defendant’s company to underbid the competitor.

e Fourth Circuit remanded for resentencing, nding that the district court

had failed to consider properly the government’s evidence of actual loss, even

though the DESC never actually ended up paying out on the tainted contracts.

e government’s expert witness calculated the loss based on the DESC’s

administrative costs in preparing new bid packages, making spot purchases of

fuel while it waited to award replacement contracts, and the ultimately higher

costs DESC faced for the untainted replacement contracts. Id. at 265.

Civil Cases

Prosecutors should also be aware of how civil cases measure losses from

trade secret misappropriation. See supra; cf. United States v. Olis, 429 F.3d 540,

546 (5th Cir. 2005) (holding that “[t]he loss guideline [in U.S.S.G. §2B1.1]

is skeletal because it covers dozens of federal property crimes,” and therefore

“[t]he civil damage measure [for securities fraud] should be the backdrop for

criminal responsibility both because it furnishes the standard of compensable

injury for securities fraud victims and because it is attuned to stock market

complexities”).

Unfortunately, beyond reinforcing the criminal cases’ use of research and

development costs, civil measures of damages provide little hard and fast

guidance. e Uniform Trade Secrets Act echoes the Sentencing Guidelines’

generalities:

Damages can include both the actual loss caused by

misappropriation and the unjust enrichment caused by

VIII. Penalties, Restitution, and Forfeiture 337

misappropriation that is not taken into account in computing

actual loss.

Uniform Trade Secrets Act§3(a) (1985); see also Mike’s Train House, Inc. v.

Lionel, L.L.C., 472 F.3d 398, 413-15 (6th Cir. 2006) (a plainti which is able to

prove that it was damaged but that the defendant’s unjust enrichment exceeded

the proven damages to plainti, is able to recover his own damages plus, to

the extent not duplicative in amount, the defendant’s unjust enrichment).

In determining damages under the Uniform Trade Secrets Act, courts base

the trade secret’s market value on the victim’s loss or the defendant’s gain,

depending on which measure appears to be more reliable or greater given the

particular circumstances of the theft. See Vermont Microsystems, Inc. v. Autodesk

Inc., 138 F.3d 449, 452 (2d Cir. 1998); University Computing Co. v. Lykes-

Youngstown Corp., 504 F.2d 518 (5th Cir. 1974); Healthcare Advocates v.

Aordable Healthcare Options, No. 09-5839, 2010 WL 4665956, at *2 (E.D.

Pa. Nov. 18, 2010); Milgrim on Trade Secrets § 15.02(3)(c) (2012). With such

broad principles, “the general law as to the proper measure of damages in a

trade secrets case is far from uniform.” Telex Corp. v. International Bus. Machs.

Corp., 510 F.2d 894, 930 (10th Cir. 1975) (concerning misappropriation of

trade secrets and condential information relating to electronic data processing

systems).

As might be expected, civil cases use a variety of methods to value trade

secrets:

• the value placed on the trade secrets by the parties;

• the victim’s lost prots;

• the defendant’s realized prots;

• the defendant’s saved costs from misappropriation;

• the research and development costs for the trade secret; and

• a reasonable royalty to the victim, when there was otherwise no gain

or loss.

1 Richard Raysman & Peter Brown, Computer Law: Drafting and Negotiating

Forms §6.03A (2012). When there is evidence for more than one measure,

“the court will frequently award that amount which is most benecial to the

injured party.” Id.

Civil cases often note that if the victim’s loss were the only appropriate

measure of damages, someone caught red-handed stealing trade secrets could

not be punished if he had not yet used the information to the owner’s detriment.

338 Prosecuting Intellectual Property Crimes

As a result, in such circumstances most Uniform Trade Secrets Act cases have

computed the trade secret’s market value by focusing on the defendant’s gain.

See, e.g., University Computing, 504 F.2d at 536 (holding that damages for

misappropriation of trade secrets are measured by the value of the secret to

the defendant “where the [trade] secret has not been destroyed and where the

plainti is unable to prove specic injury”); Salisbury Labs., Inc. v. Merieux

Labs., Inc., 908 F.2d 706, 714 (11th Cir. 1990) (ruling that under Georgia’s

UTSA, damages for misappropriation of trade secrets should be based on the

defendant’s gain); SKF USA Inc. v. Bjerkness, 636 F. Supp. 2d 696 (N.D. Ill.

2009). Under the more recent Federal Sentencing Guidelines, the court may

use a defendant’s gain as a loss for the victim in certain circumstances. See

U.S.S.G.§2B1.1 cmt. n.3(B) (2012).

e Uniform Trade Secrets Act also provides that damages may be based,

as with patent infringement, on a “reasonable royalty”—that is, the amount

the thief would have had to pay the victim in licensing or royalty fees had he

legitimately licensed the stolen technology:

In lieu of damages measured by any other methods, the damages

caused by misappropriation may be measured by imposition

of liability for a reasonable royalty for a misappropriator’s

unauthorized disclosure or use of a trade secret.

Uniform Trade Secrets Act§3(a) (1985). See, e.g., University Computing, 504

F.2d at 537. When the defendant has not yet realized sucient prot to readily

indicate the stolen information’s market value, the preferred estimate is the

“reasonable royalty” (or “forced licensing”) measure. See Vitro Corp. of Am.

v. Hall Chem. Co., 292 F.2d 678, 682-83 (6th Cir. 1961); see also Vermont

Microsystems, Inc. v. Autodesk, Inc., 138 F.3d 449, 450 (2d Cir. 1998). Other

federal cases using the “reasonable royalty” method include Mid-Michigan

Computer Sys., Inc. v. Marc Glassman, Inc., 416 F.3d 505, 510-13 (6th Cir.

2005); Molex, Inc. v. Nolen, 759 F.2d 474 (5th Cir. 1985); University Computing

Co., 504 F.2d 518; Secure Energy, Inc. v. Coal Synthetics, LLC, 708 F. Supp. 2d

923, 931-32 (E.D. Mo. 2010); LinkCo, Inc. v. Fujitsu Ltd., 232 F. Supp. 2d

182, 186-87 (S.D.N.Y. 2002); Carter Prods., Inc. v. Colgate-Palmolive Co., 214

F. Supp. 383 (D. Md. 1963).

But calculating a reasonable royalty may prove more dicult and may

unduly prolong or complicate sentencing in cases where the defendant has not

VIII. Penalties, Restitution, and Forfeiture 339

yet manifested his intention to use the stolen technology and there is no readily

ascertainable benchmark for determining a reasonable royalty.

Practical Guidance on Gathering Evidence

Because of the exible nature of valuing trade secrets, prosecutors and

investigators should try to obtain the following types of evidence, if available

and applicable:

• the amount the defendant paid for the trade secret;

• the amount for which the defendant sold or tried to sell the trade secret;

• the amount for which similar trade secret information sold in the

legitimate open market (such as the merger/acquisition price for the

trade secret);

• a reasonable royalty, based on what a willing buyer would pay a willing

seller for the technology in an arms-length transaction;

• the trade secret owner’s research and development costs;

• the market price that the defendant actually received or paid in

exchange for the technology; and

• any other methodology that calculates the reasonably foreseeable

pecuniary losses caused by the defendant’s conduct.

d. Intent to Benet a Foreign Government, Instrumentality, or Agent—

U.S.S.G. § 2B1.1(b)(5)

e oense level is increased two points if the defendant knew or intended

that the oense would benet a foreign government, foreign instrumentality,

or foreign agent. See U.S.S.G. § 2B1.1(b)(5). As discussed below, § 2B1.1(b)

(5) will be superseded by a new § 2B1.1(b)(12) on November 1, 2013.

e. Intent to Transport or Transmit the Trade Secret out of the United

States or to Benet a Foreign Government, Instrumentality, or

Agent—U.S.S.G. § 2B1.1(b)(12) (eective November 1, 2013)

In amendments scheduled to take eect November 1, 2013, the oense

level is increased two points if the defendant knew or intended that the

trade secret would be transported or transmitted out of the United States.

See U.S.S.G. § 2B1.1(b)(12)(A) (proposed). Alternatively, the oense level is

increased four points if the defendant knew or intended that the oense would

benet a foreign government, foreign instrumentality, or foreign agent, and if

the resulting oense level is less than level 14, it is increased to level 14. See

U.S.S.G. § 2B1.1(b)(12)(B) (proposed).

340 Prosecuting Intellectual Property Crimes

In March 2011, the Oce of the Intellectual Property Enforcement

Coordinator transmitted a range of legislative proposals to Congress including

a number or recommendations to enhance certain Guidelines, including those

for theft of trade secrets. See Administration’s White Paper on Intellectual

Property Enforcement Legislative Recommendations (March 2011), available

at http://www.whitehouse.gov/sites/default/les/ip_white_paper.pdf. In

response, the Foreign and Economic Espionage Penalty Enhancement Act

of 2012, Pub. L. No. 112-269, § (3)(a), 126 Stat. 2442, 2442-43 (January

14, 2013), directed the United States Sentencing Commission to “review

and, if appropriate, amend” the guidelines “applicable to persons convicted

of oenses relating to the transmission or attempted transmission of a stolen

trade secret outside of the United States or economic espionage, in order

to reect the intent of Congress that penalties for such oenses under the

Federal sentencing guidelines and policy statements appropriately, reect the

seriousness of these oenses, account for the potential and actual harm caused

by these oenses, and provide adequate deterrence against such oenses.” On

April 10, 2013, the Commission voted to amend § 2B1.1 to provide the new

two-level enhancement when a trade secret is transmitted outside the United

States, and the new four-level enhancement—with a minimum level of 14—

when the trade secret theft is intended to benet a foreign government. ese

amendments will go into eect on November 1, 2013, unless Congress and

the President act to disapprove them. Because the guidelines are advisory only,

though, these amendments can be cited before then to courts as reasons for

varying from the current guidelines. See, e.g., United States v. Mateos, 623 F.3d

1350 (11th Cir. 2010) (Justice O’Connor, sitting by designation, holding that

forthcoming changes to the sentencing guidelines inform both the sentencing

and reviewing courts on the appropriate sentencing in a given case).

f. Sophisticated Means—U.S.S.G. §2B1.1(b)(10)(C)

If the oense involved “sophisticated means,” the oense level is increased

by 2 levels, and if the resulting oense is less than 12, it must be increased

to 12. U.S.S.G. §2B1(b)(10)(C). “‘[S]ophisticated means’ means especially

complex or especially intricate oense conduct pertaining to the execution

or concealment of an oense,” which includes “hiding assets or transactions,”

among other things. Id. cmt. n.8(B).

e sophisticated means enhancement will often apply to trade secret

oenses because these crimes are frequently committed by corporate insiders

who have the need and opportunity to take extensive precautions to shield

VIII. Penalties, Restitution, and Forfeiture 341

their actions from their employers. A defendant can receive the adjustment

for sophisticated means in addition to the adjustment for use of a special skill

under U.S.S.G. §3B1.3. See United States v. Ojemon, 465 Fed. Appx. 69, 71-

72 (2d Cir. 2012); United States v. Rice, 52 F.3d 843, 851 (10th Cir. 1995)

(“e purpose of the special skill enhancement is to punish those criminals who

use their special talents to commit crime. In contrast, the sophisticated means

and more than minimal planning enhancements [in predecessor guideline to

§2B1.1] are designed to target criminals who engage in complicated criminal

activity because their actions are considered more blameworthy and deserving

of greater punishment than a perpetrator of a simple version of the crime. We

therefore see no double counting here.”); United States v. Olis, 429 F.3d 540,

549 (5th Cir. 2005), on remand, No. H-03-217-01, 2006 WL 2716048 (Sep.

22, 2006) (upholding loss calculation based on special skill and sophisticated

means, but reducing resulting prison time under the U.S.S.G § 3553(a)

factors); United States v. Minneman, 143 F.3d 274, 283 (7th Cir. 1998).

g. Upward Departure Considerations—U.S.S.G.§2B1.1

cmt. n.19(A)

A non-exhaustive list of factors in which an upward departure should be

considered is set forth in Application Note 19 to U.S.S.G. §2B1.1. e factors

that are most likely to be relevant in a trade secret case are intending, risking,

and causing non-monetary harm, such as emotional harm, because many EEA

cases involve disgruntled employees or former employees out for revenge.

U.S.S.G. §2B1.1 cmt. n.19(i),(ii).

h. Downward Departure Considerations—U.S.S.G.§2B1.1

cmt. n.19(C)

Application Note 19(C) to U.S.S.G. §2B1.1 suggests that a downward

departure may be warranted if the oense level “substantially overstates the

seriousness of the oense.” EEA defendants are likely to raise this as a basis for

downward departure if the loss amount greatly outweighs the amount of the

actual or intended gain or loss, as sometimes happens when the trade secret is

valued by research and development costs.

i. Abuse of a Position of Trust—U.S.S.G. §3B1.3

Trade secret oenses committed by corporate insiders often deserve the

2-level adjustment for abuse of a position of trust under U.S.S.G. §3B1.3. e

adjustment is appropriate when the defendant had “professional or managerial

342 Prosecuting Intellectual Property Crimes

discretion (i.e., substantial discretionary judgment that is ordinarily given

considerable deference)” and the position of trust “contributed in some

signicant way to facilitating the commission or concealment of the oense.”

Id. cmt. n.1. A defendant can receive the enhancements for abuse of a position

of trust and sophisticated means simultaneously. See United States v. Ratli, 376

Fed. Appx. 830, 836-41 (10th Cir. 2010); cf.United States v. Straus, 188 F.3d

520, 1999 WL 565502, at *5 (10th Cir. 1999) (holding that abuse-of-trust

and more-than-minimal-planning enhancements, the latter in a predecessor to

U.S.S.G. §2B1.1(b)(10)(C), can be applied to same conduct simultaneously).

j. Use of Special Skill—U.S.S.G. §3B1.3

Trade secret defendants who use their specialized technical knowledge to

understand and use the misappropriated trade secret will often qualify for a

2-level adjustment for use of a special skill under U.S.S.G. §3B1.3. See, e.g.,

United States v. Lange, 312 F.3d 263, 270 (7th Cir. 2002) (“Drafting skills,

including the use of AutoCAD, are ‘not possessed by members of the general

public’, require time to master, and played a central role in the oense. A

mechanical drafter is in the same category as a pilot or demolition expert—for

those skills, too, may be learned outside the academy. e enhancement was

proper.”).

“‘Special skill’ refers to a skill not possessed by members of the general

public and usually requiring substantial education, training, or licensing.

Examples would include pilots, lawyers, doctors, accountants, chemists, and

demolition experts.” U.S.S.G. §3B1.3 cmt. n.4. Special skill includes any type

of special skill, not just one gained through advanced education. In Lange, it

applied to a mechanical drafter, an EEA defendant who committed his oense

using his associate’s degree in graphic design and his ability to work with his

former employer’s engineering drawings in AutoCAD. Lange, 312 F.3d at 270.

A defendant can receive the adjustment for use of a special skill in addition

to the adjustment for sophisticated means under U.S.S.G. §2B1.1(b)(9)(C).

See Ojemon, 465 Fed. Appx. at 71-72.

k. No Downward Departure for Victim’s Participation

in Developing the Case

As noted in Section C.1.k. of this Chapter, the court may not depart

downward on the ground that the victim participated in the prosecution.

VIII. Penalties, Restitution, and Forfeiture 343

D. Restitution

Victims have a right to “full and timely restitution as provided in law.” 18

U.S.C. § 3771(a)(6). “All who investigate and prosecute criminal cases play

an important role in determining whether restitution is full and timely. e

scope of the victim’s losses, the nexus between the victim’s losses and the crimes

charged, what happened to ill-gotten gains, and the defendant’s ability to pay

are all integral to the criminal prosecution. Restitution should be considered

early in the investigation and throughout the prosecution.” U.S. Dep’t of

Justice, Attorney General Guidelines for Victim and Witness Assistance, Art. V,

H (2012), available at http://www.justice.gov/olp/pdf/ag_guidelines2012.pdf.

In intellectual property cases, there are two types of victim: the owner of the

intellectual property that was infringed or misappropriated, and any consumer

who was lured into purchasing the infringing goods by fraud. Both types of

victim usually qualify for restitution if they have suered a loss.

is section discusses restitution for intellectual property crimes. For more

detailed guidance on restitution principles and procedures, prosecutors should

consult the Attorney General Guidelines for Victim and Witness Assistance, cited

above, as well as the U.S. Department of Justice, Prosecutor’s Guide to Criminal

Monetary Penalties: Determination, Imposition and Enforcement of Restitution,

Fines & Other Monetary Impositions (2003) (hereinafter, Prosecutor’s Guide to

Criminal Monetary Penalties), available at http://dojnet.doj.gov/usao/eousa/

ole/usabook/mone/.

1. Restitution is Available—and Often Required—in Intellectual

Property Prosecutions

Most criminal intellectual property defendants must pay their victims

restitution.

Intellectual property oenses in Title 18 require restitution under the

Mandatory Victims Restitution Act of 1996 (“MVRA”), codied in part at 18

U.S.C. §3663A (“Mandatory restitution to victims of certain crimes”). Under

the MVRA, restitution is mandatory following any “oense against property

under [Title 18] ... including any oense committed by fraud or deceit ... in

which an identiable victim or victims suered a pecuniary loss.” 18 U.S.C.

§ 3663A(c)(1)(A)(ii),(B). For oenses committed on or after October 13,

2008, the PRO-IP Act of 2008 made this explicit, creating a new section, 18

344 Prosecuting Intellectual Property Crimes

U.S.C. § 2323, dealing specically with forfeiture, destruction and restitution

for intellectual property oenses, which provides:

under section 506 of title 17 or section 2318, 2319, 2319A,

2319B, or 2320, or chapter 90, of this title, the court, pursuant

to sections 3556, 3663A, and 3664 of this title, shall order

the person to pay restitution to any victim of the oense as an

oense against property referred to in section 3663A(c)(1)(A)

(ii) of this title.

18 U.S.C. § 2323(c); PRO-IP Act of 2008, Pub. L. No. 110-403, § 206, 122 Stat.

4256, 4263 (2008). e restitution provisions in the PRO-IP Act superseded

an amendment passed only two years earlier in the Stop Counterfeiting in

Manufactured Goods Act which made restitution mandatory for violations

of 18 U.S.C. § 2320. See Stop Counterfeiting in Manufactured Goods Act,

Pub. L. No. 109-181, § 1, 120 Stat. 285, 286 (2006); 18 U.S.C. § 2320(b)(4)

(eective March 16, 2006 through October 12, 2008).

e enactment of 18 U.S.C. § 2323 codied a longstanding body of case

law. Intellectual property crimes are oenses against property in two senses:

some defraud unwitting customers into paying money for infringing products,

and all involve intellectual property, which is property as much as any tangible

property. See, e.g., United States v. Carpenter, 484 U.S. 19, 26 (1987) (stating

that condential information, another type of intangible property, has “long

been recognized as property”); United States v. Trevino, 956 F.2d 276, 1992

WL 39028 (9th Cir. 1992) (table) (in counterfeit trademark prosecution,

arming order of restitution to nuclear power plant victim that had purchased

counterfeit circuit breakers). e handful of cases on point conrmed that

intellectual property oenses are “oense[s] against property” for the purpose

of §3663A. See Beydoun, 469 F.3d at 107 (noting that a conviction under 18

U.S.C. § 2320 for tracking in counterfeit cigarette papers was an “oense

against property” under 18 U.S.C. § 3663A and thus required mandatory

restitution, but nding that the district court calculated incorrectly the

amount of restitution); United States v. Chalupnik, 514 F.3d 748, 751-52

(8th Cir. 2008) (similarly, noting that a conviction under 17 U.S.C. § 506

and 18 U.S.C. § 2319 for criminal copyright infringement was an “oense

against property” under 18 U.S.C. §3663A, but faulting the district court’s

calculation of restitution);United States v. Chay, 281 F.3d 682, 686 (7th Cir.

2002) (noting that a conviction under 18 U.S.C. §2318(a) for tracking in

VIII. Penalties, Restitution, and Forfeiture 345

counterfeit documents and packaging for computer programs was an “oense

against property” under 18 U.S.C. § 3663A and thus required mandatory

restitution); United States v. Hanna, No. 02 CR. 1364-01(RWS), 2003 WL

22705133, at *3 (S.D.N.Y. Nov. 17, 2003) (stating that a conviction under

18 U.S.C. § 2320 for tracking in counterfeit trademarked handbags and

other goods requires full restitution under 18 U.S.C. §§3663A, 3664); see

also United States v. Cho, 136 F.3d 982, 983 (5th Cir. 1998) (mentioning

restitution in trademark counterfeiting case); United States v. Manzer, 69 F.3d

222, 229-30 (8th Cir. 1995) (upholding restitution award of $2.7 million in

mail fraud, wire fraud, and copyright infringement prosecution for the sale of

modication and cloning packages for unauthorized decryption of premium

channel satellite broadcasts); United States v. Sung, 51 F.3d 92, 96 (7th Cir.

1995) (mentioning restitution in trademark counterfeiting case); United States

v. Bohai Trading Co., 45 F.3d 577, 579 (1st Cir. 1995) (same—restitution

amount of $100,000); United States v. Hicks, 46 F.3d 1128, 1995 WL 20791,

at *3 (4th Cir. 1995) (table) (upholding restitution award in satellite decryption

and copyright case).

ese cases support the proposition that restitution is mandatory even

for intellectual property oenses committed prior to enactment of § 2323

on October 13, 2008. Restitution also is mandatory for trademark violations

committed between passage of the Stop Counterfeiting in Manufactured

Goods Act on March 16, 2006, and passage of the PRO-IP Act on October

13, 2008, under the version of 18 U.S.C. § 2320 in eect during that period.

See Stop Counterfeiting in Manufactured Goods Act, Pub. L. No. 108-482,

§ 1, 120 Stat. 285, 286 (2006); 18 U.S.C. § 2320(b)(4) (eective March 16,

2006 through October 12, 2008).

ere are two statutory exceptions to mandatory restitution in §3663A:

“if (A) the number of identiable victims is so large as to make restitution

impracticable; or (B) determining complex issues of fact related to the cause

or amount of the victim’s losses would complicate or prolong the sentencing

process to a degree that the need to provide restitution to any victim is

outweighed by the burden on the sentencing process.” 18 U.S.C. §3663A(c)

(3). Defendants can be expected to argue for one or both of these exceptions

in cases of online copyright piracy that involve a large number of copyrighted

works owned by a large number of victims, in cases involving retail counterfeit

goods that were sold to a large number of defrauded customers, and in trade

secret cases that involve complex issues of valuation. “is ‘exception’ was

346 Prosecuting Intellectual Property Crimes

intended to be used sparingly, and the court is expected to use every means

available, including a continuance of the restitution determination of up to

90 days, if necessary, to identify as many victims and harms to those victims

as possible.” Prosecutor’s Guide to Criminal Monetary Penalties at 28 (citing

18 U.S.C. §3664(d)(5) and United States v. Grimes, 173 F.3d 634 (7th Cir.

1999)). Department policy also requires that when this exception does apply,

“where forfeited assets are involved, prosecutors should consult with the

Criminal Division’s Asset Forfeiture and Money Laundering Section (AFMLS)

to determine the most eective way of returning forfeited assets to victims,”

and “[i]n cases with multiple defendants, the court should be asked to address

joint and several liability.” U.S. Dep’t of Justice, Attorney General Guidelines

for Victim and Witness Assistance, Art. V, H.1.g (2012). Prosecutors should also

ask the court to order restitution “for those victims and harms the court can

identify,” Prosecutor’s Guide to Criminal Monetary Penalties at 30 (discussing

similar exception for discretionary restitution). How to ensure restitution

in such situations is addressed below in the discussion of determining the

restitution amount.

Another possible exception to mandatory restitution may exist for criminal

trademark, service mark, and certication mark cases under 18 U.S.C. §2320

in which the mark-holder neglected to use the ® symbol (or other proper notice)

and the defendant lacked actual notice that the mark was registered. In those

cases, however, even though restitution might not be awarded to the mark-

holder, it should still be awarded to any customers of the defendant who were

defrauded into buying what they thought were authentic goods or services. See

Section E.3. of Chapter III of this Manual.

In addition, certain intellectual property oenses are simply not covered by

the mandatory restitution provisions in 18 U.S.C. §3663A, which apply only

to an “oense against property under this title [18].” 18 U.S.C. §3663A(c)

(1)(A)(ii). First, this excludes non-Title 18 oenses, such as violations of the

DMCA, see 17 U.S.C. §1204, and unauthorized reception of cable and satellite

service, see 47 U.S.C. §§553(b)(2), 605.

Second, this excludes even Title 18 crimes which are not oenses against

property. Violations of 18 U.S.C. § 2319A (bootlegging) committed prior to

passage of § 2323 may fall into this category. Defendants can argue that those

crimes are not oenses against property on the ground that bootleg music

and music video recordings do not infringe copyrighted property, see Section

F. of Chapter II of this Manual, or any other type of property, and that any

VIII. Penalties, Restitution, and Forfeiture 347

revenues from these oenses do not represent an actual pecuniary harm to

the victim because bootleg music and music video recordings do not decrease

artists’ sales. Prosecutors may wish to consult CCIPS at (202) 514-1026 to

discuss restitution in § 2319A convictions for oenses committed prior to

October 13, 2008.

Fortunately, even for intellectual property oenses committed before

passage of § 2323 and not covered by the mandatory restitution provisions,

there are other mechanisms to obtain restitution. First, restitution can always

be made part of a plea agreement. See 18 U.S.C. §3663(a)(3). Second, a court

can order discretionary restitution in any intellectual property criminal case

as a condition of probation or of supervised release after imprisonment. See

18 U.S.C. §§3563(b)(2) (probation), 3583(d) (supervised release). A good

example of these principles is United States v. Lexington Wholesale Co., 71 Fed.

Appx. 507 (6th Cir. 2003), in which a defendant was convicted for selling

infant formula repackaged with counterfeit trademarks and without an accurate

“use by” date, which resulted in one count for criminal trademark violations

under 18 U.S.C. §2320 and one count for misbranded food or drugs under

Title 21. 71 Fed. Appx. at 508. e sentencing court imposed restitution to

the victim of the misbranding count only, which the defendant argued was

improper because restitution is authorized only for oenses under Title 18,

not Title 21. Id. e appellate court armed restitution on the ground that it

was authorized as a condition of probation and also by the plea agreement. Id.

at 508-09. Finally, restitution is available for pre-PRO-IP Act violations of 18

U.S.C. § 2319A under the discretionary provisions of 18 U.S.C. § 3663(a)(1)

(A), which do not limit restitution to oenses against property.

In deciding whether to award discretionary restitution, the court must

consider not only the victim’s loss, but also the defendant’s nancial resources.

18 U.S.C. §3663(a)(1)(B)(i); see also §3563(b)(2) (allowing court to order

restitution to a victim as a condition of probation “as [] reasonably necessary”

and without regard to the limitations on restitution in §3663(a) and §3663A(c)

(1)(A)). Mandatory restitution requires full restitution. Prosecutor’s Guide to

Criminal Monetary Penalties at 29-30. ere is, however, a presumption for full

restitution, even in discretionary restitution cases. Id. e Department’s policy

is to require full restitution in discretionary cases (assuming the defendant’s

current or future economic circumstances warrant it), but in discretionary cases

to require nominal payment if economic circumstances so warrant. Id. at 30.

348 Prosecuting Intellectual Property Crimes

With respect to awarding discretionary restitution, the court should

also consider whether “the complication and prolongation of the sentencing

process ... outweighs the need to provide restitution.” 18 U.S.C. §3663(a)(1)

(B)(ii). Again, however, the Department advises that “prosecutors should only

ask the court to apply this provision narrowly, i.e., only to whatever portion of

restitution it may be applicable, and to impose restitution for those victims and

harms the court can identify.” Prosecutor’s Guide to Criminal Monetary Penalties

at 30.

Department policy requires consideration of the availability of restitution

when making charging decisions, and to structure plea agreements to

provide restitution whenever possible. See U.S. Dep’t of Justice, Attorney

General Guidelines for Victim and Witness Assistance, Art. V, H.1.b (2012)

(stating that “[w]hen exercising their discretion, prosecutors should give due

consideration to the need to provide full restitution to the victims of federal

criminal oenses,” among other charging considerations), V, H.1.d (stating

that “[w]hen reasonably possible, plea agreements should identify victims’

losses for purposes of restitution and address the manner of payment”). If one

of the charges would require restitution, the plea agreement should require

full restitution even if the defendant pleads guilty to a charge that would not

require restitution. Id. (citing USAM 9-16.320).

2. Identifying Victims Who Qualify for Restitution

Prosecutors should consider all victims who suered a loss, from the

intellectual property rights-holder, to distributors, and to the direct purchaser

and ultimate consumer of the infringing good.

Generally, the intellectual property rights-holder whose works were

infringed or misappropriated qualies for restitution. is is clear in cases

involving copyrights, trademarks, and trade secrets. As noted in Section D.1.

of this Chapter, however, DMCA oenses do not qualify for mandatory

restitution. e court, of course, may still order discretionary restitution. See

United States v. Whitehead, 532 F.3d 991, 993 (9th Cir. 2008) (in a DMCA case,

nding reasonable a sentence including restitution). Moreover, the company

whose technological measures are circumvented may be entitled to restitution

if the company also owns copyrighted works that were infringed as a result of

the circumvention. United States v. Oliver, No. 8:02CR3, 2005 WL 1691049,

at *5 (D. Neb. July 18, 2005) (“Even if Sony had made money as a result of the

defendant’s criminal conduct [in modifying Sony Playstations to play pirated

VIII. Penalties, Restitution, and Forfeiture 349

games in violation of the DMCA], it simply does not negate the fact that

the defendant is guilty of violating Sony’s copyright [by modifying the game

machines to play pirated Sony games].”). Similarly, satellite service providers

may be eligible for restitution from the sellers of circumvention devices for

the amount customers would have paid for the extra channels they obtained

fraudulently. See Brereton, 196 Fed. Appx. at 693 (arming restitution order

based on loss to DIRECTV of payments from top customers who purchased

illicit access cards from defendant); United States v. Manzer, 69 F.3d 222, 230

(8th Cir. 1995) (arming restitution order for defendant who sold modied

TV descrambling devices even though he was not actually convicted of a

violation of 47 U.S.C. § 605(e)(3)(C)(i)(II) because this was nevertheless part

of his scheme to defraud underlying his wire fraud conviction); United States

v. Hicks, 46 F.3d 1128, 1995 WL 20791, at *1 (4th Cir. Jan. 20, 1995) (table)

(holding that defendant convicted of selling modied satellite TV descrambling

devices in violation of 47 U.S.C. §605(e)(4) was not liable for restitution to

descrambling device manufacturers because they had been fully compensated

when they originally sold their devices, but ordering restitution to satellite service

providers for what customers would have paid for the additional channels they

could receive because of the defendant’s modications). Industry associations

that represent intellectual property rights holders can, in some circumstances,

help identify rights holders and receive and distribute the restitution to the

rights holders. For a listing of industry contacts, see Appendix G or contact

CCIPS at (202) 514-1026.

At least one court has held that a distributor, in addition to the rights

holders, may qualify for restitution. In United States v. Chalupnik, 514 F.3d

748 (8th Cir. 2008), the court found that BMG Columbia House, which

sells copyrighted CDs and DVDs, was a victim for purposes of restitution,

but ultimately declined to order restitution because BMG could not prove

lost sales from defendant’s scheme to sell discarded BMG discs to used record

stores. Id. at 753-54. See Section D.3. of this Chapter.

Defrauded purchasers—if any—are entitled to restitution as well. See,

e.g., United States v. Trevino, 956 F.2d 276, 1992 WL 39028 (9th Cir. 1992)

(table) (in counterfeit trademark prosecution, arming order of restitution to

nuclear power plant victim that had purchased counterfeit circuit breakers). A

defendant who has defrauded a large number of consumers can be expected to

argue that restitution is not required because the class of defrauded consumers

is impracticably large or dicult to identify. See 18 U.S.C. §3663A(c)(3).

350 Prosecuting Intellectual Property Crimes

ere are procedures for ordering restitution for victims who can be identied

by name but cannot presently be located at a particular address. See United

States v. Berardini, 112 F.3d 606, 609-12 (2d Cir. 1997).

Consumers who knew that they were purchasing counterfeits generally do

not qualify as victims, because they have not been harmed. Distinguishing

between consumers who were and were not defrauded may be a challenge.

In determining whether an involved party qualies as a victim for the

purpose of restitution, the court will distinguish between those harmed by the

defendant’s relevant conduct and those harmed by the oense of conviction.

(e rest of this paragraph consists largely of excerpts from the Prosecutor’s

Guide to Criminal Monetary Penalties at 32, with minor edits.) e court is

statutorily authorized to impose restitution only to identiable victims of the

acts that are part of the oense of conviction. In Hughey v. United States, 495

U.S. 411, 413 (1990), the Supreme Court held that the restitution statutes

limit restitution to “the loss caused by the specic conduct that is the basis of

the oense of conviction.” Restitution is not authorized for acts merely related

to the oense of conviction, such as acts that are within “relevant conduct”

under guideline sentencing (U.S.S.G. § 1B1.3), but are outside the actual

oense of conviction itself. Under the primary restitution statutes, amended

after the Hughey decision, a victim is “a person directly and proximately

harmed as a result of the commission of an oense for which restitution may be

ordered.” 18 U.S.C. §§3663A(a)(2), 3663(a)(2). is includes, in a case where

the oense of conviction includes a scheme, conspiracy, or pattern of criminal

activity, “any person directly harmed by the defendant’s criminal conduct in the

course of the scheme, conspiracy, or pattern” of criminal activity. Id. erefore,

prosecutors should charge such oenses to indicate the specic nature and

full extent of the acts that constitute the scheme, conspiracy, or pattern of

which the oense of conviction is involved, in order to permit the broadest

imposition of restitution.

If the acts for which restitution is sought are outside the oense of

conviction and cannot be otherwise tied to a scheme, pattern, or conspiracy

that is an element of the oense of conviction, then restitution is unavailable.

Under this rule, restitution is generally not triggered by one kind of act if the

oense of conviction describes another kind of act, even if the acts are logically

related in purpose or intent. See, e.g., United States v. Blake, 81 F.3d 498 (4th

Cir. 1996) (court denied restitution to victims for use of stolen credit cards

where oense of conviction was possession of stolen credit cards); United States

VIII. Penalties, Restitution, and Forfeiture 351

v. Hayes, 32 F.3d 171 (5th Cir. 1994); cf. In re Doe, 264 Fed. Appx. 260, 263-

64 (4th Cir. 2007) (court denied restitution to petitioner seeking restitution

for addiction to prescription pain medication from defendant pharmaceutical

company’s misbranding oense where she provided no evidence that she relied

on any false or misleading information).

Other courts apply this rule less strictly. For example, to determine the

existence of a scheme and what acts it included for purposes of restitution,

some courts will consider the facts alleged in the indictment, proven at trial,

or admitted in the plea colloquy. See, e.g., United States v. Ramirez, 196 F.3d

895 (8th Cir. 1999); United States v. Jackson, 155 F.3d 942 (8th Cir. 1998);

United States v. Hughey, 147 F.3d 423, 438 (5th Cir. 1998) (suggesting that

restitution might have been triggered by acts not in the indictment had they

been established by the trial record)

If no scheme, conspiracy, or pattern encompasses the acts for which injured

parties seek restitution, restitution will likely be limited in two respects. First, a

party who was injured solely by an act outside the oense of conviction—such

as a party whose losses were proved only as relevant conduct—cannot obtain

restitution. Second, a party who was injured by the oense of conviction can

obtain restitution only for the oense-of-conviction acts and not acts proved

only as relevant conduct at sentencing—even relevant conduct that counted

towards the loss or infringement amount; however, some courts may still allow

restitution for this type of relevant conduct if it is alleged in the indictment or

proved at trial, not just at sentencing. e exception to both these limitations

is, of course, restitution ordered pursuant to a stipulation in a plea agreement.

See 18 U.S.C. §3663(a)(3).

Application of these principles to an intellectual property crime occurred

in United States v. Manzer, 69 F.3d 222 (8th Cir. 1995), in which the court

ordered $2.7 million in restitution from a defendant convicted of mail fraud,

wire fraud, and criminal copyright infringement for tracking in cloned

computer chips. e cloned chips would allow satellite descrambling devices

to decrypt cable satellite signals without authorization. e defendant objected

to the $2.7 million restitution award on the ground that it included sales not

identied in the indictment. Id. at 229-30. e Eighth Circuit disagreed,

holding that the mail and wire fraud counts alleged a scheme to defraud that

“encompass[ed] transactions beyond those alleged in the counts of conviction,”

including the sales not otherwise identied in the indictment. Id. at 230

(citation and internal quotation marks omitted). Note that the restitution

352 Prosecuting Intellectual Property Crimes

might have been limited to the sales alleged in the indictment if the defendant

had pleaded to or been convicted of only the copyright charge.

ere are several ways to help ensure that restitution is awarded for harm

caused. As part of any plea deal, the government should require the defendant

to plead to the counts that oer maximum restitution, or the government

should insist upon a comprehensive plea agreement that provides restitution

to the victims of relevant oense conduct (whether the statutes or oenses of

conviction provide for it or not). See 18 U.S.C. §3663(a)(3) (allowing court to

order restitution as provided in plea agreement); Prosecutor’s Guide to Criminal

Monetary Penalties at 22-24.

At the beginning of the case, prosecutors should draft the indictment to

maximize restitution. Id. at 21. As the Prosecutor’s Guide to Criminal Monetary

Penalties counsels:

Prosecutors should avoid the “scheme” restitution pitfalls by:

a) Charging oenses that involve the statutory elements of an

“intent to defraud” or “intent to deceive” in the traditional

wire/mail fraud (or conspiracy) format, where the scheme (or

conspiracy) is described in detail and incorporated by reference

into each specic act count; and

b) Making sure the dates alleged as the beginning and end of

the scheme or conspiracy include all acts in furtherance of the

scheme or conspiracy for which restitution should be imposed.

Id. at 22. Moreover, “[s]imply tracking the statutory language of such oenses

does not clarify if the acts of conviction are part of a scheme, i.e., whether

dierent kinds of acts make up a scheme to ‘defraud’ or ‘deceive.’ Numerous

restitution orders have been vacated in such cases due to ambiguity of the

‘scheme’ issue.” Id. e same concerns apply to whether acts in addition to those

alleged as overt acts of a conspiracy can qualify as part of the conspiracy for

purposes of awarding restitution. e Prosecutor’s Guide to Criminal Monetary

Penalties discusses specic ways to structure restitution provisions in a plea

agreement to maximize restitution. Id. at 23-24.

3. Determining a Restitution Figure

Once the government has identied the people and entities who might be

classied as victims—consumers who were defrauded and intellectual property

VIII. Penalties, Restitution, and Forfeiture 353

rights holders—the next question is how to calculate what the victims are

owed, if anything.

To begin with, as discussed in the prior section, the restitution award must

be based on the loss caused by the defendant’s oense of conviction.

After determining which victims and transactions qualify for restitution,

the government must determine how the restitution should be calculated. e

most important principle is that restitution is intended to make the victims

whole by compensating them for their losses. See 18 U.S.C. §§ 3663(a)(1)

(B)(i)(I), 3663A(b), 3664(a); U.S.S.G. §5E1.1(a). is principle has several

consequences.

First, the restitution order should require the defendant to return any of

the victim’s property that he took. See 18 U.S.C. §§3663(b)(1)(A), 3663A(b)

(1)(A), 3664(f)(4)(A). is principle applies across all intellectual property

oenses:

• In trade secret oenses, the defendant should be required to return the

trade secret and any other items that he took from the owner of the

trade secret.

• In infringement cases, the defendant should be required to return

the money he accepted from the customers he defrauded (if any—in

some cases the customers knew that they were receiving counterfeits).

Although the defendant might argue that he is entitled to oset the

value of the goods the defrauded customers received, often that value

is next to nothing. Compare United States v. West Coast Aluminum Heat

Treating Co., 265 F.3d 986, 992 (9th Cir. 2001) (“And, by reducing

the loss calculation to account for the partial benet gained by the

government, the district court remained consistent with the rule that

the victim’s loss should be oset by the victim’s benet.”), and United

States v. Matsumaru, 244 F.3d 1092, 1109 (9th Cir. 2001) (holding

that restitution of the purchase price for the business the victim paid for

and was promised but did not receive, must be oset by the value of the

van and business license he did receive), with United States v. Angelica,

859 F.2d 1390, 1394 (9th Cir. 1988) (arming trial court’s refusal to

oset restitution award by value of substitute property given to victims,

because there was “no abuse of discretion in the district court’s decision

to disregard the value of the inexpensive garnets that were unwanted by

the victims and substituted for their diamonds as part of the fraudulent

scheme”), and United States v. Austin, 54 F.3d 394, 402 (7th Cir. 1995)

354 Prosecuting Intellectual Property Crimes

(holding that “even if the [counterfeit or misrepresented art] pieces

Austin sold ... were not completely worthless, $0 was the best estimate

of their worth” for purposes of calculating loss).

• In infringement cases—and perhaps trade secret cases as well—the

defendant should also compensate the intellectual property rights-

holder victims for any sales that he diverted from them. See United States

v. Milstein, 481 F.3d 132, 136-37 (2d Cir. 2007) (nding, in criminal

trademark prosecution, that restitution should be based on the rights

holders’ “lost sales,” as provided in the civil trademark provisions of the

Lanham Act, 15 U.S.C. § 1117(a)(1)-(2); those sales represented the

“value of the property” cited in the Victim and Witness Protection Act

of 2008, 18 U.S.C. § 3663(b)(1)(B)); United States v. Sung, 51 F.3d 92,

94 (7th Cir. 1995) (holding, in criminal trademark prosecution, that

“[r]estitution in a criminal case is the counterpart to damages in civil

litigation”). If the defendant’s conduct did not divert any sales from the

victim, then the victim may not be entitled to restitution. See United States

v. Chalupnik, 514 F.3d 748, 755 (8th Cir. 2008) (reversing restitution

order because victim oered only speculation as to lost sales); United

States v. Hudson, 483 F.3d 707, 710-11 (10th Cir. 2007) (reversing

restitution order because no evidence that victim Microsoft suered

lost sales as result of defendant’s conduct); United States v. Foote, No.

CR.A. 00-20091-01-KHV, 2003 WL 22466158, at *7 (D. Kan. July

31, 2003) (refusing to award restitution to trademark-holders because

the government proposed no reliable estimate of the victim’s losses and

citing cases for the need to prove lost prots). A defendant is most likely

to divert sales from the victim when he has defrauded customers into

thinking that his product or service is authentic, although he may have

a counter-argument if his prices were suciently under the authentic

price that his customers would have been unlikely to pay the victim

the full price for the real thing. A consumer who pays $20 for a high-

quality (or even a low-quality) fake purse might not have paid full price

($120 to $700) for the real purse, and thus his purchase of the fake

might not represent a lost sale to the victim. Similarly, some computer

users who download a $60,000 engineering program for free from an

infringing website or peer-to-peer network may be “trophy hunters”

who would not have paid full price for an authorized copy, whereas

other downloaders may be businesspeople who would have paid full

price had the free download not been available. Restitution orders

VIII. Penalties, Restitution, and Forfeiture 355

should dierentiate between these situations, to the extent possible.

Prosecutors might also try to introduce evidence establishing that the

availability of high-quality infringing works aected the market for the

victim’s product. See Brooktree Corp. v. Advanced Micro Devices, Inc.,

977 F.2d 1555, 1579 (Fed. Cir. 1992) (civil case upholding “actual

damages” calculation based on evidence that plainti had been forced

to lower its prices as a result of defendant’s infringing activities).

• Restitution based on lost sales is generally not calculated by the

defendant’s gain, but rather by the victim’s loss. Foote, 2003 WL

22466158, at *7. For example, in United States v. Martin, 64 Fed.

Appx. 129 (10th Cir. 2003), the total value of the items infringed

was $1,143,395, but the restitution equaled only $395,000—the

retail value multiplied by the rights-holder’s prot margin. As Martin

illustrates, restitution is based on lost net prots, not on total retail

price. See United States v. Beydoun, 469 F.3d 102, 108 (5th Cir. 2006).

Nevertheless, the defendant has no right to have his own costs oset

against his gain. United States v. Chay, 281 F.3d 682, 686-87 (7th Cir.

2002).

• When the evidence of infringement consists of the defendant’s inventory

of infringing product rather than his actual sales—and the defendant

therefore argues against any restitution for lack of actual diverted

sales—the government may argue that the inventory is a reasonable

estimate of the defendant’s past sales. is argument is likely to be most

persuasive when the defendant’s inventory is counted after he has been

in business for a long time. Inventory is more likely to overstate past

sales when a business is just starting out, and to understate past sales

when the business has been successful and ongoing for a substantial

time.

• At least one court has held that restitution in a criminal intellectual

property case can be based on the amount of statutory damages that

the victim could have obtained from the defendant in a civil case, but

this was a case in which the statutory damages likely understated the

actual damages. See United States v. Manzer, 69 F.3d 222, 229-30 (8th

Cir. 1995) (upholding restitution award in descrambler case of $2.7

million for 270 cloning devices based on minimum statutory damages

of $10,000 per device, where victim provided loss gure of over $6.8

million). Statutory damages are available in civil suits for a variety of

intellectual property violations. See, e.g., 15 U.S.C.§1117(c) (statutory

356 Prosecuting Intellectual Property Crimes

damages of $1,000-$200,000 (up to $2 million if infringement

was willful) per counterfeit mark per type of goods or services); 17

U.S.C.§504(c) (statutory damages of $750-$30,000 (up to $150,000

if infringement was willful) per infringed work); 47 U.S.C.§605(e)

(3)(C)(i)(II) (statutory damages of $10,000-$100,000 per violation).

See also Roger D. Blair & omas F. Cotter, An Economic Analysis of

Damages Rules in Intellectual Property Law, 39 Wm. & Mary L. Rev.

1585, 1651-72 (1998) (discussing economic theory of statutory

damages in copyright law).

• If the defendant earned a prot from his crime but the court nds that

restitution is too dicult to calculate, the court can nevertheless take

away the defendant’s gain by imposing a ne in the amount of his gain.

See Foote, 2003 WL 22466158, at *7.

Second, the restitution order should compensate the victim for any money

spent to investigate the defendant’s conduct, whether during the victim’s own

investigation or while helping the government investigate and prosecute. ese

costs often arise in intellectual property cases: employers conduct internal

investigations into their employees’ theft of trade secrets, and copyright and

trademark-holders often hire private investigators to monitor and investigate

suspected infringers. e mandatory and discretionary restitution statutes both

authorize restitution “for lost income and necessary child care, transportation,

and other expenses [related to / incurred during] participation in the

investigation or prosecution of the oense or attendance at proceedings related

to the oense.” 18 U.S.C. §§ 3663(b)(4), 3663A(b)(4). ese provisions

have been interpreted to cover not only the victim’s expenses in helping the

government, but also the costs of the victim’s own investigation. See United

States v. Brown, 150 Fed. Appx. 575 (8th Cir. 2005) (per curiam) (awarding

restitution to victim company for sta investigation costs into reconstructing

and correcting nancial records related to defendant’s embezzlement, where

defendant contested proof of amount but not whether investigative costs as a

category are awardable); United States v. Beaird, 145 Fed. Appx. 853 (5th Cir.

2005) (per curiam) (arming $200,000 award of restitution for attorney’s fees

and litigation expenses associated with assisting the FBI’s investigation); United

States v. Gordon, 393 F.3d 1044, 1049, 1056-57 (9th Cir. 2004) (discussing

reimbursement of investigative costs in depth, in case arming $1,038,477

in restitution for costs of company’s internal investigation and responses to

grand jury subpoenas), cert. denied, 126 S. Ct. 472 (2005); see also United

States v. Susel, 429 F.3d 782, 784 (8th Cir. 2005) (per curiam) (arming award

VIII. Penalties, Restitution, and Forfeiture 357

of software company’s administrative and transportation expenses during

participation in the investigation and prosecution of the oense in criminal

Mich. 2008) (denying restitution for investigative and legal costs incurred by

victim who pursued civil litigation arising from defendant’s criminal conduct).

ird, as explained above in Section D.1. of this Chapter, in deciding

whether to award discretionary restitution, the court must consider not only the

victim’s loss, but also the defendant’s nancial resources. 18 U.S.C. §3663(a)

(1)(B)(i). A presumption for full restitution exists even in discretionary

restitution cases. Prosecutor’s Guide to Criminal Monetary Penalties at 29-30.

Unless economic circumstances warrant nominal payment, Department policy

requires full restitution in discretionary cases. Id. at 30. In no case shall the fact

that a victim has received or is entitled to receive compensation with respect

to a loss from insurance or any other source be considered in determining the

amount of restitution. 18 U.S.C. §3664(f)(1)(B).

Fourth, victims have an important role in helping to determine the

appropriate amount of restitution. e government must consult with

witnesses and the court to consider victims’ evidence at sentencing. See 42

U.S.C.§10607(c)(3)(G); U.S. Dep’t of Justice, Attorney General Guidelines

for Victim and Witness Assistance, Art. IV, I.2 (2012). See generally Chapter

X of this Manual (Victims). e criminal intellectual property statutes

similarly require the court to consider victims’ evidence at sentencing. See18

U.S.C. §§ 2319(d), 2319A(d), 2319B(e), 2320(e). e pre-sentence report

must also include a veried assessment of victim impact in every case. Fed. R.

Crim. P. 32(d)(2)(B). Trade associations can be very helpful in providing victim

impact statements, particularly when an oense involves a large quantity and

variety of infringing products. See the listing of intellectual property contacts

in Appendix G of this Manual.

E. Forfeiture

In criminal intellectual property cases, forfeiture can serve several

important functions. Forfeiting infringing items removes them from the

stream of commerce so they cannot be sold or redistributed. Forfeiting the

tools and equipment that defendants use to commit intellectual property

crimes—ranging from manufacturing equipment to computers to domain

names used by infringing websites—prevents their use to commit further IP

358 Prosecuting Intellectual Property Crimes

crime. Forfeiting the proceeds of intellectual property crime—the revenues and

prots—prevents their reinvestment in a criminal enterprise. Finally, forfeiture

can serve as a powerful deterrent.

For IP oenses committed on or after October 13, 2008, forfeiture is fairly

straightforward. e Prioritizing Resources and Organization for Intellectual

Property (PRO-IP) Act of 2008 created a new section, 18 U.S.C. § 2323,

which expressly authorizes forfeiture for intellectual property oenses:

(a) Civil forfeiture.

(1) Property subject to forfeiture. e following property is

subject to forfeiture to the United States Government:

(A) Any article, the making or tracking of which

is, prohibited under section 506 of title 17, or section 2318,

2319, 2319A, 2319B, or 2320, or chapter 90, of this title.

(B) Any property used, or intended to be used, in any

manner or part to commit or facilitate the commission of an

oense referred to in subparagraph (A).

proceeds obtained directly or indirectly as a result of the

commission of an oense referred to in subparagraph (A).

(2) Procedures. e provisions of chapter 46 relating to

civil forfeitures shall extend to any seizure or civil forfeiture

under this section. For seizures made under this section, the

court shall enter an appropriate protective order with respect

to discovery and use of any records or information that has

been seized. e protective order shall provide for appropriate

procedures to ensure that condential, private, proprietary,

or privileged information contained in such records is not

improperly disclosed or used. At the conclusion of the forfeiture

proceedings, unless otherwise requested by an agency of the

United States, the court shall order that any property forfeited

under paragraph (1) be destroyed, or otherwise disposed of

according to law.

(b) Criminal forfeiture.

VIII. Penalties, Restitution, and Forfeiture 359

(1) Property subject to forfeiture. e court, in imposing

sentence on a person convicted of an oense under section 506

of title 17, or section 2318, 2319, 2319A, 2319B, or 2320,

or chapter 90, of this title, shall order, in addition to any

other sentence imposed, that the person forfeit to the United

States Government any property subject to forfeiture under

subsection (a) for that oense.

(2) Procedures.

(A) In general. e forfeiture of property under

paragraph (1), including any seizure and disposition of the

property and any related judicial or administrative proceeding,

shall be governed by the procedures set forth in section 413 of

the Comprehensive Drug Abuse Prevention and Control Act

of 1970 (21 U.S.C. 853), other than subsection (d) of that

section.

(B) Destruction. At the conclusion of the forfeiture

proceedings, the court, unless otherwise requested by an agency

of the United States shall order that any--

(i) forfeited article or component of an article

bearing or consisting of a counterfeit mark be destroyed or

otherwise disposed of according to law; and

(ii) infringing items or other property described in

subsection (a)(1)(A) and forfeited under paragraph (1) of this

subsection be destroyed or otherwise disposed of according to

law.

PRO-IP Act of 2008, Pub. L. No. 110-403, § 206, 122 Stat. 4256, 4262-63

(2008); 18 U.S.C. § 2323. Notably, the PRO-IP Act makes criminal forfeiture

mandatory for all oenses covered by the act. See 18 U.S.C. § 2323(b)(1).

For intellectual property oenses committed prior to passage of the PRO-

IP Act, forfeiture is governed by a complex web of forfeiture statutes. is

Chapter is not a denitive guide to forfeiture law, but rather it provides a

basic overview of the forfeiture remedies available in IP crimes. Prosecutors

with questions concerning forfeiture practice and procedure should contact the

forfeiture expert in their oce or the Criminal Division’s Asset Forfeiture and

Money Laundering Section at (202) 514-1263.

360 Prosecuting Intellectual Property Crimes

1. Property Subject to Forfeiture

Intellectual property crimes give rise to three general categories of forfeitable

property:

1) Contraband items, which include infringing copyrighted

copies and phonorecords; goods, labels, documentation, and

packaging that bear counterfeit trademarks, service marks,

or certication marks; and unauthorized recordings of live

musical performances. See 49 U.S.C. §80302(a)(6) (dening

“contraband”). ese items are subject to forfeiture under the

PRO-IP Act, see 18 U.S.C. § 2323(a)(1)(A), and they were

generally forfeitable prior to its enactment on October 13,

2008. See, e.g., 18 U.S.C. § 2320(b)(3)(A)(iii).

2) Proceeds derived from the commission of an IP oense. ese

are subject to forfeiture under the PRO-IP Act, see 18 U.S.C.

§ 2323(a)(1)(C), and they were usually forfeitable prior to its

enactment. See, e.g., 18 U.S.C. § 1834(a)(1) (eective October

11, 1996 through October 12, 2008); 18 U.S.C. 2320(b)(3)

(A)(i) (eective March 16, 2006 through October 12, 2008).

3) Facilitating property, that is, property that was used to commit

or facilitate the IP oense, such as plates, molds or masters

used to produce copyright-infringing works; computers,

tools, equipment, and supplies used to produce counterfeit

goods; and vehicles used to trac in any of the above. Such

property is subject to forfeiture under the PRO-IP Act, see 18

U.S.C. § 2323(a)(1)(B); prior to the act’s passage, forfeiture

of facilitating property was available in many cases, but its

availability varied substantially depending on the specic IP

oense, the type of property, and the type of forfeiture sought;

see, e.g., 18 U.S.C. § 1834(a)(2) (eective October 11, 1996

through October 12, 2008); 18 U.S.C. 2320(b)(3)(A)(ii)

(eective March 16, 2006 through October 12, 2008).

2. Overview of Forfeiture Procedures

ere are three types of forfeiture procedures: administrative, civil,

and criminal. is section gives a brief overview and includes a table that

VIII. Penalties, Restitution, and Forfeiture 361

summarizes the types of forfeiture available for each kind of property, organized

by intellectual property oense.

a. Administrative Forfeiture Proceedings

Administrative forfeiture occurs when a law enforcement agency forfeits

property in an administrative, non-judicial matter. As with the other types

of forfeiture procedure, administrative forfeiture is available only pursuant to

a specic statute that authorizes such a procedure. Administrative forfeiture

commences once an agency seizes property and then sends or publishes notice

of the property seizure within the prescribed deadlines. If nobody responds to

the notice by ling a claim of ownership claim within the allotted time, the

property is forfeited without involving a prosecutor or judge. If a claim is led,

the seizing agency must either return the property or seek forfeiture through a

judicial procedure.

With the passage of the PRO-IP Act on October 13, 2008, administrative

forfeiture is now available for all IP oenses except violations of the DMCA.

See 18 U.S.C. § 2323(a)(2). Administrative forfeiture is also available for

some IP oenses under several other statutes, including: 17 U.S.C.§ 603(c)

(copyright-infringing imports and exports); 19 U.S.C.§1526(e) (trademark-

infringing imports); 18 U.S.C. §981(d) and 19 U.S.C. §§1607-09 (proceeds);

49 U.S.C. §80304 (facilitating property).

Real property and personal property (other than monetary instruments)

that are worth more than $500,000 can never be forfeited in an administrative

proceeding. See 19 U.S.C. §1607; 18 U.S.C. §985.

b. Civil and Criminal Proceedings

Unlike administrative forfeiture proceedings, civil and criminal forfeiture

are judicial actions that require the involvement of prosecutors and the courts.

Criminal forfeiture is an in personam proceeding that begins with a

forfeiture allegation in an indictment and is then executed as part of a

defendant’s sentence. It thus requires a conviction and is limited to property

belonging to the defendant that was involved in the oense of conviction.

Criminal forfeiture cannot reach a third-party’s property, even if the defendant

used the third-party’s property to commit the crime.

Whereas criminal forfeiture is an in personam action against the defendant,

civil forfeiture is an in rem action against the property itself. is means that

362 Prosecuting Intellectual Property Crimes

civil forfeiture proceedings can reach property regardless of who owns it, if the

government can prove that the property was derived from or used to commit

a crime. Civil forfeiture proceedings are not part of a criminal case at all.

e burden of proof is a preponderance of the evidence, and civil forfeiture

proceedings can dispose of property even without a criminal conviction or the

ling of any criminal charges.

c. Table of Forfeiture Provisions Arranged by Criminal IP Statute

e following table indicates the types of forfeiture available for intellectual

property oenses committed since passage of the PRO-IP Act on October

13, 2008. For a listing of the types of forfeiture available prior to that, see

Appendix I. Note that administrative forfeiture is generally available for vessels

used to transport contraband items pursuant to 49 U.S.C. §80304. Note also

that even where forfeiture of proceeds from intellectual property oenses is not

provided for expressly, it may be available indirectly through money laundering

statutes.

Criminal Copyright Infringement

Administrative

Infringing Items Yes.

• 17U.S.C.§§602-603 (prohibiting

imports and exports of infringing

copies).

• 18 U.S.C. § 2323(a)(2) (permitting

administrative forfeiture of

infringing items forfeitable civilly).

• 19U.S.C.§§1595a, 1607-09

(forfeiture & seizure by CBP of

infringing items).

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(2) (permitting

administrative forfeiture of

facilitating property forfeitable

civilly).

• 19U.S.C.§§1595a, 1607-09

(forfeiture & seizure by CBP).

Proceeds Yes.

• 18 U.S.C. § 981(d) (permitting

administrative forfeiture of proceeds

forfeitable civilly).

• 18 U.S.C. § 2323(a)(2) (same).

VIII. Penalties, Restitution, and Forfeiture 363

Civil

Infringing Items Yes.

• 17 U.S.C. §§ 602-603.

• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(1)(B).

Proceeds Yes.

• 18U.S.C.§§981(a)(1)(C) & 2323(a)

(1)(C).

Criminal

Infringing Items Yes(mandatory).

• 17 U.S.C. §§ 602-603.

• 18 U.S.C. § 2323(b)(1) (mandating

criminal forfeiture of property

forfeitable civilly).

• 28U.S.C.§2461(c) (permitting

criminal forfeiture of property

forfeitable civilly).

Facilitating Property Yes(mandatory).

• 18 U.S.C. § 2323(b)(1).

• 28U.S.C.§2461(c).

Proceeds Yes(mandatory).

• 18U.S.C.§981(a)(1)(C).

• 18 U.S.C. § 2323(b)(1).

• 28U.S.C.§2461(c).

DigitalMillenniumCopyrightAct

Administrative No.

Civil No.

Criminal No.

364 Prosecuting Intellectual Property Crimes

EconomicEspionageAct(TradeSecreteft)

Administrative

Contraband Yes.

• 18 U.S.C. § 2323(a)(2).

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(2).

Proceeds Yes.

• 18 U.S.C. § 2323(a)(2).

Civil

Contraband Yes.

• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(1)(B).

Proceeds Yes.

• 18 U.S.C. § 2323(a)(1)(C).

Criminal

Contraband Yes(mandatory).

• 18 U.S.C. § 2323(b)(1).

• 28 U.S.C. § 2461(c).

Facilitating Property Yes(mandatory).

• 18 U.S.C. § 2323(b)(1).

• 28 U.S.C. § 2461(c).

Proceeds Yes(mandatory).

• 18U.S.C.§2323(b)(1).

• 28 U.S.C. § 2461(c).

Counterfeit/IllicitLabels,Documentation,andPackagingforCopyrightedWorks

Administrative

Counterfeit/Infringing Items Yes.

• 18 U.S.C. § 2323(a)(2).

• 19 U.S.C. §§1595a, 1607-09.

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(2).

• 19 U.S.C. §§1595a, 1607-09.

Proceeds Yes.

• 18 U.S.C. § 2323(a)(2).

VIII. Penalties, Restitution, and Forfeiture 365

Civil

Counterfeit/Infringing Items Yes.

• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(1)(B).

Proceeds Yes.

• 18 U.S.C. § 981(a)(1)(C).

• 18U.S.C.§ 2323(a)(1)(B).

Criminal

Counterfeit/Infringing Items Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28 U.S.C. § 2461(c).

Facilitating Property Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28 U.S.C. § 2461(c).

Proceeds Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28U.S.C.§2461(c).

UnauthorizedFixationsofLiveMusicalPerformances(“Bootlegging”)

Administrative

Unauthorized Recordings Yes.

• 18 U.S.C. § 2319A(c).

• 18 U.S.C. § 2323(a)(2).

• 19 U.S.C. § 1595a, 1607-09.

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(2).

• 19 U.S.C. § 1595a, 1607-09.

Proceeds Yes.

• 18 U.S.C. § 2323(a)(2).

Civil

Unauthorized Recordings Yes.

• 18U.S.C.§2319A(c).

• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(1)(B).

Proceeds Yes.

• 18 U.S.C. § 981(a)(1)(C).

• 18U.S.C.§ 2323(a)(1)(C).

366 Prosecuting Intellectual Property Crimes

Criminal

Unauthorized Recordings Yes(mandatory).

• 18 U.S.C. § 2323(b)(1).

• 28U.S.C.§2461(c).

Facilitating Property Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28U.S.C.§2461(c).

Proceeds Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28U.S.C.§2461(c).

UnauthorizedRecordingofMotionPictures(“Camcording”)

Administrative

Unauthorized Recordings Yes.

• 18 U.S.C. § 2323(a)(2).

• 19 U.S.C. § 1595a, 1607-09.

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(2).

• 19 U.S.C. § 1595a, 1607-09.

Proceeds Yes.

• 18 U.S.C. § 2323(a)(2).

Civil

Unauthorized Recordings Yes.

• 18 U.S.C. § 2323(a)(1)(A).

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(1)(B).

Proceeds Yes.

• 18 U.S.C. § 2323(a)(1)(C).

Criminal

Unauthorized Recordings Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28 U.S.C. § 2461(c).

Facilitating Property Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28 U.S.C. § 2461(c).

Proceeds Yes(mandatory).

• 18 U.S.C. § 2323(b)(1).

• 28 U.S.C. § 2461(c).

VIII. Penalties, Restitution, and Forfeiture 367

Goods, Services, Labels, Documentation, and Packaging with Counterfeit Marks

Administrative

Counterfeit Items Yes.

• 18 U.S.C. § 2323(a)(2).

• 19 U.S.C. § 1526(e).

• 19U.S.C.§§1595a & 1607-09.

Facilitating Property Yes.

• 18 U.S.C. § 2323(a)(2).

• 19U.S.C.§§1595a & 1607-09.

Proceeds Yes.

• 18 U.S.C. § 981(d).

• 18 U.S.C. § 2323(a)(2).

Civil

Contraband Yes.

• 18U.S.C.§ 2323(a)(1)(A).

Facilitating Property Yes.

• 18U.S.C.§ 2323(a)(1)(B).

Proceeds Yes.

• 18U.S.C.§981(a)(1)(C).

• 18 U.S.C. § 2323(a)(1)(C).

Criminal

Contraband Yes(mandatory).

• 18U.S.C.§ 2323(b)(1).

• 28 U.S.C. § 2461(c).

Facilitating Property Yes(mandatory).

• 18 U.S.C. § 2323(b)(1).

• 28 U.S.C. § 2461(c).

Proceeds Yes(mandatory).

• 18U.S.C.§981(a)(1)(C).

• 18 U.S.C. § 2323(b)(1).

• 28 U.S.C. § 2461(c).

368 Prosecuting Intellectual Property Crimes

3. Choosing a Forfeiture Procedure

Although the prosecutor may commence parallel civil and criminal

forfeiture cases to keep all avenues of forfeiture open, various factors may aect

which procedure is best to pursue:

• Substitute assets. In criminal proceedings, the court can enter a money

judgment against the defendant for the property’s value or can order

the forfeiture of substitute assets if the property has been dissipated or

cannot be found.

• Burden of proof.In civil proceedings, the government need only prove

that a crime was committed and that the property derived from or

facilitated the crime by a preponderance of the evidence. In criminal

cases, the government must prove beyond a reasonable doubt that a

crime was committed and that the defendant committed the crime,

although the nexus between the property and the oense need be

proved only by a preponderance of the evidence.

• Criminal conviction as a prerequisite. Civil forfeiture does not require

a conviction. is is especially important if the government wants to

forfeit the property of fugitives or defendants who have died, or if

the government can prove that the property was involved in a crime

but cannot prove the wrongdoer’s specic identity. Moreover, civil

proceedings may be brought against any property derived from either

a specic oense or from an illegal course of conduct, and therefore is

not limited to property involved in the oense(s) of conviction.

• Ownership of property. Criminal forfeiture reaches property only if it

is owned by the defendant, or was at the time of the oense giving rise

to the forfeiture. Civil forfeiture should be considered if the prosecutor

seeks to forfeit proceeds or facilitation property that the defendant

does not own.

• Discovery and disclosure obligations. Civil forfeiture, governed by

civil discovery rules, can result in early or unwanted disclosure of

information through traditional civil discovery mechanisms such as

interrogatories and depositions, and it is subject to stringent deadlines.

• Attorneys’ fees. If the government brings an unsuccessful action for

civil forfeiture, it may be liable for the owner’s attorneys’ fees.

• Eciency. Administrative forfeiture is preferred whenever available—

generally, when no one is contesting the forfeiture—as it can dispose of

certain forfeiture matters quickly in a non-judicial setting.

VIII. Penalties, Restitution, and Forfeiture 369

4. Civil Forfeiture in Intellectual Property Matters

With the passage of the PRO-IP Act on October 13, 2008, civil forfeiture

is now available for all intellectual property oenses except violations of the

DMCA. See 18 U.S.C. § 2323(a). Again, the government need only prove that

the crime was committed; it need not convict a specic defendant of the crime.

a. Proceeds

e government can seek civil forfeiture of the proceeds of all IP oenses

except violations of the DMCA. See 18U.S.C.§ 2323(a)(1)(C). In addition,

the Civil Asset Forfeiture Reform Act of 2000 (CAFRA) amendments to

18 U.S.C. § 981—a general civil forfeiture statute—permit civil forfeiture

of the proceeds of certain IP oenses. e CAFRA amendments permit the

government to seek civil forfeiture of “[a]ny property, real or personal, which

constitutes or is derived from proceeds traceable to,” among other things,

any oense dened as a specied unlawful activity in the money laundering

provisions at 18 U.S.C. § 1956(c)(7). 18 U.S.C. § 981(a)(1)(C). Specied

unlawful activities include criminal copyright infringement and trademark

counterfeiting, 18U.S.C.§1956(c)(7)(D) (citing 18U.S.C.§§2319, 2320),

as well as any oense listed as racketeering activity in 18U.S.C.§1961(1).

Section 1961, in turn, lists not only §§2319 and 2320 violations, but also

violations of 18 U.S.C. § 2318 (counterfeit labels, documentation, and

packaging for copyrighted works) and §2319A (bootleg musical recordings).

b. Infringing Items, Other Contraband, and Facilitating Property

Civil forfeiture of infringing and other contraband items, as well as

facilitating property, is available for all IP oenses except violations of the

DMCA. See 18 U.S.C. §§ 2323(a)(1)(A), (B).

In addition, there are special civil forfeiture provisions applicable to

unauthorized xations imported into the United States, see 18U.S.C.§2319A

(unauthorized xations of live musical performances), and to infringing copies

imported to or exported from the United States. See 17 U.S.C. §§ 602-603.

c. Innocent Owner Defense

In most civil forfeiture actions, the innocent owner defense allows an

owner to challenge the forfeiture on the ground that he was unaware that the

property was being used for an illegal purpose, or took all reasonable steps

under the circumstances to stop it. See United States v. 2001 Honda Accord EX,

370 Prosecuting Intellectual Property Crimes

245 F. Supp. 2d 602 (M.D. Pa. 2003) (holding that CAFRA preserved the rule

that the burden of proof shifts to the claimant to establish the innocent owner

defense); United States v. 2526 Faxon Avenue, 145 F. Supp. 2d 942 (W.D. Tenn.

2001) (holding that CAFRA requires the claimant to prove the armative

innocent owner defense by a preponderance of the evidence). ere are some

exceptions, however, most notably for importation oenses, and therefore

prosecutors may wish to consult with the Department’s Asset Forfeiture and

Money Laundering Section at (202) 514-1263 if an innocent owner is likely

to submit a claim.

d. Victims’ Ability to Forfeit Property

Note also that some IP rights holders may obtain certain civil seizures

that can complicate the government’s criminal prosecution, not to mention

its forfeiture proceedings. Mark-holders have an ex parte remedy for seizing

infringing products and manufacturing equipment. 15 U.S.C. § 1116(d).

Mark-holders may also petition the court for seizure orders during a civil action

against an infringer under 15U.S.C.§1114. Authority for an ex parte seizure

order is provided at 15 U.S.C.§1116(d)(1)(A). Mark-holders who seek such

an order must give reasonable notice to the United States Attorney for the

judicial district in which the order is sought, after which the United States

Attorney “may participate in the proceedings arising under such application if

such proceedings may aect evidence of an oense against the United States.”

15U.S.C.§1116(d)(2). e mark-holder’s application may be denied “if the

court determines that the public interest in a potential prosecution so requires.”

Id. If the mark-holder’s application is granted, then the seizure must be made

by a federal, state, or local law enforcement ocer. See 15U.S.C.§1116(d)(9).

Similar ex parte seizure remedies are available to rights holders in copyright

and counterfeit or illicit labels cases. See 17U.S.C.§503; 18U.S.C.§2318(e).

Prosecutors may need to participate in these civil proceedings in order to

preserve evidence relevant to an incipient or ongoing criminal case; to contest

the issuance of an order; to preserve an ongoing investigation; or to inform the

mark-holder of his ability to initiate a parallel civil case to seize, forfeit, and

destroy equipment used to manufacture the counterfeit trademark goods.

5. Criminal Forfeiture in IP Matters

As noted above, criminal forfeiture is an in personam action, and thus is

available only once a defendant has been convicted, and then it is limited to

VIII. Penalties, Restitution, and Forfeiture 371

property belonging to the defendant. See United States v. Totaro, 345 F.3d 989,

995 (8th Cir. 2003) (holding that criminal forfeiture is in personam, because if

it allowed the forfeiture of a third party’s interest, the forfeiture would become

an in rem action and the third party could contest the forfeiture on more than

ownership grounds); United States v. O’Dell, 247 F.3d 655, 680 (6th Cir. 2001)

(recognizing that criminal forfeiture “entitles the government to forfeiture of a

convicted defendant’s interests and nothing more”) (citation omitted); United

States v. Gilbert, 244 F.3d 888, 919 (11th Cir. 2001) (“Because it seeks to

penalize the defendant for his illegal activities, in personam forfeiture reaches

only that property, or portion thereof, owned by the defendant.”) (citation

omitted), superseded on other grounds as recognized in United States v. Marion,

562 F.3d 1330, 1341 (11th Cir. 2009). e relation back doctrine, however,

codied at 21 U.S.C. §§ 853(c) and 853(n)(6), provides that the government’s

interest in forfeitable property vests at the time of the oense giving rise to the

forfeiture, and that property transferred to a third party after that time may be

forfeited.

Even though criminal forfeiture is executed after conviction, the government

should plan for criminal forfeiture during the investigation and at indictment.

Pre-indictment seizure warrants can be used to seize infringing items (whether

or not they are the property of a target). Moreover, the indictment should

include separate forfeiture charges that identify any property that is forfeitable

pursuant to the charged oenses. For forfeiture language to include in an

indictment, prosecutors should consult the forfeiture expert in their oce or

the Criminal Division’s Asset Forfeiture and Money Laundering Section at

(202) 514-1263.

Criminal forfeiture is available for all IP oenses except violations of the

DMCA. See 18 U.S.C. § 2323(b).

a. Proceeds

Generally, the government can obtain criminal forfeiture of proceeds from

IP oenses whenever those proceeds are civilly forfeitable. See 18 U.S.C. §

2323(b)(1); 28 U.S.C. § 2461(c).

Independently, where a defendant has engaged in a monetary transaction

involving the proceeds of an intellectual property oense, “knowing that the

property involved in a nancial transaction represents the proceeds of some

form of unlawful activity”—regardless of whether the crime is listed in 18

U.S.C. §1956(c)(7)—the defendant may also be charged, and the proceeds

372 Prosecuting Intellectual Property Crimes

subject to forfeiture, under the money laundering statute directly. See United

States. v. Turner, 400 F.3d 491 (7th Cir. 2005) (holding that the defendant

need not know the actual source of the money, but only that it came from

“some illegal activity”); see also United States v. Khalil, No. CR. A. 95-577-01,

1999 WL 455698 (E.D. Pa. June 30, 1999) (forfeiture involving counterfeiting

popular music).

b. Infringing Items, Other Contraband, and Facilitating Property

Similarly, criminal forfeiture of contraband from, and facilitating property

for, IP oenses is available whenever those materials are civilly forfeitable. See

18 U.S.C. § 2323(b)(1).

6. Domain Name Forfeiture

Increasingly, IP crimes are being perpetrated by website operators who are

either unknown or outside the criminal jurisdiction of the United States. eir

domain names, however, which point visitors to the sites, are often controlled

by registrars and registries inside the United States. While it may be impractical

or impossible to prosecute the operators themselves, forfeiture of the domain

names may well be appropriate if they are facilitating the sale of infringing or

counterfeit goods.

Domain name forfeiture can be a high-visibility action with an important

deterrent eect. It is most suitable, however, when a website is being used

solely or largely for illegal activities. One must consult with the Criminal

Division’s Asset Forfeiture and Money Laundering Section at (202) 514-1263

if the domain name is used for a combination of legal and illegal activities,

such as constitutionally protected speech mixed with illegal transactions, or

the domain name is used to run an ongoing business that is not engaging in

predominately illegal activity.

e forfeiture statutes dene “property” to include intangible property,

such as licenses and rights. See 18 U.S.C. § 981(a)(1)(E); 21 U.S.C. § 853(b)

(2); United States v. Dicter, 198 F.3d 1284 (11th Cir. 1999) (medical license).

Registrants have intangible rights in their domain names. Kremen v. Cohen,

337 F.3d 1024, 1029 (9th Cir. 2003). ose rights could be characterized as

either property rights or contract rights. See, e.g., Dorer v. Arel, 60 F. Supp. 2d

558, 561 (E.D. Va. 1999).

To forfeit a domain name, it is necessary to prove a nexus between the

domain and the criminal oense. See 18 U.S.C. § 981(a); 21 U.S.C. § 853(a).

VIII. Penalties, Restitution, and Forfeiture 373

Often, the easiest way to establish this nexus is to argue that the domain

facilitates the oense.

In civil forfeiture, to prove that a domain name facilitates the oense, it is

necessary to show a “substantial connection” between the domain name and

the oense. 18 U.S.C. § 981(c)(3) (civil forfeiture). A substantial connection

or nexus can be shown by demonstrating that the domain name points to a

computer that, in turn, is used in the oense. For example:

• the domain name points to a web server which hosts an online pharmacy

selling counterfeit drugs; or

• the domain name points to a le server or cyber locker that oers

pirated movies, music, or software for download.

a. e Steps in Domain Name Forfeiture

Below is a brief summary of the domain name forfeiture process. For more

specic direction, and to obtain copies of sample documents, please contact

CCIPS at (202) 514-1026 or the Criminal Division’s Asset Forfeiture and

Money Laundering Section at (202) 514-1263.

i. Seize (and Restrain) the Domain Name

A domain name is restrained by ordering the registrar not to permit the

registrant to move the domain name to another registrar. is prevents the

registrant from moving the domain name to a registrar outside the United

States. A domain name is seized by placing it in a state where it no longer points

to any server. Any email sent to the domain will bounce; any web browers

trying to download a page from the domain will get a “host not found” error.

For IP crimes, the simplest approach is to seize and restrain the domain

name civilly, using a seizure warrant issued under 18 U.S.C. § 981(b), which

is made applicable by 18 U.S.C. § 2323(a)(2) to all IP crimes except DMCA

violations. e investigative agency applies ex parte for a warrant. e warrant

is granted if “there is probable cause to believe that the property is subject to

forfeiture.” 18 U.S.C. § 981(b)(2)(B).

ere are two criminal forfeiture methods of seizure for domain names,

both of which are made applicable by 18 U.S.C. § 2323(b)(2)(A) to all IP

crimes except DMCA violations. e rst method is to obtain a protective

order under 21 U.S.C. § 853(e)(1). is is simplest to do right after an

indictment, but it can also be done before an indictment. ese orders have

374 Prosecuting Intellectual Property Crimes

nationwide scope. 21 U.S.C. § 853(l). Protective orders, however, do not allow

one to “seize” the domain name by turning it o.

e second and preferred method, which does permit turning o the

domain name, is to obtain a “warrant of seizure” issued under 21 U.S.C. §

853(f). e standard of proof is “probable cause to believe that the property to

be seized would, in the event of a conviction, be subject to forfeiture,” and that

a protective order will not be sucient. Id. ese warrants have nationwide

scope. 21 U.S.C. § 853(l). To establish that a protective order is not sucient,

one must establish the need to turn o the domain name now. For most sites

peddling infringing or counterfeit goods, this should be fairly straightforward—

unless the domain name is turned o, customers will continue to purchase

unsafe or substandard goods, and rights holders will continue to suer lost

sales.

ii. Forfeit the Domain Name

When a domain name is forfeited, it becomes property of the United States.

e former registrant loses all rights to, and control over, the domain name.

If this is a criminal seizure (i.e., the defendant owns the domain name), the

indictment or information must identify the domain name as property to be

forfeited. Fed. R. Crim. P. 32.2(a). One should include the domain names in

the description of property to be forfeited, for example: “any personal property

… including, but not limited to, the following Internet domain names:

illegaldrugs.com.” One should identify only the second-level domain names

and should not include the prexes “www” or “http” or refer to the domain

names as “websites.”

iii. Forfeiture as Part of a Plea Agreement

Domain name forfeiture can and ought to be included in a plea agreement,

especially if the defendant was using the associated website to market counterfeit

and/or infringing goods. If there is a parallel civil forfeiture proceeding, the

defendant can agree not to contest forfeiture there. Otherwise, the defendant

should consent in writing—the paperwork is ordinarily available from the

registrar—to the voluntary transfer of the domain name to the United States.

iv. e Government’s Use of the Domain Name

Once the United States successfully seizes a domain name, it retains

possession until the registration period expires. Many domain names are

VIII. Penalties, Restitution, and Forfeiture 375

registered only for a year or two at a time. Once that period expires, the seizing

agency would have to renew the registration or the name would go back on the

open market.

e seizing agency may choose to post its own message or banner at the

domain informing visitors that the name was seized because it was facilitating

the sale of counterfeit or infringing goods in violation of federal law. e

agency can then monitor the number of visitors who view the banner in order

to measure its eect.

7. Interbank Account Seizures of Foreign Bank Funds

In 2001, Congress enacted 18 U.S.C. § 981(k) as part of the USA Patriot

Act. See Uniting and Strengthening America by Providing Appropriate Tools

Required to Intercept and Obstruct Terrorism Act of 2001, Pub. L. No. 107-

56, § 319, 115 Stat. 272, 311-12 (2001). is civil forfeiture provision allows

the United States to recover criminal proceeds that have been deposited in a

foreign bank account by ling a civil forfeiture action—not against the funds

in the foreign account itself, but against the funds that the foreign bank has on

deposit in the United States at a domestic nancial institution. It is not necessary

for the Government to establish that the seized funds are directly traceable to

the funds that were deposited into the foreign nancial institution. Only the

person who owned the forfeitable funds at the time they were deposited into

the foreign bank has standing to contest the forfeiture. e foreign bank does

not have standing to object to the forfeiture action.

ough the provision was aimed originally at terrorism, it can be useful in

IP investigations. Used judiciously, it facilitates the seizure of proceeds from the

sale of counterfeit and infringing goods by website operators who are outside

United States criminal jurisdiction, and/or in countries with no extradition

treaty with the U.S.—yet depend primarily on U.S. customers whose payments

must pass through a domestic nancial institution before moving into foreign

accounts.

e Criminal Division’s Asset Forfeiture and Money Laundering Section

must approve the seizure of funds under § 981(k).

376 Prosecuting Intellectual Property Crimes

377

IX.

Charging Decisions

A. Introduction

In determining whether to charge an intellectual property crime, federal

prosecutors should generally consider the same factors that are weighed with

respect to any other federal oense. e principal resource is Chapter 9-27.000

of the United States Attorneys’ Manual (USAM) (“Principles of Federal

Prosecution”). Ordinarily, the prosecutor “should commence or recommend

Federal prosecution if he/she believes that the person’s conduct constitutes a

Federal oense and that the admissible evidence will probably be sucient to

obtain and sustain a conviction.” USAM 9-27.220.

is directive is not absolute. Even a provable case may be declined in three

situations: when prosecution would serve no substantial federal interest; when

the person is subject to eective prosecution in another jurisdiction; or when

there exists an adequate non-criminal alternative to prosecution. Id. Broken

down further, the relevant considerations include:

• efederalinterestinintellectualpropertycrimes.

• Federallawenforcementpriorities.

• enatureandseriousnessoftheoense.

• edeterrenteectofprosecution.

• eindividual’sculpabilityinconnectionwiththeoense.

• eindividual’scriminalhistory.

• e individual’s willingness to cooperate in the investigation or

prosecution of others.

• eprobablesentenceandotherconsequencesofconviction.

• Whetherthepersonissubjecttoprosecutioninanotherjurisdiction.

• eadequacyofalternativenon-criminalremedies.

• Specialconsiderationsfordecidingwhethertochargecorporations.

is chapter briey discusses how some of these factors apply specically

to intellectual property crimes.

As discussed in Chapter IV, there are additional requirements and factors

that apply in the prosecution of economic espionage cases under 18 U.S.C.

378 Prosecuting Intellectual Property Crimes

§1831. e Assistant Attorney General for the National Security Division must

approve the ling of any charges under § 1831. USAM 9-2.400, 9-59.100.

Additionally, USAM 9-59.110 provides that “[p]rosecutors are strongly urged

to consult with the Computer Crime and Intellectual Property Section before

initiating prosecutions under 18 U.S.C. § 1832.” In economic espionage

and trade secret cases, USAM 9-59.100 highlights the following factors in

determining whether to commence prosecution:

a) the scope of the criminal activity, including evidence of involvement by

a foreign government, foreign agent or foreign instrumentality;

b) the degree of economic injury to the trade secret owner;

c) the type of trade secret misappropriated;

d) the eectiveness of available civil remedies; and

e) the potential deterrent value of the prosecution.

B. e Federal Interest in Intellectual

Property Crimes

In determining whether a particular prosecution would serve a substantial

federal interest, the prosecutor should weigh all relevant factors. USAM

9-27.230. Several factors that have specic application to intellectual property

crimes are discussed below.

1. Federal Law Enforcement Priorities

“[F]rom time to time the Department establishes national investigative

and prosecutorial priorities. ese priorities are designed to focus Federal law

enforcement eorts on those matters within the Federal jurisdiction that are

most deserving of Federal attention and are most likely to be handled eectively

at the Federal level.” USAM 9-27.230(B)(1) (comment).

Because of the importance of intellectual property to the national economy

and the scale of intellectual property theft, intellectual property crime continues

to be a law enforcement priority. Intellectual property theft worldwide costs

American companies billions per year. e Justice Department has therefore

made the enforcement of intellectual property laws a high priority. rough its

Intellectual Property Task Force, the Department has identied four categories

of IP investigations and prosecutions that deserve special attention: oenses

that involve (1) health and safety; (2) links to organized criminal networks; (3)

large scale commercial counterfeiting and piracy, particularly occurring online;

IX. Charging Decisions 379

and (4) trade secret theft or economic espionage. See U.S. Dep’t of Justice, PRO

IP Act Annual Report FY2011, at 16 (2011).

To meet these and other priorities, the Department has trained a national

network of specialized prosecutors designated “Computer Hacking and

Intellectual Property” (CHIP) coordinators, at least one of whom is located in

each of the nation’s ninety-four United States Attorneys’ Oces, with greater

numbers in the twenty-ve CHIP units located in districts that experience

some of the highest concentrations of computer and intellectual property

crimes. Under this program, there are more than 260 CHIP prosecutors

around the country. At the national and international level, intellectual

property prosecutions are coordinated by the Department’s Computer Crime

and Intellectual Property Section (CCIPS) in Washington, D.C.

Notably, and in part to support these eorts, the Prioritizing Resources and

Organization for Intellectual Property (PRO-IP) Act of 2008 increased both

the penalties for intellectual property oenses and the resources available to law

enforcement for the investigation and prosecution of IP crimes. Among other

things, the PRO-IP Act: (i) increased the maximum penalties for trademark

counterfeiting violations resulting in serious bodily injury or death; (ii) made

restitution and criminal forfeiture mandatory for virtually all intellectual

property oenses; (iii) established a federal grant program to provide state

and local law enforcement agencies with funds for intellectual property crime

training, prevention, enforcement and prosecution; (iv) authorized and later

appropriated funding for the assignment of 51 Federal Bureau of Investigation

(“FBI”) special agents specically to investigate intellectual property crimes

as well as 15 additional CHIP positions; and (v) required the submission of

annual reports to Congress from both the Attorney General and the Director

of the FBI on their progress in implementing the objectives of the PRO-IP Act.

Prioritizing Resources and Organization for Intellectual Property (PRO-IP)

Act, Pub. L. No. 110-403, §§ 205, 206, 401, 402, 404, 122 Stat. 4256, 4261-

64, 4271-72, 4274-4277 (2008).

CCIPS can help evaluate whether a particular intellectual property crime

poses a matter of federal priority. CCIPS can be reached at (202) 514-1026.

2. e Nature and Seriousness of the Oense

As with other oenses, intellectual property crimes vary in their nature and

seriousness. It is therefore essential to consider each case on its own facts.

380 Prosecuting Intellectual Property Crimes

e oense’s nature and seriousness are indicated by the usual factors,

with special importance placed on threats to health or safety, see U.S.S.G.

§ 2B5.3(b)(5); the volume of infringement as measured by the amount of

revenue and prot, see § 2B5.3(b)(1), cmt. n.2; the involvement of organized

crime, see § 2B5.3 cmt. n.4(B); and whether substantial harm was done to the

reputation of the rights holder, see id. cmt. n.4(A).

Other considerations that are more particular to intellectual property

oenses include the following:

• Federal criminal prosecution is most appropriate in the most egregious

cases. e criminal intellectual property statutes punish only a subset

of the conduct that is punishable under civil intellectual property laws.

Even then, the government must prove its case beyond a reasonable

doubt, including a high state of mens rea.

• Limited federal resources should not be diverted to prosecute an

inconsequential case or a case in which the violation is only technical.

Even some branches of civil intellectual property law recognize the

maxim, “de minimis non curat lex.”

• Federal prosecution is most appropriate when the questions of

intellectual property law are most settled. However, federal prosecutors

should not hesitate to apply settled intellectual property concepts in

innovative ways to new schemes and new technology.

• Victims have a broad range of civil remedies that include restitution,

damages, punitive or quasi-punitive damages, injunctions, court

costs, and attorneys’ fees. See Section D. of this Chapter.

• e more strongly an intellectual property owner acts to protect its

rights, the stronger the interest in prosecution. Id.

• Many intellectual property oenses include multiple victims: not

only the owners of the intellectual property that was infringed, but

also customers who were defrauded. Both classes of victim deserve

protection, and one class’s lack of interest in prosecution should not

countermand prosecution when the other class’s interest is strong.

• e sources or manufacturers of infringing goods and services are

generally more worthy of prosecution than distributors. Cf. U.S.S.G.

§ 2B5.3(b)(3) (adjusting oense level for infringement oenses

involving the manufacturing, uploading or smuggling of infringing

items by 2 levels, with a minimum oense level of 12).

IX. Charging Decisions 381

• Counterfeit goods or services that endanger the public’s health or

safety deserve the highest consideration for prosecution. See U.S.

Dep’t of Justice, PRO IP Act Annual Report FY2011, at 16 (2011);

cf. U.S.S.G. § 2B5.3(b)(5) (adjusting oense level for infringement

oenses involving “conscious or reckless risk of death or serious bodily

injury [or] possession of a dangerous weapon” by 2 levels, with a

minimum oense level of 14).

3. e Deterrent Eect of Prosecution

Some infringers are undeterred by civil liability. ey treat civil remedies as

a cost of doing business and continue their infringement after civil sanctions,

albeit with dierent products or under a dierent corporate guise. Criminal

prosecution can better deter a persistent violator from repeating his or her

crime.

Criminal prosecution may also further general deterrence. Individuals

may commit intellectual property crimes not only because some are relatively

easy to commit, such as copying music, but also because they do not fear

prosecution. But one person’s relatively small-scale violations, if permitted to

take place openly and notoriously, can lead others to believe that such conduct

is tolerated. While some counterfeiting or piracy oenses may not result in

provable direct loss to a victim, the widespread commission of such crimes can

devastate the value of intellectual property rights in general.

Criminal prosecution plays an important role in establishing the public’s

understanding of what conduct is acceptable and what is not. Vigorous

prosecution changes the public’s calculus. Put simply, more individuals will

be deterred from committing intellectual property oenses if they believe they

will be investigated and prosecuted.

4. e Individual’s History of Criminal Oenses and

Civil Intellectual Property Violations

Repeat criminal oenders are especially worthy of prosecution. See USAM

9-27.230(B)(5) (comment). e repeat-oender provisions in the intellectual

property crime statutes, e.g., 18 U.S.C. § 2320(b)(1)(B), and the United States

Sentencing Guidelines ensure that repeat oenders receive stier sentences.

In addition to the defendant’s criminal history, it is also appropriate to

consider his or her history of civil intellectual property violations. When

infringers consider civil penalties merely a cost of doing business, criminal

382 Prosecuting Intellectual Property Crimes

enforcement is particularly appropriate. Sources for determining the

defendant’s history of civil intellectual property oenses include civil litigation

records (which are often searchable online), the victim’s legal department and

private investigators, and any state consumer protection agencies to which

consumers might have complained. Another relevant consideration concerns

any infringement or misappropriation conduct following the issuance of cease

and desist letters or injunctive orders.

5. e Individual’s Willingness to Cooperate

in the Investigation or Prosecution of Others

As discussed in Section B.2. of this Chapter, the sources of counterfeit

or pirated goods or services are especially worthy of prosecution. Special

consideration should be given to targets who are willing to cooperate in an

investigation that leads to a source’s prosecution.

is includes the prosecution of foreign sources. In recent years, the

Department of Justice has worked extensively with foreign law enforcement

agencies to investigate and prosecute foreign violators, both by extraditing

foreign violators to the United States and by coordinating searches and

prosecutions simultaneously in the United States and abroad. CCIPS has

regular contact with foreign prosecutors and law enforcement agencies with an

interest in intellectual property crime. erefore, for assistance in investigating

or prosecuting oenses with an international dimension, contact CCIPS at

(202) 514-1026.

C. Whether the Person Is Subject to Prosecution in

Another Jurisdiction

One situation in which a prosecutor may decline prosecution despite

having a provable case occurs when the putative defendant is subject to

eective prosecution in another jurisdiction. USAM 9-27.240. Relevant to this

inquiry is the strength of the other jurisdiction’s interest in prosecution; the

other jurisdiction’s ability and willingness to prosecute eectively; the probable

sentence or other consequences of conviction in the other jurisdiction; and any

other pertinent factors. Id.

e primary question will often not be whether the case could be prosecuted

by another U.S. Attorney’s Oce, but rather whether it could be prosecuted by

state, local, or foreign authorities. USAM 9-27.240(B) (comment). State, local,

IX. Charging Decisions 383

or foreign law enforcement may or may not be a viable alternative to federal

prosecution. Federal intellectual property laws generally do not preempt state

and local intellectual property laws. For example, in trade secret and economic

espionage cases, Congress expressly anticipated that other appropriate remedies

may be considered. e Economic Espionage Act explicitly provides that the

statute does not “preempt or displace any other remedies, whether civil or

criminal, provided by United States Federal, State, commonwealth, possession,

or territory law for the misappropriation of a trade secret.” 18 U.S.C. § 1838.

e only relevant area of intellectual property in which there is broad

federal preemption is copyright infringement, but even in that area states have

passed some creative laws that indirectly criminalize conduct involving some

pirated works. Compare 17 U.S.C.§301 (copyright preemption); R.W. Beck,

Inc. v. E3 Consulting, LLC, 577 F.3d 1133, 1148-49 (10th Cir. 2009) (holding

unjust enrichment); Kodadek v. MTV Networks, Inc., 152 F.3d 1209, 1212-

13 (9th Cir. 1998) (holding state law unfair competition claim preempted

where complaint expressly based the claim on rights granted by the Copyright

Act); Kregos v. Associated Press, 3 F.3d 656, 666 (2d Cir. 1993) (holding state

law unfair competition and misappropriation claims preempted when based

solely on the copying of protected expression in forms); Wnet v. Aereo, No.

12 Civ. 1543(AJN), 2012 WL 1850911, at *11 (S.D.N.Y. May 18, 2012)

(holding state law unfair competition claim preempted by Copyright Act);

People v. Williams, 920 N.E.2d 446, 458 (Ill. 2009) (holding Illinois antipiracy

provision preempted by Copyright Act); and State v. Perry, 697 N.E.2d 624

case involving defendant’s use of computer software on his bulletin board);

with Anderson v. Nidorf, 26 F.3d 100, 102 (9th Cir. 1994) (holding California

anti-piracy statute not preempted by federal copyright law in illegal sound

recording case); Briggs v. State, 638 S.E.2d 292, 295 (Ga. 2006) (holding

Georgia statute criminalizing the sale of recordings without a label identifying

the “transferor” not preempted by federal copyright law); State v. Awawdeh,

864 P.2d 965, 968 (Wash. Ct. App. 1994) (holding Washington statute not

preempted by federal copyright law in illegal sound recording case); and People

v. Borriello, 588 N.Y.S.2d 991, 996 (N.Y. App. Div. 1992) (holding New York

statute not preempted by Copyright Revision Act in illegal video recording

case).

384 Prosecuting Intellectual Property Crimes

D. e Adequacy of Alternative Non-Criminal

Remedies

Department of Justice policy allows a prosecutor to decline criminal

prosecution in a situation that could be adequately addressed by non-criminal

remedies. USAM 9-27.220(A)(3). Almost every federal intellectual property

crime has an analogue in civil law—be it state or federal—and those laws

generally oer victims generous relief, such as injunctions, restitution, damages,

punitive and quasi-punitive damages, court costs, attorneys’ fees, and even ex

parte seizure of a defendant’s infringing products. See 15 U.S.C. §§ 1114,

1116-1117 (trademark); 17 U.S.C. §§ 501-505 (copyright). Imported and

exported infringing merchandise can also be subject to administrative forfeiture

and nes imposed by United States Customs and Border Protection. See, e.g.,

17 U.S.C. §§ 602, 603(c) (copyright), 19 U.S.C.§1526(e)-(f) (trademark).

e availability and adequacy of these remedies should be carefully considered

when evaluating an intellectual property case.

e prosecutor should also consider whether existing civil remedies have

been or are likely to deter a particular defendant. For those undeterred by civil

suits and remedies, criminal prosecution may be more appropriate. When the

defendant has violated an earlier civil order, however, civil or criminal penalties

for contempt of court may be an acceptable alternative to prosecution for

criminal intellectual property violations.

Finally, when the violator’s conduct is persistent, unsafe, prot-oriented,

fraudulent, or physically invasive, civil remedies may not fully capture the

wrongfulness of the defendant’s conduct. In such cases, criminal prosecution

may be preferred.

Although the government may prosecute even if the victim has not

exhausted its civil and administrative remedies, the government should consider

the victim’s pursuit of alternative remedies. e putative defendant’s conduct

in response should also be examined.

IX. Charging Decisions 385

E. Special Considerations in Deciding Whether

to Charge Corporations and Other Business

Organizations

Corporations and other business organizations are often used to commit

intellectual property crimes. e decision whether to charge a business

organization involves numerous considerations. Department of Justice policy

on such charging decisions is generally set forth in the Principles of Federal

Prosecution of Business Organizations. USAM 9-28.000. is guidance

applies to intellectual property crimes in the same manner as to other crimes.

In deciding whether prosecution of a business organization is appropriate,

relevant factors include:

• e nature and seriousness of the oense, including the risk of harm

to the public, and applicable policies and priorities, if any, governing

the prosecution of corporations for particular categories of crime (see

USAM 9-28.400);

• e pervasiveness of wrongdoing within the corporation, including

the complicity in, or the condoning of, the wrongdoing by corporate

management (see USAM 9-28.500);

• e corporation’s history of similar misconduct, including prior

criminal, civil, and regulatory enforcement actions against it (see

USAM 9-28.600);

• ecorporation’stimelyandvoluntarydisclosureofwrongdoingand

its willingness to cooperate in the investigation of its agents (see USAM

9-28.700);

• e existence and eectiveness of the corporation’s pre-existing

compliance program (see USAM 9-28.800);

• ecorporation’sremedialactions,includinganyeortstoimplement

an eective corporate compliance program or to improve an existing

one, to replace responsible management, to discipline or terminate

wrongdoers, to pay restitution, and to cooperate with the relevant

government agencies (see USAM 9-28.900);

• Collateralconsequences,includingwhetherthereisdisproportionate

harm to shareholders, pension holders, employees, and others not

proven personally culpable, as well as impact on the public arising from

the prosecution (see USAM 9-28.1000);

386 Prosecuting Intellectual Property Crimes

• e adequacy of the prosecution of individuals responsible for the

corporation’s malfeasance (see USAM 9-28.300); and

• e adequacy of remedies such as civil or regulatory enforcement

actions (see USAM 9-28.1100).

387

Victims of Intellectual

Property Crimes—

Ethics and Obligations

But justice, though due to the accused, is due to the accuser

also.... We are to keep the balance true.

Justice Benjamin Cardozo, Snyder v. Massachusetts, 291 U.S. 97, 122 (1934).

Many victims of intellectual property (“IP”) oenses are atypical, in that

they often have substantial resources to protect their rights by investigating,

pursuing, and deterring infringers independent of law enforcement. For

instance, businesses often pool their resources in industry groups that undertake

enforcement actions on their behalf. See Appendix G (listing trademark and

independently and refer the results to law enforcement with a request to bring

charges. ey may even seek to contribute resources to law enforcement

agencies or multi-agency task forces organized to focus on IP oenses. Whether

an IP victim can enforce its rights through civil or administrative processes may

inuence whether criminal prosecution is warranted (see Chapter IX of this

Manual), and if so, what charges and strategy are appropriate. e fact that IP

rights holders sometimes can address IP crime on their own does not, however,

diminish their rights under federal law.

Although rights holders are often the primary victims in IP oenses,

consumers are victimized also. Consumers may be defrauded into buying

counterfeits that are second-rate or, worse, unsafe, while consumers who

purchase authentic goods end up paying higher prices to oset industry losses

caused by counterfeiting and piracy.

A. Victims’ Rights

Beginning with the passage of the Victim and Witness Protection Act of

1982, Pub. L. No. 97-291, 96 Stat. 1248 (1982), Congress has enacted numerous

statutes that protect victims’ rights during the investigation, prosecution, and

388 Prosecuting Intellectual Property Crimes

sentencing stages of criminal proceedings. Most recently, Congress revised and

recodied victims’ rights laws in the Justice for All Act of 2004, Pub. L. No.

108-405, 118 Stat. 2260 (2004). e Department issued revised guidance for

implementing the Justice for All Act in the Attorney General Guidelines for

Victim and Witness Assistance (2012 ed.) (“AG Guidelines”), available at http://

www.justice.gov/olp/pdf/ag_guidelines2012.pdf.

Generally, the Justice for All Act requires Department of Justice employees

to make their best eorts to notify victims of the following rights:

1. e right to be reasonably protected from the accused

2. e right to reasonable, accurate, and timely notice of any public

court proceeding, or any parole proceeding, involving the crime or

any release or escape of the accused

3. e right not to be excluded from any such public court proceeding,

unless the court, after receiving clear and convincing evidence,

determines that testimony by the victim would be materially

altered if the victim heard other testimony at that proceeding

4. e right to be reasonably heard at any public proceeding in the

district court involving release, plea, sentencing, or any parole

proceeding

5. e reasonable right to confer with the attorney for the government

in the case

6. e right to full and timely restitution as provided in law

7. e right to legal proceedings free from unreasonable delay

8. e right to be treated with fairness and with respect for the victim’s

dignity and privacy

See 18 U.S.C. §3771(a), (c)(1); AG Guidelines, arts. V.C-V.J. Apart from these

enumerated rights, the prosecutor has an independent obligation under the

Act to advise the victim of his or her right to counsel in connection with the

rights established by the Act. See 18 U.S.C. §3771(c)(2); AG Guidelines, art.

V.B.2.

e Act also creates several enforcement mechanisms. If the government or

a victim believes the victim’s rights are being violated, relief is possible by way

of motion in the trial court and ultimately a petition for writ of mandamus

in the Court of Appeals. See 18 U.S.C. §3771(d)(3); AG Guidelines, art. V.K.

If the victim’s rights are violated, the Act does not permit a motion for a new

trial, but does provide for re-opening a plea or sentence. 18 U.S.C. §3771(d)

X. Victims of Intellectual Property Crimes 389

(5). Finally, although the Act does not authorize suits against government

personnel, it requires the Department to create an administrative authority

within the Department to receive and investigate complaints, and impose

disciplinary sanctions for willful or wanton non-compliance. See 18 U.S.C.

§3771(f)(2); AG Guidelines, art. V.B.4; 28 C.F.R. §45.10 (2005).

For purposes of enforcing these rights, the Justice for All Act denes a

victim as “a person directly and proximately harmed as a result of the commission

of a Federal oense or an oense in the District of Columbia.” See 18 U.S.C.

§3771(e) (emphasis added); see also AG Guidelines, art. III.C.1. A victim may be

an individual, a corporation, company, association, rm, partnership, society,

or joint stock company. See 1 U.S.C. § 1 (dening “person”); AG Guidelines,

art. III.C.2. In considering whom to classify as a victim, prosecutors may

consider whether those who were injured during the commission of a federal

crime were indeed “directly and proximately harmed” by the oense within the

meaning of 18 U.S.C. §3771(e), particularly in cases where there are hundreds

or even thousands of potential victims.

e Act also contains a section on “Multiple Crime Victims” to address

notication in cases involving large numbers of victims. is provision, which

is of particular interest in cases involving the large-scale distribution of pirated

or counterfeit goods, states:

In a case where the court nds that the number of crime victims

makes it impracticable to accord all of the crime victims the

rights described in subsection (a), the court shall fashion a

reasonable procedure to give eect to this chapter that does not

unduly complicate or prolong the proceedings.

18 U.S.C. §3771(d)(2); see also AG Guidelines, arts. III.K, V.D.2, V.E.4. For

instance, in an online piracy prosecution with hundreds or thousands of victims

from dierent content industries, it is often impractical for a prosecutor to

notify every rights holder. In such cases, the prosecutor should consider, at a

minimum, notifying and enlisting the assistance of any trade organizations

that represent multiple victim rights holders. e prosecutor could then seek

court approval for an alternative procedure authorizing him or her to notify

such representatives in lieu of notifying all rights holders.

e Act states that “[n]othing in this chapter shall be construed to impair

the prosecutorial discretion of the Attorney General or any ocer under his

direction.” 18 U.S.C. §3771(d)(6). Congress clearly did not intend the Act

390 Prosecuting Intellectual Property Crimes

to be implemented in a way that hinders prosecutorial discretion in addressing

issues of victims’ rights and notication.

e Act did not alter other provisions that protect victimized rights

holders. In all criminal prosecutions, a pre-sentence report must contain

veried information containing an assessment of the impact on any individual

against whom the oense has been committed. Fed. R. Crim. P. 32(d)(2)(B).

Additionally, most intellectual property statutes guarantee victims (including

producers and sellers of legitimate works, rights holders, and their legal

representatives) the right to submit a victim impact statement identifying

the extent and scope of their injury and loss prior to sentencing. See 18

U.S.C.§§2319(e), 2319A(d), 2319B(e), 2320(e).

B. e Victim’s Role in the Criminal Prosecution

e fact that victims of IP crime have access to civil remedies raises several

issues during criminal prosecution.

1. Reporting an Intellectual Property Crime

It is recommended that victims of intellectual property crimes document

all investigative steps, preserve evidence, and contact law enforcement as soon

as possible. Victims can report intellectual property crimes to appropriate

law enforcement agencies as described in the referral guidelines contained in

Appendix H of this Manual.

2. Ethical Concerns When the Criminal Prosecution Results in an

Advantage in a Civil Matter

Like other crime victims, IP rights holders are often interested in securing

economic and other relief, but, unlike other types of crime victims, rights

holders have strong civil enforcement tools and resources that they often

use to aggressively pursue civil remedies. Prosecutors are obligated by statute

and policy to assist victims in obtaining restitution and other remedies, but

prosecutors are also obligated to serve the public interest. Occasionally, those

interests may be in tension. In this regard, prosecutors should consider whether

or to what extent IP victims are using the threat of criminal prosecution to

advance their private interests and to what extent the government can oer

a defendant concessions in prosecution or sentencing in exchange for the

defendant’s agreement to compensate the victim or mitigate the harm the

defendant has caused.

X. Victims of Intellectual Property Crimes 391

a. Victims Who Seek Advantage by reats of Criminal Prosecution

It is commonplace for an IP-owner’s attorney to send a merchant a letter

directing him to cease and desist sales of infringing merchandise. If the merchant

continues to infringe, the letter will be solid evidence of the defendant’s mens

rea during any ensuing criminal case.

Sometimes the IP-owner’s letter will include an express or implied threat

to seek criminal prosecution should the merchant persist. e extent to which

it is ethically permissible for a lawyer to threaten to press criminal charges as

a means to advance a civil cause of action is unclear. e lack of clarity stems

in part from a patchwork of inconsistent ethical rules. e ABA’s Model Code

of Professional Responsibility (adopted in 1969, amended in 1980) explicitly

prohibited strategic threats of prosecution: “A lawyer shall not present,

participate in presenting, or threaten to present criminal charges solely to

obtain an advantage in a civil matter.” Model Code of Prof'l Responsibility DR

7-105A (1980). e ABA's Model Rules of Professional Conduct, adopted in

1983, omitted the rule as “redundant or overbroad or both.” See ABA Comm.

on Ethics & Prof’l Responsibility, Formal Ethics Op. 92-363 (1992) (allowing

a lawyer to use a threat of a criminal referral to obtain advantage if the civil claim

and criminal matter are related and well-founded). Not all states have dropped

the old rule, and some have adopted other specic provisions addressing the

issue. Compare Oce of Disciplinary Counsel v. King, 617 N.E.2d 676, 677

(Ohio 1993) (disciplining a lawyer under the old rule for threatening to seek

prosecution unless opponent in property dispute paid disputed rent or vacated

the property), with Or. Rules of Prof’l Conduct r. 3.4(g) (Or. State Bar 2005)

(prohibiting such threats “unless the lawyer reasonably believes the charge to

be true and if the purpose of the lawyer is to compel or induce the person

threatened to take reasonable action to make good the wrong which is the

subject of the charge”).

Whatever the implication for the victim's lawyer, there is nothing unethical

about the government's decision to prosecute the oender after such a threat

has been made. e victim's threat does not present a legal or ethical obstacle

for the prosecution. Instead, the concern for the government prosecutor is a

strategic one, to the extent that the threat reects on the victim's credibility

or willingness to manipulate the criminal justice system for private gain. e

victim's conduct in this regard is one factor among many to be considered in

deciding whether to prosecute.

392 Prosecuting Intellectual Property Crimes

b. Global Settlement Negotiations

Ethical questions arise when the prosecution, victim, and defendant

attempt to resolve all pending civil and criminal disputes in a global settlement

agreement. While the answers to these questions are not entirely clear, there are

some best practices that follow the guidelines cited above, Department policy,

and strategic concerns.

First, it is often the better practice for the prosecutor to defer to the other

parties to suggest a global disposition rather than be the rst to suggest it. By

adopting this approach, the prosecutor is less likely to create the appearance of

overreaching:

[T]he government can neither be, nor seem to be, trading

money for relief or insulation from criminal prosecution or

sentencing consequences. Such a trade-o not only would

undermine the integrity of the prosecutorial process, but also

raises formidable fairness concerns, with wealthy defendants

better able to reach global settlements than poor ones.

* * *

Many prudent Assistant United States Attorneys consider global

settlements to have an appropriate and ethical role in resolving

parallel proceedings, but follow a rule of not introducing or

suggesting such a disposition. If opposing counsel raise[s] the

issue, it may be responded to and pursued by government

attorneys in close consultation with supervisors, and mindful

of the ethics issues.

Oce of Legal Education, U.S. Dep’t of Justice, Federal Grand Jury Practice

§12.12 (2008) (concerning parallel proceedings and global settlements).

Second, it is the better practice to limit the negotiations to matters of

criminal law. For example, as discussed in Section B.3.a. of this Chapter,

although some civil remedies will award a victim of IP theft with treble damages,

treble damages cannot be awarded under the criminal restitution statutes. See

18 U.S.C. §3663(b), 3663A(b), 3664(f )(1)(A). See also Chapter VIII, Section

D.3. of this Manual for a discussion of how to determine restitution measures).

However, the criminal statutes permit restitution to be ordered “to the extent

agreed to by the parties,” 18 U.S.C. §3663(a)(3), and allow for the defendant

to provide services in lieu of money, 18 U.S.C. §§ 3663(b)(5), 3664(f)(4)

X. Victims of Intellectual Property Crimes 393

(C). erefore, it is perfectly appropriate for the government to require full

restitution as a condition of a plea agreement. See Chapter VIII, Sections D.1.-

.2. of this Manual.

Clearly, the government may not use the threat of unsupported charges

to obtain advantage for a civil plainti. Model Rule of Professional Conduct

3.8 prohibits a prosecutor from seeking charges that the prosecutor knows are

not supported by probable cause, and Rule 3.1 prohibits any advocate from

asserting frivolous claims. Rule 4.1 requires a lawyer to be truthful. Even a

well-founded threat of criminal prosecution may be unethical if intended

merely to “embarrass, delay or burden a third person.” Model Rules of Prof’l

Conduct R. 4.4 (2003).

Finally, there are strategic concerns. A judge or jury might react negatively

if the victim or prosecutor appears to be threatening more serious consequences

in the criminal case as leverage in the civil disposition. Although the prosecutor

must at all times keep the victim informed of the progress of the criminal

case, including discussion of a plea oer (see Section A. of this Chapter), it is

ultimately the prosecutor who must decide how, if at all, to attempt to resolve

a criminal case, including all issues of restitution to the victim.

3. Parallel Civil Suits

e civil and regulatory laws of the United States frequently

overlap with the criminal laws, creating the possibility of

parallel civil and criminal proceedings, either successive or

simultaneous. In the absence of substantial prejudice to the

rights of the parties involved, such parallel proceedings are

unobjectionable under our jurisprudence.

Sec. & Exch. Comm’n v. Dresser Indus., Inc., 628 F.2d 1368, 1374 (D.C. Cir.

1980) (en banc) (footnote omitted). e topic of parallel civil suits is complex

and largely beyond the scope of this Manual. For a more extensive discussion

of parallel proceedings, see Oce of Legal Education, U.S. Dep’t of Justice,

Federal Grand Jury Practice § 12 (2008). e following is a brief summary.

a. Private Civil Remedies

Victims of IP crimes have signicant civil enforcement mechanisms

and remedies against infringers. In civil actions, IP rights holders can

recover damages, the defendant’s prots, costs, attorney fees, and even

statutory damages, which can be punitive or quasi-punitive. See 15 U.S.C.

394 Prosecuting Intellectual Property Crimes

§ 1117 (trademark infringement damages); 17 U.S.C. §§ 504 (copyright

infringement), 505 (same), 1101 (bootlegged recordings of live musical

performances), 1203 (DMCA); 18 U.S.C. § 2318(e) (illicit labels and

counterfeit labels, documentation, and packaging for copyrighted works); see

also Getty Petroleum Corp. v. Island Transp. Corp., 862 F.2d 10, 13-14 (2d Cir.

1988) (holding punitive damages unavailable for federal trademark claims, but

may be available for state infringement and unfair competition claims). Civil

remedies also include injunctive relief against future infringement and seizure

or impoundment of infringing goods. 15 U.S.C. §§1116, 1118 (trademark);

17 U.S.C. §§502 (copyright), 503 (same), 1101 (bootlegged recordings of

live musical performances), 1203(b) (DMCA); 18 U.S.C. § 2318(e)(2)(A),

(B) (illicit labels and counterfeit labels, documentation, and packaging for

copyrighted works); see also Chanel Inc. v. Gordashevsky, 558 F. Supp. 2d. 532,

539-40 (D.N.J. 2008) (granting permanent injunction preventing defendant

from engaging in future infringing conduct and transfer of infringing domain

names to plainti).

Victims of trademark or copyright infringement can also seek the private

counterpart of a search warrant: an ex parte seizure order, executed by law

enforcement. 15 U.S.C. §1116(d) (trademark); 17 U.S.C. §503 (copyright);

see Columbia Pictures Indus., Inc. v. Jasso, 927 F. Supp. 1075-77 (N.D. Ill.

1996) (sealed writ of seizure issued for pirated videos); Time Warner Entm’t

Co. v. Does Nos. 1-2, 876 F. Supp. 407, 410-15 (E.D.N.Y. 1994) (recognizing

availability of seizure order for infringing goods, but denying the victims’ ex

parte request on Fourth Amendment grounds because it called for execution

by private investigators and failed to describe the locations to be searched with

particularity). A party seeking civil seizure of goods with counterfeit marks must

rst notify the United States Attorney to allow the government’s intervention

should the seizure aect the public interest in a criminal prosecution. 15 U.S.C.

§1116(d)(2).

Prosecutors should consider the availability and use of private civil remedies

in deciding whether to prosecute an infringer criminally. See Chapter IX,

Section D. of this Manual.

b. Advantages and Disadvantages of Parallel Civil and Criminal

Proceedings

If the government prosecutes a defendant who is also a party to a pending

civil case, the parallel proceedings raise their own set of issues:

X. Victims of Intellectual Property Crimes 395

Advantages

• evictim’sprivatecivilenforcementactionbringsadditionalstatutory

and equitable remedies to bear on a defendant.

• evictim’sallocationofresourcestotheinvestigationmayconserve

government resources. Moreover, as discussed in Section C. of this

Chapter, the victim’s independent reasons for providing resources

to advance the civil case may lessen the appearance of any potential

conict of interest.

• Inthecivilcase,theplaintivictimcancompeldiscovery,whichthe

prosecution can use and discuss with the victim without grand jury

secrecy or operational concerns.

• AcivilcasepresentsthedefendantwithadicultFifthAmendment

choice. If he submits to discovery, he may lock in his story, provide

leads, disclose strategy, or furnish false exculpatory statements, all of

which may assist the criminal prosecutor. If he asserts his privilege

against self-incrimination in the civil matter, however, the jury in the

civil case can be instructed that it may draw an adverse inference from

his silence. See, e.g., Baxter v. Palmigiano, 425 U.S. 308, 318-19 (1976)

(adverse inference from silence permissible in prison disciplinary

proceedings); Hinojosa v. Butler, 547 F.3d 285, 291-95 (5th Cir. 2008);

ePlus Tech., Inc. v. Aboud, 313 F.3d 166, 179 (4th Cir. 2002) (adverse

inference permissible in civil RICO fraud case); LaSalle Bank Lake

View v. Seguban, 54 F.3d 387, 390-91 (7th Cir. 1995) (same).

• Acriminalconvictiontypicallyendsthecivilcaseinthevictim’sfavor,

either because the victim can rely on the criminal court’s restitution

order, collateral estoppel conclusively establishes the defendant’s

wrongdoing in the civil case, or the conviction simply renders the

defendant less willing to contest the civil case.

Disadvantages

• Given the availability of private, civil enforcement mechanisms, the

court may view the criminal prosecution as a waste of judicial resources.

• e government loses control of a component of the investigation.

Actions taken by private counsel and investigators for the civil case

may not be in the criminal case’s best interests.

• If the grand jury is used to gather evidence, secrecy concerns may

require criminal investigators to withhold material information from

the parties to the civil proceeding, although collecting evidence outside

396 Prosecuting Intellectual Property Crimes

the grand jury, such as through search warrants or administrative

subpoenas, may allow the government to share information without

breaching grand jury secrecy.

• e defendant can compel discovery in the civil case, which may

generate inconsistent witness statements and provide insight into the

prosecution’s case. As a result, some prosecutors will seek to stay the

civil case while the criminal case proceeds.

c. Stays and Protective Orders to Delay Civil Proceedings During

Criminal Prosecution

If the disadvantages of parallel proceedings outweigh the advantages, the

government may seek a protective order or a stay of the civil proceedings. ere

is ample authority for issuing a stay or protective order, especially when liberal

civil discovery would allow a criminal target or defendant to interfere with the

investigation or bypass restrictions on criminal discovery. See, e.g., Degen v.

United States, 517 U.S. 820, 825-26 (1996) (holding that a stay may be sought

in parallel civil forfeiture action); United States v. Stewart, 872 F.2d 957, 961-

63 (10th Cir. 1989) (holding that a court handling a criminal case may have

authority under Fed. R. Crim. P. 16(d) or 18 U.S.C. §1514(a) to prevent

parties in a parallel civil case from abusing witnesses or discovery procedures);

Sec. & Exch. Comm’n v. Dresser Indus., 628 F.2d 1368, 1376 n.20 (D.C. Cir.

1980) (en banc) (noting that the government may seek postponement of the

noncriminal proceeding to prevent the criminal defendant from broadening

his rights of criminal discovery against the government); Campbell v. Eastland,

307 F.2d 478, 490 (5th Cir. 1962) (holding that the public interest in criminal

prosecution with limited discovery outweighed civil litigant’s right to prepare

case promptly); see also Oce of Legal Education, U.S. Dep’t of Justice, Federal

Grand Jury Practice §§12.9,12.10 (2008).

When seeking a stay or protective order, the government should be

prepared to address the following factors: (1) the extent to which issues in the

criminal case overlap with those presented in the civil case; (2) the status of

the criminal matter, especially whether the civil defendant has been indicted;

(3) the interest of the plainti in proceeding expeditiously, as weighed against

the prejudice caused by the delay; (4) the private interests of and burden on

the defendant; (5) the interest of the court in case management and judicial

resources; (6) the interest of non-parties; and (7) the public interest. See, e.g.,

Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d 83, 99-100 (2d Cir.

2012); Micronancial, Inc. v. Premier Holidays Int’l, Inc., 385 F.3d 72, 78 (1st

X. Victims of Intellectual Property Crimes 397

Cir. 2004); Keating v. Oce of rift Supervision, 45 F.3d 322, 324-25 (9th

Cir. 1995); Eastwood v. United States, No. 2:06-cv-164, 2008 U.S. Dist. LEXIS

106777, *9 (E.D. Tenn. Nov. 14, 2008); Chao v. Fleming, 498 F. Supp. 2d 1034,

1037 (W.D. Mich. 2007); Benevolence Int’l Found. v. Ashcroft, 200 F. Supp. 2d

935, 938 (N.D. Ill. 2002); Trustees of the Plumbers and Pipetters Nat’l Pension

Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995).

C. Oers of Assistance From Victims

and Related Parties

IP rights holders frequently oer to provide resources to assist the

government with criminal investigations. Traditionally, law enforcement

agencies have routinely accepted assistance from victims and citizens willing

to do so in discharge of their civic duty. However, oers of assistance in

investigations and litigation have increased in scope, variety, and monetary

value. Consequently, at the prompting of the Department of Justice’s Task

Force on Intellectual Property, the Deputy Attorney General issued a May

2006 memorandum to all United States Attorneys and component heads

on accepting resources from victims, related parties, and third parties for use

in investigations and prosecutions. A copy of the memorandum, entitled

Guidance for Acceptance of Assistance and Gifts from Private Parties for Use in

Connection with Investigations and Litigation, may be found at http://www.

justice.gov/dag/readingroom/dag-may262006.pdf.

Although this subsection tracks the Department’s guidance closely and

highlights certain issues, the reader is advised to refer to the memorandum

itself before deciding on an appropriate response to an oer of resources.

e reader should also refer to Appendix J of this Manual, which examines a

variety of hypothetical oers of resources, such as private investigators oering

information; victims oering meeting space, expert witnesses, purchase money

to obtain counterfeit items, and storage space for seized items; and unrelated

parties oering forensic tools and analysis, facilities from which to conduct an

investigation, and expert witness services.

An oer of donated resources generally raises three issues. First is whether

the donation of resources is permitted by laws, regulations, and Department

directives limiting the acceptance of gifts. is will usually turn on whether the

oered resources constitute a gift or the type of assistance traditionally provided

by victims of crime, their related parties, and third parties. Second, is whether

398 Prosecuting Intellectual Property Crimes

the assistance is permitted by the rules of professional conduct regardless of

whether the oered resources are considered to be gifts or assistance. And third,

is whether the assistance will have an adverse impact on the prosecution, even

if permissible under gift restrictions and rules of professional conduct. All three

issues are addressed below.

1. Gift Issues

a. Applicable Law

e Attorney General has authority to “accept, hold, administer, and use

gifts, devises, and bequests of any property or services for the purpose of aiding

or facilitating the work of the Department of Justice.” 28 U.S.C. §524(d)(1).

Gifts of money (including money derived from property) must be deposited in

the Treasury for the benet of the Department and may be distributed by order

of the Attorney General. 28 U.S.C. §524(d)(2).

In 1997, the Attorney General issued Department of Justice (“DOJ”)

Order 2400.2, available at http://www.justice.gov/jmd/ethics/docs/doj-2400-

2.htm, which “sets forth the Department's policies and procedures regarding

the solicitation and acceptance of gifts, devises and bequests of property of

all kinds.” e Order states that no Departmental employee may solicit a gift

unless he or she has obtained the prior approval of the Attorney General or the

Deputy Attorney General. DOJ Order 2400.2 ¶ 3.a.(1). Solicitations are rare

and approved in only extraordinary circumstances.

In addition, the Assistant Attorney General for Administration (AAG/A)

has the exclusive authority to accept “gifts made to the Department” or any

of the Department’s components. Id. ¶ 3.b.(1). Before accepting any gift,

the AAG/A must consider whether: (1) the gift is appropriate for use; (2) the

conditions the donor has placed on acceptance or use, if any, are “acceptable;”

(3) any employee solicited the gift, and if so, whether approval was obtained;

and (4) whether acceptance is “appropriate and advisable,” in light of conict-

of-interest and ethics guidelines, including whether acceptance would “create

the appearance of impropriety.” Id. ¶ 3.b.(2).

e AAG/A has delegated to component heads the authority to determine

whether to accept certain case-specic gifts from private parties in criminal

and civil investigations, prosecutions, and civil litigation that have a value of

$50,000 or less. e component head for U.S. Attorneys' Oces is the Director

of the Executive Oce for United States Attorneys. e component head may

X. Victims of Intellectual Property Crimes 399

accept the rst oer from a source up to $50,000. A second or subsequent oer

in the same scal year from the same source must be submitted to the AAG/A

for approval when the value combined with the rst gift exceeds $50,000.

Gifts that are not case-specic, gifts of cash, gifts valued above $50,000, and

extraordinary case-specic gifts continue to require approval by the AAG/A.

b. Distinction Between “Assistance” and “Gifts”

Historically, the Department has distinguished a gift from traditional

forms of assistance provided by citizens during a criminal or civil investigation,

prosecution, or civil litigation. Matters that constitute “assistance” are not gifts

and, accordingly, are not subject to the procedures applicable to gifts. If the

oered resource constitutes assistance, it may be accepted without approval,

but if it is a gift, it cannot be accepted without obtaining approval as described

later in this Chapter.

Law enforcement agencies routinely receive wide-ranging aid from

private parties in the investigation and prosecution of federal crimes. Such

aid has played an important and accepted role in the criminal process. See,

e.g., Commonwealth v. Ellis, 708 N.E.2d 644, 651 (Mass. 1999) (“It is in the

public interest that victims and others expend their time, eorts, and resources

to aid public prosecutors.”); see also Wilson v. Layne, 526 U.S. 603, 611-12

(1999) (noting that the use of third parties during the execution of a warrant

to identify stolen property “has long been approved by this Court and our

common-law tradition”). Victims and other private parties are often in a

unique position to provide information and other aid in an investigation and

litigation. Such private cooperation not only is desirable, but often is critical to

law enforcement and the government's mission. In this vein, the vast majority

of case-specic aid from private parties, particularly from victims and related

parties, constitutes assistance and is not a gift.

A victim provides assistance when it oers services, equipment, or logistical

support that enhances the eciency of the government’s eorts in relation to a

case. Apart from cost savings, an oer of assistance enhances the Department’s

eciency when the oer gives an added benet that is unique because of the

victim or related party’s involvement. Assistance generally will be distinguishable

in some way from what the Department could obtain through commercial

obligations. For example, use of a victim company’s oce space to conduct

interviews of witnesses constitutes assistance since that location provides

accessibility to sta that would not be possible in a hotel or other location.

400 Prosecuting Intellectual Property Crimes

On the other hand, a victim company’s oer to Departmental employees of

its eet of cars for local transportation, even if made in the course of a case,

provides only a convenience that is no dierent from what the Department

would obtain on the commercial rental market, and should not be accepted.

i. Assistance from Victims and Related Parties

Aid provided by a victim will generally be classied as assistance, rather

than a gift. Examples of actions that constitute assistance when provided by a

victim include:

• Providingfactualorexpertinformationinaninvestigation,orfactor

expert testimony at trial

• Turningoverthefruitsofaninternalinvestigation(e.g.,collectingand

analyzing nancial or transactional data)

• Consulting with law enforcement during the investigation (e.g.,

reviewing seized evidence to distinguish legitimate copyrighted works

from forgeries, identifying proprietary information in a trade secrets

prosecution, or instructing professional sta and contractors to respond

to queries from Departmental employees regarding technical subjects)

• Permittingagentstouseequipment,services,orlogisticalsupportin

circumstances where such assistance provides a unique benet not

available on the commercial market, such as the use of oce space for

employee interviews, surveillance, or document review

• Providing certain goods or services for use in the investigation or a

related undercover operation (e.g., a bank providing credit card

accounts in a credit card fraud investigation involving that bank)

Aid provided by a party that is related to the victim (“related party”) will

also generally constitute assistance. Related parties consist of those parties that

have a close association with the victim and a shared interest with the victim

in providing the particular assistance. Related parties can include a victim's

immediate family, an industry association, or agents or contractors hired by the

victim. For example, a computer security rm hired by a victim to monitor its

computer network would be a related party in a case that involved the victim's

computer network.

In certain circumstances, an entity may be an “indirect victim” of a crime

and also be in a unique position to oer assistance. For example, an owner

of an apartment building would be an indirect victim of a tenant who used

his rental apartment to sell and deliver controlled substances. In addition, a

X. Victims of Intellectual Property Crimes 401

package delivery company that suspects use to transport and deliver illegal

goods is also an indirect victim. Aid oered by an indirect victim generally will

be considered assistance. For example, the landlord described above provides

assistance with free use of an apartment for surveillance, as does the package

delivery company when it provides its truck and uniform for an undercover

agent to make a controlled delivery. However, depending on the value of

the aid oered, and the potential appearance of impropriety that correlates

to the value of the oer, an indirect victim's oer may cross the line from

being permissible assistance to a gift that requires specic consideration before

acceptance. For example, a landlord's oer of free use of an apartment for one

year that has a market value of $25,000 in rent constitutes a gift.

ii. Private Investigators

Corporate victims and trade associations often retain private investigators

to gather evidence to be used in a civil lawsuit or for referral to law enforcement

authorities. Private investigators are in the class of “related parties” who may

provide assistance to the Department. Intellectual property owners often

outsource security and investigative responsibilities to other entities on an

ongoing basis. In these cases especially, private investigators regularly turn up

evidence of criminality and share it with law enforcement. Moreover, their

investigative responsibilities do not end with the referral to authorities, as their

clients expect them to continue to uncover evidence in related or separate

matters, especially when the infringement or theft is committed by organized

groups.

Several principles should guide the acceptance of assistance from private

investigators. First, prosecutors and agents should not direct or advise an

entity or individual in its private investigation before a referral is made to

law enforcement authorities. Apart from issues regarding the acceptance of

gifts versus assistance, activity by a private investigator may be imputed to

the government for Fourth Amendment, entrapment, or other purposes,

depending on the extent to which government ocials direct or control

those activities. Second, prosecutors and agents may not relinquish control of

investigative responsibilities to private investigators after the Department has

initiated an investigation. ird, if the private investigator continues (post-

referral) to investigate the case or related matters and turns up additional

evidence or information, employees may accept the continued assistance, but

should be careful to avoid the appearance of implicit approval or direction.

In fact, attorneys and other employees should evaluate whether the parallel

402 Prosecuting Intellectual Property Crimes

private investigation would interfere with the criminal matter and if so, whether

the victim and private investigator should be asked to immediately cease any

further investigation after the referral is made.

ere may, however, be instances when a private investigator is in a unique

position to assist the Department. If the investigator’s assistance is within

the scope of the work for which he was originally retained by the victim,

the government may accept his assistance while he remains employed by the

victim, and without payment from the Department. For example, if a private

investigator has developed expertise in identifying the victim’s property, or

genuine products, he may assist in examining materials to determine whether

they have been stolen from the victim or are counterfeit. If a private investigator

made controlled buys of counterfeit products from a suspect prior to referring

the case to a federal agency, and the Department believes a federally supervised

controlled transaction is warranted, the private investigator may continue to

assist the Department at the victim’s expense if his involvement is needed to

conduct the transaction and it is within the scope of the work for which he was

originally retained.

iii. Cash

A direct contribution of money to the government to help fund the costs

of law enforcement activities, either generally or in a particular case or cases,

will almost always be a gift, not assistance. e private funding of federal law

enforcement activities traditionally has not been considered assistance, and

such direct funding raises serious ethical and other concerns, and would not

be accepted by the Department. See, e.g., People v. Eubanks, 927 P.2d 310

(Cal. 1996) (victim paying cost of experts working for the district attorney’s

oce created an actual conict of interest). But see Commonwealth v. Ellis,

708 N.E.2d 644 (Mass. 1999) (funding of prosecution costs by insurance

association permitted because authorized by statute). To the extent cash is used

for mission-related functions, the Department may not augment its resources

in this manner.

ere is one exception to the principle that a direct contribution of money

is an impermissible gift. When the government serves as a conduit for funds

from the victim (or a related party) that are used for the purchase of the victim’s

stolen property, the payment of ransom, or a similar demand, the government’s

receipt of those funds does not constitute a gift. Accordingly, when an IP crime

victim or a related party provides a Departmental employee funds to purchase

X. Victims of Intellectual Property Crimes 403

the victim’s stolen property or pirated goods, the government is serving

as a conduit for the funds and the funds are considered assistance. In these

circumstances, the goods must be returned to the victim after completion of

the government’s case. Similarly, the government serves as a conduit when it

uses funds from a victim or a related party to pay ransom or extortion on behalf

of the victim. e Department has an established practice of accepting funds

in these circumstances.

iv. Storage Costs in Counterfeit or Infringing ProductsCases

A company that owns intellectual property has a signicant independent

interest in keeping counterfeit or infringing goods out of the stream of

commerce. If federal law enforcement has seized oending products, it is likely

that the victim would seek to impound and destroy the oending articles

even if prosecution were declined. See 15 U.S.C. §§ 1116(d)(1)(A), 1118

(allowing for court-authorized seizure and destruction of trademark-infringing

articles at the rights holder’s request); 17 U.S.C. § 503 (allowing court to

authorize impoundment and destruction of copyright-infringing articles and

instrumentalities). When a victim has sought a court’s approval to seize and

retain counterfeit or infringing products and chooses to do so, the Department

may accept the oer of “assistance” to store oending articles that may also be

relevant to the Department's investigation.

ere also may be instances when the victim will not choose to seek

court approval of authority to retain and destroy illegal goods, yet oers the

Department free storage at its facilities or elsewhere while the Department’s

case is pending. It generally is permissible to accept such an oer. However,

depending on the amount of time and space used for storage, the company’s

oer to pay for storage may cross the line from being permissible assistance to

an impermissible gift if the market value of the storage space is so exorbitant

that continuing to accept free storage could raise a question of an appearance

of impropriety. In such circumstances, a Department employee should consult

with the assigned attorney and the employee or attorney’s Deputy Designated

Agency Ethics Ocial (DDAEO) before continuing to accept the free use of

storage space.

v. Resources Donated for Ongoing Use by Law Enforcement

Resources provided by a victim or related party will generally be considered

to be a gift if their use is not restricted to the investigation(s) or prosecution(s) in

which the provider is a victim or related party. For example, a package delivery

404 Prosecuting Intellectual Property Crimes

company that gives the government free use of one of its delivery trucks for

an undercover operation to investigate the hijacking of its trucks provides

assistance. In contrast, the company’s oer to the government of free use of

its trucks for any undercover operation, regardless of the subject matter of the

investigation, constitutes a gift. Similarly, a computer company that provides

computers for the government to use in investigating and prosecuting the theft

of trade secrets from that company gives assistance. But if the company permits

the government to use those computers for additional purposes unrelated to

that case, either for continued use after its conclusion or for an unrelated

matter, the computers become a gift.

As a general rule, “assistance” is provided by a victim or related party for

use in an investigation or litigation involving that person or entity. However,

there may be limited circumstances in which a third party provides aid that is

unique and not available on the open market in much the same way as a victim

or related party’s assistance. For example, the DEA and FBI have longstanding,

ongoing relationships with private package delivery companies that are akin

to assistance. During an investigation, the DEA and FBI sometimes execute

controlled deliveries of packages that contain illegal goods. Given safety,

evidentiary, and other concerns, an agent will use the company’s truck and

uniform rather than have the package delivery company and its employee

perform this task. Of course, the delivery company uniforms and vehicles are

not available on the open market. Yet their appearance is what is expected by

the recipient, and it, therefore, provides the Department unique access to and

identication of the intended recipient. e agent (in the package delivery

uniform) may need to arrest the recipient of the package at the time of delivery.

Given these unique and multiple factors, this type of aid is considered assistance.

vi. Assistance from Private ird Parties

e distinction between “assistance” and “gift” is also critical in cases

involving resources donated by a private third party—that is, any person or

entity that is neither a victim nor a related party. If the assistance provided by

the third party is uniquely necessary to provide relevant information to the

investigators, grand jury, judge, or jury, then it should generally be treated as

assistance. If not, then it should generally be treated as a gift.

In many cases this determination will be simple. e most fundamental

and traditional types of aid that citizens have always provided in criminal

investigations and prosecutions—such as answering agents’ and prosecutors’

X. Victims of Intellectual Property Crimes 405

questions, identifying suspects, and providing factual information and

testimony—constitute assistance. is includes not only factual information

gathered from individual citizens but also information that corporations and

others provide from their records and databases. For example, an airline might

provide information from passenger manifests, or a credit history service might

provide credit information. Even though these activities may involve a cost to

the third party in terms of time, eort, and expense and may provide a material

benet to the government, no one would suggest that such cooperation

constitutes a gift; it is simply one of the responsibilities of citizenship.

In dealing with assistance provided by third parties, it may be helpful to

consider whether the assistance could be obtained by compulsory process. For

example, if the information could be obtained by grand jury subpoena without

cost, it should not be considered to be a gift merely because the cooperating third

party elects to volunteer the required information rather than be compelled by

legal process to produce it.

e Department also may receive oers of free or reduced-fee consultation

and testimony by experts or consultants. Individuals may be interested in

sharing their expertise without a fee for a variety of reasons. Some experts or

consultants may see the opportunity to testify on behalf of the United States,

and be qualied as an expert, as a substantial benet to their curriculum vitae

or resume. In addition, an expert may charge an exorbitant market rate for his

services to the general public that the Department cannot aord, and therefore,

the expert may oer services for a reduced fee.

e Department may accept free expert or consultative services under its

gift acceptance authority, 28 U.S.C. §524(d), or 5 U.S.C. §3109. Both statutes

provide separate mechanisms to accept these services. Neither statute, however,

obviates the necessity for Departmental attorneys and sta to assess whether

it is appropriate to accept the services for free. e same issues that govern

the propriety of acceptance of items apply to the oer of consultative services

and testimony. An attorney in consultation with an agent or other employee

and the DDAEO must decide whether free expert services are appropriate to

accept, and whether the government’s impartiality may or will be questioned

in these circumstances.

For additional examples of what constitutes traditional assistance or a gift,

please refer to Appendix J, which examines a variety of hypothetical oers of

resources.

406 Prosecuting Intellectual Property Crimes

c. Departmental Procedures for the Solicitation and Acceptance of Gifts

and Assistance

i. Consultative Process for Acceptance of Assistance andGifts

A law enforcement ocer or Department employee who receives any oer

of assistance by a victim, related party, or witness beyond traditional assistance

or access to company records should consult with the AUSA or Main Justice

attorney who is assigned to the case or, if none, agency counsel, and the DDAEO

who provides advice either to the law enforcement ocer (or employee’s)

component or the attorney’s oce and component. e agent or employee in

consultation with the appropriate counsel and DDAEO may determine that

the oer is one of assistance (rather than a gift), and acceptance is appropriate.

Disagreement among employees regarding these determinations should be

submitted to the relevant component head(s) or designee and the Departmental

Ethics Oce, Justice Management Division (DEO) for resolution. Again, the

component head for U.S. Attorneys’ Oces is the Director of the Executive

Oce for United States Attorneys.

ii. Solicitation of Gifts

No Department employee may solicit gifts or encourage the solicitation of

gifts to the Department unless the solicitation has been approved in advance

by the Attorney General or the Deputy Attorney General. Solicitations will

rarely be appropriate and, accordingly, rarely approved. ere may, however,

be unusual circumstances in which it would be appropriate to solicit a gift to

the Department in connection with a particular investigation, prosecution,

or litigation. In that instance, the appropriate oce rst should consult with

the DEO, and then present the matter to the Oce of the Deputy Attorney

General for a determination.

iii. Acceptance of Gifts

Any gift of goods or services accepted from a private party in connection

with a criminal or civil investigation, prosecution, or litigation must be

approved in accordance with procedures set forth below. Except in extraordinary

circumstances, that approval must be obtained before the gift is accepted.

If approval cannot be obtained before the gift is accepted, approval must be

obtained no later than seven days after acceptance.

X. Victims of Intellectual Property Crimes 407

• Certain gifts may be accepted only by the AAG/A.

Only the AAG/A may approve acceptance of a gift of goods or services that

is valued in excess of $50,000. If a component or oce is uncertain whether a

gift is valued in excess of $50,000, it may consult with the DEO regarding the

reasonable value of the gift. If an oce cannot determine adequately whether

a gift exceeds $50,000 in value, approval must be obtained from the AAG/A.

e AAG/A also must approve gifts of cash and gifts that are not case-

specic, including gifts that will be used by the Department for purposes in

addition to or after the conclusion of a particular investigation, prosecution,

or litigation.

• e AAG/A has delegated his authority to accept gifts from private

parties for use by the Department in connection with a criminal or

civil investigation, prosecution, or litigation.

Component heads have been delegated authority to approve for their

components the acceptance of a gift from a private party to be used in

connection with a criminal or civil investigation, prosecution, or litigation

that is (1) case-specic and (2) has a value of $50,000 or less. Component

heads may further delegate this authority to one other individual at the Deputy

Assistant Attorney General (or equivalent) level within his or her component.

• Approval of acceptance must be coordinated among the relevant

oces.

If a law enforcement agent or other non-attorney employee receives an

oer of a gift, that employee must notify and consult with an attorney, if any,

who is assigned to the matter. e attorney, in conjunction with his or her

component head, will determine whether to accept the oer. If no attorney has

been assigned, the investigating component may decide whether to accept the

oer of the gift. If an attorney from more than one oce, Board, or Division is

assigned a matter (e.g., an AUSA and attorney in the Criminal Division), both

relevant component heads (or designees) must concur in the recommendation

to accept a gift before it may be accepted. Disagreement among component

heads may be resolved, upon request, by the AAG/A.

Component heads must ensure that a Gift Donation Form and a Gift

Acceptance Form are completed for each gift acceptance approved by their

respective component. e completed forms must be forwarded to Property

408 Prosecuting Intellectual Property Crimes

Management Services, Facilities and Administration Services Sta, Justice

Management Division.

Any questions regarding gift issues should be directed to the DEO.

2. Professional Responsibility Issues

Several specic professional responsibility rules are implicated when the

government accepts either assistance or gifts from outside parties. For ease of

discussion, we refer here to the ABA Model Rules of Professional Conduct

(available at http://www.americanbar.org/groups/professional_responsibility/

publications/model_rules_of_professional_conduct/model_rules_of_

professional_conduct_table_of_contents.html), but note that a dierent set of

professional conduct rules may apply, depending on the circumstances of each

case and the rules in the attorney’s state of licensure.

First, a prosecutor represents the United States and has a duty of

condentiality to that client. Rule 1.6(a) requires a lawyer to protect

condential client information and prohibits disclosure of such information

unless impliedly authorized, or the client consents, or some other enumerated

exception applies. e prohibition applies to privileged information, “matters

communicated in condence by the client [and] also to all information

relating to the representation, whatever its source.” Rule 1.6 cmt. [3]. When

an investigator is hired or paid for by a victim to assist on a case and is working

with government agents, the privately paid investigator might naturally expect

to obtain information from the government in return for information he or she

has disclosed to the government. However, a prosecutor must limit disclosures

made about the case by him or herself and by the agents. See Rule 5.3(b), (c)

(requiring lawyer to take reasonable steps to ensure that the conduct of non-

lawyer assistants is compatible with the professional obligations of the lawyer

and holding lawyer responsible for the noncompliance of non-lawyer assistants

in some circumstances). Some disclosures may be impliedly authorized, while

others would require the consent of the client; in most instances the United

States Attorney or the Assistant Attorney General (or his or her designee)

would provide the necessary consent for the United States. Of course, there

are other limits on sharing of condential grand jury information under Fed.

R. Crim. P. 6(e).

When a prosecutor plans to disclose condential information to the persons

providing assistance or gifts, the attorney should seek written agreement from

the person that he or she will not use or disclose the information except in

X. Victims of Intellectual Property Crimes 409

relation to the case without the express written consent of the appropriate

ocial within the Department of Justice. Also, the prosecutor should consider

whether sharing privileged information would waive the privilege.

e rules may require that assistance by third parties be disclosed to the

court and/or to the defense, either to ensure that all representations to the

court are accurate and complete, Rule 3.3 (candor toward the tribunal), or to

clarify when the assistance or gifts provided by a private party might be seen

as aecting the credibility of an important government witness, Rule 3.8(d)

(special responsibilities of a prosecutor).

Moreover, there may be conict of interest issues to resolve under Rule

1.7(a)(2), which recognizes that a lawyer may have a conict of interest if

“there is a signicant risk that the representation of one or more clients will

be materially limited by the lawyer's responsibilities to ... a third person or

by a personal interest of the lawyer.” In these circumstances, a lawyer may

nevertheless represent the client if the client gives informed written consent.

e United States Attorney or the Assistant Attorney General (or his or her

designee) would have the authority to provide consent to the attorney's work

on a case notwithstanding the conict. One could imagine a scenario in which

a continuing relationship with a victim/witness who is providing assistance in

one case might raise concerns about the lawyer's representation of the United

States in that or another case, particularly one involving the victim/witness.

Other professional conduct issues may arise because of assistance and gifts

provided to the government. Each issue will require individual analysis, and

questions may be directed to the Professional Responsibility Ocer (PRO) in

each oce or to the Department's Professional Responsibility Advisory Oce

(PRAO).

3. Strategic and Case-Related Issues

Even if the resources oered by the victim or related parties are acceptable

under both gift laws and policies and the rules of professional responsibility,

an attorney must still consider whether accepting the assistance will adversely

aect the case. Just because it might be permissible to accept an oer of either

assistance or a gift does not make it advisable to do so in all instances. Depending

on the scope, nature, or value of the assistance or gift, the public may question

the Department’s impartiality. Assistance that is extensive, unusual, or is, in fact

or perception, of signicant monetary value is more likely to raise questions

410 Prosecuting Intellectual Property Crimes

about the Department’s impartiality and independence than assistance or a gift

that is more discreet, of modest value, and routine.

e government must exercise independent and impartial judgment in

the conduct of all criminal and civil matters. See Young v. United States ex rel.

Vuitton et Fils S.A., 481 U.S. 787, 803 (1987) (“e United States Attorney is

the representative not of an ordinary party to a controversy, but of a sovereignty

whose obligation to govern impartially is as compelling as its obligation to

govern at all....”) (quoting Berger v. United States, 295 U.S. 78, 88 (1935)).

When working with victims and other private parties, a Departmental employee

must be aware that an entangled or intimate relationship with a private

party can negatively aect a matter and the standing or respect accorded the

Department. For example, a highly-paid, aggressive private investigator could

be portrayed as a bounty hunter willing to entrap a defendant. e government

might be portrayed as a pawn of wealthy corporate interests. e defense might

claim that the victim’s investigators were agents of the government and thereby

seek to impute their conduct to the government for Fourth Amendment or

entrapment purposes. e defense might seek to dismiss the case based on a

claim of prosecutorial misconduct or conict of interest. ese questions or

doubts can aect the Department’s ability to successfully prosecute or litigate

a matter.

An employee should consider, among other things, whether the oeror has

an independent reason to oer the gift or assistance. Especially in parallel civil

and criminal investigations, the fact that the victim would prefer to pay for

expenses deemed important to the victim in pursuit of its civil claim tends to

reduce the likelihood that a conict of interest will be found. See Hambarian v.

Superior Court, 44 P.3d 102, 109 (Cal. 2002) (nding no conict presented by

prosecution’s use of a victim-retained consultant hired by the victim to support

an anticipated civil suit).

An employee also should consider who the donor is. If the donor is an

industry leader, the employee should avoid actions that appear to create a

competitive advantage for that entity. If the donor is a trade association or

combination of aected entities that is involved in ongoing monitoring or

investigation to protect the industry as a whole, the oer may be considered

more impartial. See Commonwealth v. Ellis, 708 N.E.2d 644, 649 (Mass. 1999)

(explaining that likelihood of inuence on a prosecutor’s charging decisions is

reduced when the resources are devoted to investigating industry-wide oenses

rather than for the benet of one particular victim).

X. Victims of Intellectual Property Crimes 411

e acceptance of donated resources is most problematic for courts when

the resources are provided directly to the prosecutor or prosecutorial entity. See

People v. Eubanks, 927 P.2d 310, 322-23 (Cal. 1997) (holding district attorney

disqualied, and state attorney general substituted, after victim paid an invoice

submitted to the prosecutor for expert services, among other expenses); cf.Young

v. United States ex rel. Vuitton et Fils S.A., 481 U.S. at 809 (holding that private

counsel representing the beneciary of a court order cannot be appointed to

prosecute the defendant for violating the order). e less direct the benet to

the prosecution, the less likely the defendant will be able to obtain relief. See

Marshall v. Jerrico, Inc., 446 U.S. 238 (1980) (nding no realistic possibility

that prospect of institutional benet would unfairly inuence decision to

impose civil penalties by a Department of Labor administrator functioning as

a prosecutor); Calderon v. Superior Court of California, No. C 97-1448 MJJ,

2001 WL 940904, at *7-8 (N.D. Cal. 2001) (nding victim’s contribution of

resources to police investigation unlikely to inuence prosecutor’s decisions).

However, for the reasons discussed more fully herein, although a court may

distinguish when aid is oered directly to a prosecutor or prosecutorial entity,

as compared to an investigator or law enforcement agent, this distinction is not

determinative for purposes of assessing whether the oer should be accepted

in the rst instance.

In addition, the Department’s acceptance of a single, extraordinary gift

from a victim or related party may impact the public, or more specically, a

jury’s, perception of the Department’s motivations and activities. If it appears

that the Department’s actions are inuenced heavily by a private party, the

Department’s litigating posture and the public’s respect will be weakened.

A jury may vote against the Department’s position because it perceives the

Department is acting on behalf of a private party rather than as a representative

of the United States’ interests. In extreme cases, a court may conclude that the

Department’s acceptance of a gift created a conict of interest and impaired

the prosecutor’s independence. Cf. Eubanks, 927 P.2d at 322. Of course, the

standard of appropriate behavior is not whether a matter will be dismissed, but

whether the appearance of impropriety or the lack of independence outweighs

the benet of the proered gift or assistance. e Department, by its actions,

must maintain the public’s condence in and respect for the criminal process,

and the Department’s reputation for fairness generally.

A Justice Department employee needs to balance the need for, or

importance of, the aid against any negative perception by a jury or the public

412 Prosecuting Intellectual Property Crimes

that can inuence adversely a particular case. Employees should evaluate

whether the assistance or gift is likely to call into question their independence

and impartiality, or create an appearance of impropriety. is analysis does not

lend itself to clear or measured parameters. e decision whether to accept

assistance or a gift often can involve dicult and nuanced issues. Given the

potential ramications, these decisions should be made through the consultative

process among law enforcement personnel, other investigators, and attorneys

before the matter is resolved. e trial attorney is in the best position to assess

these concerns, and he must be consulted before any employee may accept an

oer of resources. e assigned attorney also should consult with an ethics

ocer to determine whether the oer constitutes assistance or a gift that may

be accepted under the gift procedures, and the oer conforms with the rules of

professional responsibility.

4. Help and Advice

Each component (including each United States Attorney’s Oce) has

qualied specialists to provide guidance, including a DDAEO who can

provide advice on gift and assistance issues. e General Counsel’s Oce of

the Executive Oce for United States Attorneys provides guidance to U.S.

Attorneys’ oces on matters of government ethics, including recusal, outside

employment and conicts of interest. e oce number is (202) 252-1600.

Department employees also may seek guidance from the Departmental Ethics

Oce, Justice Management Division. e oce number is (202) 514-8196.

For professional responsibility advice, an Assistant United States Attorney

may rst consult his or her supervisor and oce Professional Responsibility

Ocer or seek advice from the Professional Responsibility Advisory Oce

(PRAO) at (202) 514-0458.

413

Appendix A

Commonly Charged Intellectual

Property Crimes

is overview provides the elements, defenses, penalties, and sentencing

guideline sections concerning most of the intellectual property crimes and

alternative charges discussed in this Manual, as well as an index indicating

which section of the Manual that discusses each crime.

Tracking in Counterfeit Trademarks, Service Marks,

or CerticationMarks ............................................................ 414

Criminal Copyright Infringement (Felony & Misdemeanor) ........ 417

Unauthorized Recording of a Motion Picture (Camcording) ........ 419

Tracking in Illicit Labels or Counterfeit Labels,

Documentation or Packaging for Copyrighted Works ............ 421

Tracking in Recordings of Live Musical Performances

(Bootlegging) ......................................................................... 422

Digital Millennium Copyright Act ............................................... 423

eft of Trade Secrets ................................................................... 425

Economic Espionage .................................................................... 427

Unauthorized Access of a Computer ............................................. 428

Interstate Transportation, Sale, or Receipt of Stolen Property ....... 430

Mail and Wire Fraud .................................................................... 431

Prohibition on Devices to Intercept Communications .................. 433

Unauthorized Reception of Cable Service ..................................... 434

Tracking in Satellite Decryption Devices ................................... 435

414 Prosecuting Intellectual Property Crimes

Tracking in Counterfeit Trademarks, Service Marks, or

CerticationMarks

18 U.S.C.§2320(a)

Chapter III

Elements

1. at the defendant tracked, attempted to trac, [or, for oenses

committed on or after December 31, 2011, conspired to trac], in

[goods] [services] [labels, documentation, or packaging for goods or

services]

[on or after December 31, 2011, includes counterfeit

military good or service the use, malfunction, or failure

of which is likely to cause serious bodily injury or death,

the disclosure of classied information, impairment of

combat operations, or other signicant harm to a combat

operation, a member of the Armed Forces, or to national

security]

[on or after July 9, 2012, includes a “counterfeit drug,” as

dened by 21 U.S.C. 321(g)]

2. at such tracking, attempt to trac, [or, on or after December 31,

2011, conspiracy to trac] was intentional

3. at the defendant knowingly used a counterfeit mark on or in

connection with the [goods] [services] [labels, documentation, or

packaging for goods or services] in which the defendant tracked,

attempted to trac, [or, on or after December 31, 2011, conspired to

trac]

4. at the use of the counterfeit mark was likely to cause confusion, to

cause mistake, or to deceive

Counterfeit mark: “[A] spurious mark--(i) that is used in connection with

tracking in any goods, services, labels, patches, stickers, wrappers,

badges, emblems, medallions, charms, boxes, containers, cans, cases,

hangtags, documentation, or packaging of any type or nature; (ii)

that is identical with, or substantially indistinguishable from, a mark

registered on the principal register in the United States Patent and

Trademark Oce and in use, whether or not the defendant knew such

mark was so registered; (iii) that is applied to or used in connection

Appendix A 415

with the goods or services for which the mark is registered with the

United States Patent and Trademark Oce, or is applied to or consists

of a label, patch, sticker, wrapper, badge, emblem, medallion, charm,

box, container, can, case, hangtag, documentation, or packaging of any

type or nature that is designed, marketed, or otherwise intended to

be used on or in connection with the goods or services for which the

mark is registered in the United States Patent and Trademark Oce;

and (iv) the use of which is likely to cause confusion, to cause mistake,

or to deceive; or ... a spurious designation that is identical with, or

substantially indistinguishable from, a designation as to which the

remedies of the Lanham Act are made available by reason of section

220506 of title 36.”

Defenses

Overrun goods: Had authorization but exceeded it (i.e., authorized to make

1,000 copies but made 5,000).

Gray market goods: Goods legitimately manufactured and sold overseas and

then imported into U.S. outside traditional distribution channels.

Repackaging genuine goods: Genuine goods repackaged with genuine marks

or reproduced marks, with no intent to deceive or confuse.

Statutory maximum penalties

First oense: 10 years’ imprisonment and ne of $2,000,000 or

twice the gain/loss (individual); ne of $5,000,000 or twice the

gain/loss (organization); for violations involving counterfeit

military goods or services and counterfeit drugs, 20 years’

imprisonment and a ne of up to $5 million (individual) and $15

million (organization); enhanced penalties may also be available

under § 2320(b)(2) if a defendant knowingly or recklessly causes

or attempts to cause serious bodily harm or death by any of the

oenses listed in § 2320(a)

Subsequent oense: 20 years’ imprisonment and $5,000,000 ne or

twice the gain/loss (individual); $15,000,000 ne or twice the gain/

loss (organization); for violations involving counterfeit military

goods or services and counterfeit drugs, 30 years’ imprisonment and

a ne of $15 million (individual) and $30 million (organization)

416 Prosecuting Intellectual Property Crimes

Guideline section: United States Sentencing Guideline§2B5.3

Appendix A 417

Criminal Copyright Infringement (Felony & Misdemeanor)

17 U.S.C.§506(a) & 18 U.S.C.§2319

Chapter II

Elements for prosecutions under subsections 506(a)(1)(A) and (a)(1)(B)

1. at the works that the defendant is alleged to have [reproduced]

[distributed] were protected by copyright

2. at the defendant infringed the copyrights of the works by

[reproducing] [distributing to the public] one or more copies of [each

of] the copyrighted works

3. at the defendant willfully infringed the copyrights [and]

4. at the defendant, during a 180-day period, reproduced or distributed

ten (10) or more copies of one or more copyrighted works which have

a total retail value of more than $2,500 [and]

[5. [optional] at the act of infringement was for the purpose of

commercial advantage or private nancial gain]

Elements for prosecutions under subsection 506(a)(1)(C)

1. at copyrights exist for the works that the defendant is alleged to have

distributed

2. at the defendant infringed the copyrights of the works by distributing

to the public one or more copies of [each of] the copyrighted works

3. at the defendant willfully infringed the copyrights

4. at the works distributed by the defendant were being prepared for

commercial distribution

5. at the defendant knew or should have known that the works were

intended for commercial distribution [and]

6. at the defendant distributed the works by making them available on

a computer network accessible to members of the public [and]

[7. Optional: at the act of infringement was for the purpose of

commercial advantage or private nancial gain]

418 Prosecuting Intellectual Property Crimes

Elements for Misdemeanor Copyright Infringement

Elements 1, 2 & 3 are the same as the base felony elements except that any

infringement of the copyright is covered, not just infringement by reproduction

or distribution.

4. e defendant i®nfringed EITHER

(a) for purposes of commercial advantage or private nancial gain, (17

U.S.C. §506(a)(1)(A) & 18 U.S.C.§2319(b)(3)); OR

(b) by reproduction or distribution of one or more copyrighted works

with a total retail value of more than $1,000 within a 180-day

period, (17U.S.C.§506(a)(1)(B) & 18 U.S.C.§2319(c)(3)).

Defenses

First sale: e rst purchaser and any subsequent purchaser of a specic lawfully

made copy of a copyrighted work may sell, display (privately), or dispose of

their copy, but may not reproduce and distribute additional copies made from

that work.

Fair use: Allows otherwise infringing use of a work for purposes such as (but not

limited to) criticism, comment, news reporting, teaching (including multiple

copies for classroom use), scholarship, or research.

Archival exception for computer software: Owner of a copy of a computer

program may copy the program as necessary to use the program or do machine

maintenance or repair, and as an archival backup, subject to certain limitations.

Statutory maximum penalties

17 U.S.C. § 506(a)(1)(A)

First oense: 5 years’ imprisonment and ne of $250,000 or twice the gain/

loss (individual); ne of $500,000 or twice the gain/loss (organization)

Subsequent oense: 10 years’ imprisonment and ne of $250,000 or

twice the gain/loss (individual); ne of $500,000 or twice the gain/loss

(organization)

17 U.S.C. § 506(a)(1)(B)

First oense: 3 years’ imprisonment and ne of $250,000 or twice the gain/

loss (individual); ne of $500,000 or twice the gain/loss (organization)

Appendix A 419

Subsequent oense: 6 years’ imprisonment and ne of $250,000 or

twice the gain/loss (individual); ne of $500,000 or twice the gain/loss

(organization)

17 U.S.C. § 506(a)(1)(C)

First oense: Same as § 506(a)(1)(A) if purpose was for commercial

advantage or private nancial gain; if not, same as §506(a)(1)(B)

Misdemeanor: 1 year's imprisonment and ne of $100,000 or twice the

gain/loss

Guideline section: United States Sentencing Guideline§2B5.3

420 Prosecuting Intellectual Property Crimes

Unauthorized Recording of a Motion Picture (Camcording)

18 U.S.C. §2319B

Chapter II, Section F.

Elements

1. at the defendant used, or attempted to use, an audiovisual recording

device to transmit or make a copy of a motion picture or other

audiovisual work from a performance of such work in a motion picture

facility, specically [describe use or attempted use]

2. at such use, or attempted use of the device, was done knowingly

3. at such use, or attempted use of the device, was without the

authorization of the copyright owner

4. at [describe motion picture or audiovisual work] is protected by

Statutory maximum penalties

First oense: 3 years’ imprisonment and ne of $250,000 or twice the gain/

loss (individual); ne of $500,000 or twice the gain/loss (organization)

Subsequent oense: 6 years’ imprisonment and ne of $250,000 or

twice the gain/loss (individual); ne of $500,000 or twice the gain/loss

(organization)

Guideline section: United States Sentencing Guideline§2B5.3

Appendix A 421

Tracking in Illicit Labels or Counterfeit Labels, Documentation or

Packaging for Copyrighted Works

18 U.S.C.§2318

Chapter VI

Elements

1. at the defendant tracked in

[labels axed to/enclosing/accompanying/ designed to

be axed to, to enclose, to accompany] [describe work/

documentation/ packaging;]

[documentation/packaging]

2. at the

[labels were counterfeit/illicit]

[documentation/packaging was counterfeit]

3. at the defendant acted knowingly

4. Federal jurisdiction is satised because:

the oense occurred in special maritime territories or other

areas of special jurisdiction of the United States;

the oense used or intended to use the mail or a facility of

interstate or foreign commerce;

the counterfeit or illicit labels were axed to, enclosed, or

accompanied copyrighted materials (or were designed to);

the documentation or packaging is copyrighted.

Statutory maximum penalties

5 years’ imprisonment and ne of $250,000 or twice the gain/loss

(individual); ne of $500,000 or twice the gain/loss (organization)

Guideline section: United States Sentencing Guideline§2B5.3

422 Prosecuting Intellectual Property Crimes

Tracking in Recordings of Live Musical Performances (Bootlegging)

18 U.S.C.§2319A

Chapter II, Section F.

Oense

Whoever, without the consent of the performer or performers

involved, knowingly and for purposes of commercial advantage or

private nancial gain—

(1) xes the sounds or sounds and images of a live musical

performance in a copy or phonorecord, or reproduces copies

or phonorecords of such a performance from an unauthorized

xation;

(2) transmits or otherwise communicates to the public the

sounds or sounds and images of a live musical performance; or

(3) distributes or oers to distribute, sells or oers to sell, rents

or oers to rent, or tracs in any copy or phonorecord xed as

described in paragraph (1), regardless of whether the xations

occurred in the United States.

Statutory maximum penalties

First oense: 5 years’ imprisonment and ne of $250,000 or twice

the gain/loss (individual); ne of $500,000 or twice the gain/loss

(organization)

Second oense: 10 years’ imprisonment and ne of $250,000 or

twice the gain/loss (individual); ne of $500,000 or twice the gain/

loss (organization)

Guideline section: United States Sentencing Guideline§2B5.3

Appendix A 423

Digital Millennium Copyright Act

(Anti-Circumvention and Anti-Tracking)

17 U.S.C. §§1201(a)(1), 1201(b)(1), 1204(a)

Chapter V

Elements for Unauthorized Circumvention of Access Controls

1. e defendant acted willfully

2. e defendant circumvented a technological measure

3. e technological measure eectively controls access (i.e., access

control)

4. e access control was to a copyrighted work

5. e act of circumvention was for the purpose of commercial advantage

or private nancial gain

Elements for Tracking in Access Control Circumvention Tools

1. e defendant acted willfully

2. e defendant manufactured, imported, oered to the public,

provided, or otherwise tracked in any technology, product, service,

device, component, or part thereof

3. e technology, product, service, device, component, or part thereof

either: (A) was primarily designed or produced for the purpose of, (B)

has only limited commercially signicant purpose or use other than,

or (C) was marketed by that person or another acting in concert with

that person with that person’s knowledge for use in, circumventing

protection aorded by a technological measure

4. e defendant acted for commercial advantage or private nancial gain

Defenses

Regulatory: e Librarian of Congress promulgates regulatory exemptions

every three years that apply only to § 1201(a)(1)(A)'s prohibitions against

circumventing access controls.

Certain nonprot entities: Nonprot libraries, archives, educational institutions,

or public broadcasting entities exempted from criminal prosecution in many

cases.

424 Prosecuting Intellectual Property Crimes

Information security: “[A]ny lawfully authorized investigative, protective,

information security, or intelligence activity of an ocer, agent, or employee”

or contractor of the federal government or a state government is exempt from

all three of §1201's prohibitions for information security work on “government

computer, computer system, or computer network.”

Reverse engineering and interoperability of computer programs: ree reverse

engineering or “interoperability” defenses for individuals using circumvention

technology are provided by statute. ese defenses are limited to computer

programs.

Encryption research: Activities necessary to identify and analyze aws and

vulnerabilities of encryption technologies applied to copyrighted works, if

these activities are conducted to advance the state of knowledge in the eld of

encryption technology or to assist in the development of encryption products.

Restricting minors' access to Internet: Courts may waive violations of

subsections 1201(a)(1)(A) and 1201(a)(2) to allow parents to protect their

children from inappropriate material available on the Internet, or to prohibit

manufacturers from producing products designed to enable parents to protect

their children.

Protection of personally identifying information: Circumventing an access

control to disable les that collect personally identiable information.

Security testing: No violation of § 1201(a)(1)(A) occurs if testing does not

constitute copyright infringement or a violation of other applicable law such as

the Computer Fraud and Abuse Act of 1986.

Statutory maximum penalties

First oense: 5 years’ imprisonment and ne of $500,000 or twice the

gain/loss

Second oense: 10 years’ imprisonment and $1,000,000 ne or twice the

gain/loss

Guideline section: United States Sentencing Guideline§2B5.3

Appendix A 425

eft of Trade Secrets

18 U.S.C.§1832

Chapter IV

Elements

1. e defendant knowingly misappropriated information (e.g., possessed,

stole, transmitted, downloaded) (or conspired or attempted to do so)

2. e defendant knew or believed this information was proprietary and

that he had no claim to it

3. e information was in fact a trade secret (unless conspiracy or an

attempt is charged)

4. e defendant intended to convert the trade secret to the economic

benet of anyone other than the owner

5. e defendant knew or intended that the oense would injure the

owner of the trade secret

6. e trade secret was related to a product or service used or intended for

use in interstate or foreign commerce

Defenses

Parallel development: Defendants discovered information underlying a trade

secret through their own independent eorts.

Reverse engineering: Defendants discovered information underlying a trade

secret by taking a thing that incorporates the trade secret apart to determine

how it works or how it was made or manufactured.

Impossibility: Impossibility is no defense to charges of attempt or conspiracy.

Advice of counsel: May negate mens rea.

Claim of right—public domain and proprietary rights: Mens rea might be

negated if defendant believed in good faith that he had a right to use the

information, either because it was in the public domain or because it belonged

to him.

Trade secret: All forms and types of nancial, business, scientic, technical,

economic, or engineering information, if (A) the owner thereof has taken

reasonable measures to keep such information secret; and (B) the information

426 Prosecuting Intellectual Property Crimes

derives independent economic value, actual or potential, from not being

generally known to, and not being readily ascertainable through proper means

by, the public.

Secrecy: Courts required to take any action necessary to protect the

condentiality of the trade secret during litigation.

Statutory maximum penalties

10 years’ imprisonment and ne of $250,000 or twice the gain/loss

(individual); $5,000,000 ne or twice the gain/loss (organization)

Guideline section: United States Sentencing Guideline§2B1.1

Appendix A 427

Economic Espionage

18 U.S.C.§1831

Chapter IV

Elements

1. e defendant knowingly misappropriated information (e.g., possessed,

stole, transmitted, downloaded) (or conspired or attempted to do so)

2. e defendant knew or believed this information was proprietary and

that he had no claim to it

3. e information was in fact a trade secret (unless conspiracy or an

attempt is charged)

4. e defendant knew or intended that the oense would benet a

foreign government, foreign instrumentality, or foreign agent

Defenses: See eftofTradeSecrets (18 U.S.C. § 1832)

Pre-Indictment Approval Required

Statutory maximum penalty

15 years’ imprisonment and ne of $5,000,000 or twice the gain/loss

(individual); $10,000,000 ne or three times the value of the stolen

trade secret, including expenses for research and design and other costs of

reproducing the trade secret, or twice the gain/loss (organization)

Guideline section: United States Sentencing Guideline§2B1.1

428 Prosecuting Intellectual Property Crimes

Unauthorized Access of a Computer

18 U.S.C. §1030(a)(2), (a)(4)

Chapter IV, Section F.

Oense under § 1030(a)(2)—Unlawfully accessing or attempting to access a

computer to obtain information

Whoever intentionally accesses [or attempts to access] a computer without

authorization or exceeds authorized access, and thereby obtains—

(A) information contained in a nancial record of a nancial institution,

or of a card issuer as dened in section 1602(n) of title 15, or contained

in a le of a consumer reporting agency on a consumer, as such terms

are dened in the Fair Credit Reporting Act (15 U.S.C. 1681 et seq.)

(B) information from any department or agency of the United States

Protected computer: a computer (i) exclusively for the use of a nancial

institution or the United States Government, or, in the case of a computer not

exclusively for such use, used by or for a nancial institution or the United

States Government and the conduct constituting the oense aects that use

by or for the nancial institution or the Government; or (ii) which is used in

or aecting interstate or foreign commerce or communication, including a

computer located outside the United States that is used in a manner that aects

interstate or foreign commerce or communication of the United States

Enhancement pursuant to 18 U.S.C.§ 1030(c)(2)(B)

(i) the oense was committed for purposes of commercial advantage or

private nancial gain;

(ii) the oense was committed in furtherance of any criminal or tortious

act in violation of the Constitution or laws of the United States or of any

State; or

(iii) the value of the information obtained exceeds $5,000.

Appendix A 429

Statutory maximum penalty

1 year’s imprisonment and ne of $100,000

Enhanced statutory maximum penalties

5 years’ imprisonment (second oense: 10 years’ imprisonment) and ne

of $250,000 or twice the gain/loss (individual); ne of $500,000 or twice

the gain/loss (organization)

Guideline section: United States Sentencing Guideline§2B1.1

Oense under § 1030(a)(4)—Unlawfully accessing or attempting to access a

protected computer to further a fraud

Whoever knowingly and with intent to defraud, accesses [or attempts to

access] a protected computer without authorization, or exceeds authorized

access, and by means of such conduct furthers the intended fraud and

obtains anything of value, unless the object of the fraud and the thing

obtained consists only of the use of the computer and the value of such use

is not more than $5,000 in any 1-year period.

Statutory maximum penalties

5 years’ imprisonment and ne of $250,000 or twice the gain/loss (rst

oense), 10 years’ imprisonment and ne of $250,000 or twice the gain/

loss (second oense)

Guideline section: United States Sentencing Guideline§2B1.1

430 Prosecuting Intellectual Property Crimes

Interstate Transportation, Sale, or Receipt of Stolen Property

18 U.S.C. §§2314, 2315

Chapter II, Section F. & Chapter IV, Section F.

Transportation oense under § 2314

Whoever transports, transmits, or transfers in interstate or foreign

commerce any goods, wares, merchandise, securities or money, of the value

of $5,000 or more, knowing the same to have been stolen, converted or

taken by fraud; or

Whoever, having devised or intending to devise any scheme or artice

to defraud, or for obtaining money or property by means of false or

fraudulent pretenses, representations, or promises, transports or causes

to be transported, or induces any person or persons to travel in, or to

be transported in interstate or foreign commerce in the execution or

concealment of a scheme or artice to defraud that person or those persons

of money or property having a value of $5,000 or more ....

Sale or receipt oense under § 2315

Whoever receives, possesses, conceals, stores, barters, sells, or disposes of any

goods, wares, or merchandise, securities, or money of the value of $5,000

or more, or pledges or accepts as security for a loan any goods, wares,

or merchandise, or securities, of the value of $500 or more, which have

crossed a State or United States boundary after being stolen, unlawfully

converted, or taken, knowing the same to have been stolen, unlawfully

converted, or taken ....

Statutory maximum penalties

10 years’ imprisonment and ne of $250,000 ($500,000 for organizations)

or twice the gain/loss

Guideline section: United States Sentencing Guidelines§§2B1.1, 2B1.5

Appendix A 431

Mail and Wire Fraud Statutes

18 U.S.C.§§1341, 1343, 1346

Section F. of Chapters II, III, IV, and VI

Mail Fraud Oense Under §1341

Whoever, having devised or intending to devise any scheme or artice to

defraud, or for obtaining money or property by means of false or fraudulent

pretenses, representations, or promises, or to sell, dispose of, loan, exchange,

alter, give away, distribute, supply, or furnish or procure for unlawful use

any counterfeit or spurious coin, obligation, security, or other article, or

anything represented to be or intimated or held out to be such counterfeit

or spurious article, for the purpose of executing such scheme or artice

or attempting so to do, places in any post oce or authorized depository

for mail matter, any matter or thing whatever to be sent or delivered

by the Postal Service, or deposits or causes to be deposited any matter

or thing whatever to be sent or delivered by any private or commercial

interstate carrier, or takes or receives therefrom, any such matter or thing,

or knowingly causes to be delivered by mail or such carrier according to the

direction thereon, or at the place at which it is directed to be delivered by

the person to whom it is addressed, any such matter or thing ....

Wire Fraud Oense Under §1343

Whoever, having devised or intending to devise any scheme or artice

to defraud, or for obtaining money or property by means of false or

fraudulent pretenses, representations, or promises, transmits or causes to

be transmitted by means of wire, radio, or television communication in

interstate or foreign commerce, any writings, signs, signals, pictures, or

sounds for the purpose of executing such scheme or artice ....

eft of Honest Services Under §1346

[T]he term “scheme or artice to defraud” includes a scheme or artice to

deprive another of the intangible right of honest services.

Statutory maximum penalties

20 years’ imprisonment and ne of $250,000 or twice the gain/loss

(individual); ne of $500,000 or twice the gain/loss (organization)

432 Prosecuting Intellectual Property Crimes

If aecting a nancial institution or in relation to any benet paid in

connection with a presidentially declared major disaster or emergency: 30

years’ imprisonment and ne of $1,000,000 or twice the gain/loss

Guideline section: United States Sentencing Guideline§§2B1.1, 2C1.1

Appendix A 433

Prohibition on Devices to Intercept Communications

18 U.S.C.§2512

Oense

Any person who intentionally—

(a) sends through the mail, or sends or carries in interstate or foreign

commerce, any electronic, mechanical, or other device, knowing

or having reason to know that the design of such device renders it

primarily useful for the purpose of the surreptitious interception of

wire, oral, or electronic communications; or

(b) manufactures, assembles, possesses, or sells any electronic,

mechanical, or other device, knowing or having reason to know that the

design of such device renders it primarily useful for the purpose of the

surreptitious interception of wire, oral, or electronic communications,

and that such device or any component thereof has been or will be sent

through the mail or transported in interstate or foreign commerce ....

Statutory maximum penalties

5 years’ imprisonment and ne of $250,000 ($500,000 for organizations)

or twice the gain/loss

Guideline section: United States Sentencing Guideline§2H3.2

434 Prosecuting Intellectual Property Crimes

Unauthorized Reception of Cable Service

47 U.S.C.§553

Chapter II, Section F.

Oense

No person shall [willfully] intercept or receive or assist in intercepting or

receiving any communications service oered over a cable system, unless

specically authorized to do so by a cable operator or as may otherwise be

specically authorized by law.

Enhancement: Done for purposes of commercial advantage or private nancial

gain

Statutory maximum penalties for willful violation

6 months’ imprisonment and ne of $1,000

Enhanced penalties

2 years’ imprisonment (5 years’ for subsequent oense) and ne of $50,000

($100,000 for subsequent oense)

Guideline section: United States Sentencing Guideline§2B5.3

Appendix A 435

Tracking in Satellite Decryption Devices

47 U.S.C.§605(e)(4)

Chapter II, Section F.

Oense

Any person who manufactures, assembles, modies, imports, exports, sells,

or distributes any electronic, mechanical, or other device or equipment,

knowing or having reason to know that the device or equipment is

primarily of assistance in the unauthorized decryption of satellite cable

programming, or direct-to-home satellite services ....

Statutory maximum penalties

5 years’ imprisonment and ne of $500,000 or twice the gain/loss

Guideline section: United States Sentencing Guideline§§2B5.3, 2H3.1

436 Prosecuting Intellectual Property Crimes

437

Appendices B-F

Sample Indictments

and Jury Instructions

Appendix B. Copyright Infringement

http://dojnet.doj.gov/criminal/ccips/online/2319.htm

Appendix C. Trademark Counterfeiting

http://dojnet.doj.gov/criminal/ccips/online/2320.htm

Appendix D. eft of Trade Secrets and Economic Espionage

http://dojnet.doj.gov/criminal/ccips/online/1831_1832.htm

Appendix E. Digital Millennium Copyright Act

http://dojnet.doj.gov/criminal/ccips/online/DMCA.htm

Appendix F. Tracking in Counterfeit or Illicit Labels and Counterfeit

Documentation and Packaging

http://dojnet.doj.gov/criminal/ccips/online/2318.htm

438 Prosecuting Intellectual Property Crimes

439

Appendix G

Intellectual Property Contact List

1. Federal Law Enforcement Contacts

2. Federal International Contacts

3. Trademark Organization Contacts

4. Copyright Organization Contracts

5. Other Organization Contacts

1. Federal Law Enforcement Contacts

Computer Crime and Intellectual Property Section (CCIPS)

Criminal Division, U.S. Department of Justice

1301 New York Avenue NW, Suite 600

Washington, DC 20530

Tel: 202-514-1026

Fax: 202-514-6113

http://www.cybercrime.gov

Prosecution of, and guidance, support, resources, and materials for

prosecuting domestic and international criminal IP oenses; development

of IP enforcement policy; and support and oversight of the federal

prosecution of IP crimes.

National Intellectual Property Rights Coordination Center

Homeland Security Investigations

2451 Crystal Drive, STOP 5105

Arlington, VA 20598

Tel: 866-IPR-2060

Fax: 703-603-3872

Email: IPRcenter@dhs.gov

http://www.iprcenter.gov

440 Prosecuting Intellectual Property Crimes

e IPR Center is a task force that brings together the key U.S. agencies

involved in federal criminal enforcement of IPR laws. e IPR Center

partners include: U.S. Immigration and Customs Enforcement’s

Homeland Security Investigations, U.S. Customs and Border Protection;

Federal Bureau of Investigation; Food and Drug Administration’s Oce of

Criminal Investigations; U.S. Postal Inspection Service; Defense Criminal

Investigative Service; U.S. Patent and Trademark Oce; and Nuclear

Regulatory Commission.

Federal Bureau of Investigation

Intellectual Property Rights Center

Unit Chief

2451 Crystal Drive

Arlington, VA 22202

Tel: 703-603-3962

Fax: 703-603-3899

http://www.fbi.gov/about-us/investigate/white_collar/ipr/ipr

Responsible for all IPR and Internet fraud investigations; support and

oversight of the FBI’s IPR enforcement program.

Department of Homeland Security (DHS)

Customs and Border Protection (CBP)

1300 Pennsylvania Avenue NW

Washington, DC 20229

http://www.cbp.gov

• Oce of International Trade—Trade Policy and Programs—IPR

Policy and Programs Division

Tel: 202-863-6091

Fax: 202-863-6520

Email: iprpolicyprograms@dhs.gov

Coordinates with rights holders, members of the trade community,

CBP oces, other federal agencies, and foreign governments, in

developing and implementing IPR strategy, policy, and programs.

Appendix G 441

• Oce of International Trade—Regulations and Rulings—IPR and

Restricted Merchandise Branch

Tel: 202-325-0093

Tel: 202-325-0020

Fax: 202-325-0120

Email: hqiprbranch@dhs.gov

Administers and advises on legal components and aspects of the

agency’s IPR enforcement programs, issues rulings and infringement

determinations, manages recordation system.

• IPR E-Recordation (IPRR) Application

Email: iprr.questions@dhs.gov

https://apps.cbp.gov/e-recordations/

Online application for IP owners to record their trademarks

and copyrights with CBP to protect against the importation of

infringing products. Regulations and Rulings—IPR and Restricted

Merchandise Branch, listed above, is the point of contact for any

questions regarding recordation.

• Oce of Trade Relations

Tel: 202-344-1440

Fax: 202-344-2064

Email: traderelations@dhs.gov

http://www.cbp.gov/xp/cgov/toolbox/contacts/otr_contacts.xml

Liaison between industry and CBP. Reviews concerns voiced by

individuals or trade groups and furnishes recommendations to

resolve justied complaints.

U.S. Postal Inspection Service

Mail Fraud Group

475 L’Enfant Plaza SW

Washington, DC 20260

Tel: 202-268-4267

Tel: 1-877-876-2455

Fax: 202-268-7316

https://postalinspectors.uspis.gov

442 Prosecuting Intellectual Property Crimes

Support and oversight of Postal Inspection Service’s mail fraud enforcement

nationwide, including investigation of IP crimes committed by use of the

mails.

Food and Drug Administration (FDA)

Oce of Criminal Investigations

7500 Standish Place, Suite 250N

Rockville, MD 20855

Tel: 240-276-9500

Fax: 240-276-8368

http://www.fda.gov/oci/

Conducts and coordinates criminal investigations of suspected violations

of the Federal Food, Drug, and Cosmetic Act (FDCA), to include cases

involving counterfeit, adulterated and misbranded FDA regulated

products, as well as violations of the Federal Anti-Tampering Act (FATA);

and other related Title 18 statutes.

Consumer Product Safety Commission (CPSC)

4330 East West Highway

Bethesda, MD 20814

Tel: 301-504-7923; 800-638-2772

Fax: 301-504-0124

http://www.cpsc.gov

Has jurisdiction over approximately 15,000 types of consumer products,

including coee makers, electrical cords, toys, baby seats and cribs.

Investigates leads into possible hazardous products; develops voluntary

standards with industry, issues and enforces mandatory standards; and

bans products if no feasible standard will adequately protect the public.

Internet Crime Complaint Center (IC3)

1 Huntington Way

Fairmont, WV 26554

Tel: 800-251-3221; 304-363-4312; complaint center: 800-251-7581

Fax: 304-363-9065

http://www.ic3.gov

Appendix G 443

Partnership between National White Collar Crime Center (NW3C) and

FBI. Allows victims to report fraud over the Internet; alerts authorities of

suspected criminal or civil violations; oers law enforcement and regulatory

agencies a central repository for complaints related to Internet fraud.

2. Federal International Contacts

U.S. Department of Justice

• International Coordinator in Each U.S. Attorney's Oce

Oce of International Aairs, Department of Justice

Tel.: 202-514-0000

• Computer Crime & Intellectual Property Section

Tel.: 202-514-1026

• Oce of International Aairs, Department of Justice

Legal Attaché program

Tel.: 202-514-0000

• Oce of Overseas Prosecutorial Development & Training

Resident Legal Advisor program

Tel.: 202-514-1323

• Federal Bureau of Investigation Legal Attaché Program

http://www.fbi.gov/contact/legat/legat.htm

U.S.TradeRepresentative’sListofNationsthatFailtoProvideAdequate

IPProtection

Annual Special 301 Report

http://www.ustr.gov/trade-topics/intellectual-property

3. Trademark Organization Contacts

UnitedStatesPatentandTrademarkOce(USPTO)

Director of the USPTO

P.O. Box 1450

Alexandria, VA 22313-1450

Tel.: 800-786-9199

Email: usptoinfo@uspto.gov

http://www.uspto.gov/

444 Prosecuting Intellectual Property Crimes

e USPTO is the Federal agency for granting U.S. patents and registering

trademarks. e USPTO advises the President of the United States, the

Secretary of Commerce, and U.S. Government agencies on IP policy,

protection, and enforcement; and promotes stronger and more eective

IP protection around the world. To obtain a copy of a certied trademark

registration:

• Email: dsd@uspto.gov

Fax: Public Records at 571-273-3250

Telephone number for information or inquiries:

Tel: 571-272-3150 or 800-972-6382

InternationalAntiCounterfeitingCoalition(IACC)

Robert C. Barchiesi

President

1730 M Street NW, Suite 1020

Washington, DC 20036

Tel.: 202-223-6667

Fax: 202-223-6668

Email: iacc@iacc.org

http://www.iacc.org

e touchstone of the IACC’s mission is to combat counterfeiting and

piracy by promoting laws, regulations and directives designed to render

the theft of IP undesirable and unprotable. It is comprised of a cross

section of business and industry - from autos, apparel, luxury goods

and pharmaceuticals, to food, software and entertainment - aected by

counterfeiting.

InternationalTrademarkAssociation(INTA)

Candice Li

External Relations Manager, Anti-Counterfeiting

655 ird Avenue, 10th Floor

New York, NY 10017-5617

Tel.: 212-642-1739

Fax: 212-768-7796

http://www.inta.org

INTA is a global not-for-prot association of over 5,900 trademark owners,

professionals, and academics dedicated to supporting trademarks and

Appendix G 445

related IP in order to protect consumers and to promote fair and eective

commerce.

4. CopyrightOrganizationContacts

LibraryofCongressCopyrightOce

Certications & Documents

LM 402

101 Independence Avenue SE

Washington, DC 20559

Tel.: 202-707-6787

http://www.loc.gov/

Retains les of registered copyrights and unpublished works; provides

information on obtaining copies of copyright registrations.

AssociationofAmericanPublishers(AAP)

M. Lui Simpson

Executive Director

International Copyright Enforcement and Trade Policy

455 Massachusetts Avenue NW, Suite 700

Washington, DC 20001

Tel.: 202-347-3375, ext. 541

Fax: 202-347-3690

http://www.publishers.org

AAP is the national trade association of the U.S. book publishing industry.

AAP’s more than 300 members include most of the major commercial

publishers in the United States, as well as smaller and non-prot publishers,

university presses and scholarly societies. AAP members publish hardcover

and paperback books in every eld, educational materials for the elementary,

secondary, postsecondary, and professional markets, scholarly journals,

computer software, and electronic products and services.

446 Prosecuting Intellectual Property Crimes

BusinessSoftwareAlliance(BSA)

Jon Berroya

Director, Global Internet Enforcement

20 F Street NW, Suite 800

Washington, DC 20001

Tel.: 202-872-5500

Fax: 202-872-5501

http://www.bsa.org

BSA is a global association of software industry leaders, which runs a

comprehensive set of programs to expand legal software markets in the

world. BSA assists in identifying and locating victims, identifying and

valuing infringing products; technical assistance with copyright protection

technologies; assists in obtaining copyright registration certicates.

EntertainmentSoftwareAssociation(ESA)

575 7th Street NW, Suite 300

Washington, DC 20004

Tel.: 202-223-2400

Fax: 202-223-2401

Email: esa@theESA.com

http://www.theESA.com

Represents companies that publish video and computer games for video

consoles, personal computers and the Internet. Assists in identifying and

locating victims, identifying and valuing infringing products; technical

assistance with copyright and copyright protection technologies; assists in

obtaining copyright registration certicates.

eIndependentFilm&TelevisionAlliance(IFTA)

Susan Cleary

Vice President & General Counsel

10850 Wilshire Boulevard, 9th Floor

Los Angeles, CA 90024-4321

Tel.: 310-446-1000

Fax: 310-446-1600

http://www.ifta-online.org/

Represents the independent motion picture and television industry.

Appendix G 447

InternationalFederationofthePhonographicIndustry (IFPI)

Jeremy Banks

Director, Anti-Piracy

IFPI Secretariat

10 Piccadilly

London

W1J 0DD

United Kingdom

Tel.: 011-44-207-878-6804

Email: info@ifpi.org

http://www.ifpi.org/

Represents the worldwide recording industry’s international organizations,

legal strategies, litigation, and public relations. Coordinates international

strategies in anti-piracy enforcement, technology, and lobbying of

governments. IFPI and the Recording Industry Association of America

(RIAA) work closely together. RIAA recommends contacting it before

contacting the IFPI.

InternationalIntellectualPropertyAlliance(IIPA)

1818 N Street NW, 8th Floor

Washington, DC 20036

Tel.: 202-355-7900

Fax: 202-355-7899

http://www.iipa.com

IIPA is a private sector coalition of seven U.S. trade associations

representing U.S. copyright-based industries in bilateral and multilateral

eorts working to improve international protection and enforcement of

copyrighted materials and open up foreign markets closed by piracy and

other market access barriers.

MotionPictureAssociationofAmerica(MPAA)

Michael Robinson

EVP Content Protection

Chief of Operations

Motion Picture Association of America

15301 Ventura Boulevard, Building E

Sherman Oaks, CA 91403

448 Prosecuting Intellectual Property Crimes

Tel.: 818-995-6600

Fax: 818-285-4403

http://www.mpaa.org

Represents the lm and entertainment industry. Assists in identifying and

locating victims, identifying and valuing infringing products; technical

assistance with copyright and copyright protection technologies; assists in

obtaining copyright registration certicates.

RecordingIndustryAssociationofAmerica(RIAA)

L. Carlos Linares, Jr., Esq.

Vice President, Anti-Piracy Legal Aairs

1025 F Street NW, 10th Floor

Washington, DC 20004

Tel.: 202-775-0101

Fax: 202-775-7253

http://www.riaa.org

Represents the United States recording industry. Assists in identifying and

locating victims, identifying and valuing infringing products; technical

assistance with copyright and copyright protection technologies; assists in

obtaining copyright registration certicates.

Software&InformationIndustryAssociation(SIIA)

1090 Vermont Avenue NW, 6th Floor

Washington, DC 20005-4095

Tel.: 202-289-7442

Fax: 202-289-7097

http://www.siia.net

Keith Kupferschmid

General Counsel and Senior Vice President, Intellectual Property

Tel.: 202-789-4442

Email: keithk@siia.net

SIIA represents software companies and publishers of magazines, books,

newspapers, databases and other digital publications. SIIA’s mission is to

protect, promote, and inform the software and content industry. Assists

in identifying and locating victims, identifying and valuing infringing

Appendix G 449

products; technical assistance with copyright and copyright protection

technologies; assists in obtaining copyright registrations.

5. Other Organization Contacts

AerospaceIndustriesAssociation(AIA)

Kirsten Koepsel

Director, Legal Aairs & Tax

1000 Wilson Boulevard, Suite 1700

Arlington, VA 22209

Tel: 703-358-1044

Fax: 703-358-1144

http://www.aia-aerospace.org

Represents the aerospace, defense, and space industries. Assist members

in working with governmental bodies to put rules in place regarding

the protection of IP; assist in processes to seek relief and remedies; assist

members in civil and criminal instances to ensure consistent responses to

governmental bodies.

GlobalIntellectualPropertyCenter(GIPC)

1615 H Street, NW

Washington, DC 20062

Tel: 202-463-5601

Fax: 202-463-3114

Email: gipc@uschamber.com

http://www.theglobalipcenter.com

Established in 2007 as an aliate of the U.S. Chamber of Commerce, the

GIPC works to raise awareness and increase support among key audiences

for the value of strong IP rights, to promote and defend robust and eective

IP rights and norms, and to strengthen the protection and enforcement of

IP in the U.S. and abroad.

450 Prosecuting Intellectual Property Crimes

IntellectualPropertyOwnersAssociation(IPO)

Herbert C. Wamsley

Executive Director

1501 M Street, NW, Suite 1150

Washington, DC 20005

Email: info@ipo.org

Tel.: 202-507-4500

Fax: 202-504-4501

http://www.ipo.org

Established in 1972, IPO represents owners of patents, trademarks,

copyrights and trade secrets. It is the only association in the U.S. that

serves all IP owners in all industries and all elds of technology. IPO

advocates eective and aordable IP ownership rights and concentrates

on: supporting member interests relating to legislative and international

issues; analyzing current IP issues; providing information and educational

services; and disseminating information to the general public on the

importance of IP rights.

Motor&EquipmentManufacturersAssociation(MEMA)

1030 15th Street NW, Suite 500 East

Washington, DC 20005

Tel: 202-393-6362

Fax: 202-737-3742

http://www.mema.org

Catherine Boland

Vice President, Legislative Aairs

Tel.: 202-312-9241

Email: cboland@mema.org

Dan Houton

Director, Government Relations

Tel: 202-312-9250

Email: dhouton@mema.rog

Represents more than 1000 companies that manufacture motor vehicle

components and systems. MEMA, in conjunction with its aliate

associations, created the Brand Protection Committee (BPC) to help

Appendix G 451

address and set the association’s priorities in the areas of counterfeiting,

diversion, non-compliant products and IP rights.

NationalAssociationofManufacturers(NAM)

733 10th Street NW, Suite 700

Washington, DC 20001

Tel: 202-637-3000

Fax: 202-637-3182

Email: manufacturing@nam.org

http://www.nam.org

Represents 11,000 manufacturing companies in every industrial sector and

in all 50 states. Responsible for anti-counterfeiting and anti-piracy policy

initiatives, and worldwide IP rights protection.

PharmaceuticalSecurityInstitute

omas T. Kubic

President and CEO

8100 Boone Blvd., Suite 220

Vienna, VA 22182

Tel.: 703-848-0160

Fax: 703-848-0164

Email: psi@psi-inc.org

http://www.psi-inc.org/

Collects, analyzes, and disseminates information about the counterfeiting,

illegal diversion and theft of pharmaceuticals in support of enforcement

eorts worldwide. Its membership includes 25 pharmaceutical

manufacturers from many nations.

452 Prosecuting Intellectual Property Crimes

453

Appendix H

Checklist for Reporting an

Intellectual Property Crime

is checklist serves as a guide for the type of information that would be

helpful for a victim or a victim’s authorized representative to include when

reporting an intellectual property violation to law enforcement. Victims are

encouraged to complete the checklist prior to making a report, if possible.

Prosecutors and/or investigators may also use the checklist as a framework

to gather information from victims. e checklist contains two sections:

one intended for use in criminal copyright and trademark cases (including

counterfeit trademarks, certication marks or service marks), and the other

intended for use in criminal trade secret cases. ey can be adapted for use in

other intellectual property oenses as well.

CriminalCopyrightandTrademarkInfringement

 Background / Contact Information

 Description of the Intellectual Property

 Description of the Intellectual Property Crime

 Origin and Entry (If Applicable)

 Possible Suspects

 Internet Involvement

 Civil Enforcement Proceedings

CriminalTradeSecretOenses

 Note on Condentiality

 Background / Contact Information

 Description of the Trade Secret

 Measures Taken to Protect the Physical Trade Secret Location

 Condentiality and Non-Disclosure Agreements

 Electronically-Stored Trade Secrets

 Document Controls

 Employee Controls

 Description of the Trade Secret’s Misappropriation

 Civil Enforcement Proceedings

454 Prosecuting Intellectual Property Crimes

CriminalCopyrightandTrademarkInfringement

1. Background and Contact Information

Victim’s Name:

Primary Address:

Nature of Business:

Primary Contact:

Work Phone:

Mobile Phone:

Email:

Fax:

2. DescriptionoftheIntellectualProperty

Describe the copyrighted material or trademark/service mark/

certication mark (e.g., title of copyrighted work, identity of logo),

including any factors that make its infringement especially problematic

(e.g., threats to public health and safety, pre-release piracy).

Is the work or mark registered with the U.S. Copyright Oce or on the

principal register of the U.S. Patent and Trademark Oce?1

___ YES ___NO

If yes, please provide the following:

Registration Date:

Registration Number:

If no, state if and when you intend to register:

Do you have a certied copy of the certicate of registration?

___ YES ___NO

1 Registered trademarks can be found through the U.S. Patent & Trademark Oce’s

searchable database at: http://tess2.uspto.gov/bin/gate.exe?f=tess&state=4010:lmjahh.1.1

Appendix H 455

Is the work or mark recorded with U.S. Customs and Border Protection

(CBP)?2

___ YES ___NO

If yes, please provide the following:

Recordation Date:

Recordation Number:

What is the approximate retail value of the infringed work, good, or

service?

Has the work or mark been the subject of a previous civil or criminal

enforcement action? If so, please provide a general description as well

as the case name, case number, and name of court.

3. DescriptionoftheIntellectualPropertyCrime

Describe how the theft or counterfeiting was discovered.

Do you have any examination reports of the infringing or counterfeit

goods? ___YES ___NO

If yes, please provide those reports to law enforcement. Please also

provide a photograph or sample of the goods, if possible.

Describe the type of infringement (e.g., manufacture, reproduction,

import, export, distribution).

Describe the scope of the infringing operation, including the following

information:

Estimated quantity of illegal distribution:

Estimated value of illegal distribution:

Estimated time period of illegal distribution:

2 IP rights holders can apply online at https://apps.cbp.gov/e-recordations/ to record their

trademarks and copyrights with CBP to protect against the importation of infringing

products.

456 Prosecuting Intellectual Property Crimes

Is the illegal distribution national or international? Which states

and/or countries?

Identify where the infringement or counterfeiting occurred, and describe

the location.

4. OriginandEntry(IfApplicable)

Identify the country of origin of the infringing item.

Identify the date, location, and mode of entry into the United States.

Identify the names of shippers and Harmonized Tari Schedule designation

and provide any other applicable shipping or customs information.

5. PossibleSuspects

Identify the name(s) or location(s) of possible suspects, including the

following information:

Name (Suspect #1):

Phone number:

Email address:

Physical address:

Current employer, if known:

Any other identiers:

Reason for suspicion:

Name (Suspect #2):

Phone number:

Email address:

Physical address:

Current employer, if known:

Any other identiers:

Reason for suspicion:

Appendix H 457

6. InternetInvolvement

If the distribution of infringing or counterfeit goods involves the

Internet, identify the following:

How the Internet is involved (e.g., websites, FTP, mail, chat rooms):

Relevant Internet address, including any aliate websites (domain

name, URL, IP address, email):

Login or password for website:

Operators of website, if known:

Location of the servers and website host:

Country where domain name is registered:

Has the right holder sent a cease and desist notice to the website?

___YES ___NO

If yes, please provide the following:

Date of notice:

Do you have a copy of the notice? ___ YES ___NO

If you have conducted an internal investigation into the theft or

counterfeiting activities, please describe any evidence acquired and submit,

if possible, any investigative reports.

7. CivilEnforcementProceedings

Have you ever received counterfeit goods from the target listed above?

___YES ___NO

If yes, did you place the target on notice that the goods received were

counterfeit?

Has a civil enforcement action been led against the suspects identied

above? ___YES ___NO

If yes, identify the following:

Name of court and case number:

Date of ling:

458 Prosecuting Intellectual Property Crimes

Names of attorneys:

Status of case:

If no, please state whether a civil action contemplated, what type and

when.

Please provide any information concerning the suspected crime not

described above that you believe might assist law enforcement.

Appendix H 459

TradeSecretOenses

NOTEONCONFIDENTIALITY

Federal law provides that courts “shall enter such orders and take such action

as may be necessary and appropriate to preserve the condentiality of trade

secrets, consistent with the requirements of the Federal Rules of Criminal

and Civil Procedure, the Federal Rules of Evidence, and all other applicable

laws.” 18 U.S.C. § 1835. Prosecutors utilizing any of the information set forth

below will generally request the court to enter an order to preserve the status

of the information as a trade secret and prevent its unnecessary and harmful

disclosure.

1. BackgroundandContactInformation

Victim’s Name:

Primary Address:

Nature of Business:

Primary Contact:

Work Phone:

Mobile Phone:

Email:

Fax:

2. DescriptionoftheTradeSecret

Generally describe the trade secret (e.g., source code, formula,

technology, process, device).

Provide an estimated value of the trade secret using one or more of the

methods listed below:

460 Prosecuting Intellectual Property Crimes

EstimatedValue Method

Cost to develop the trade secret

Acquisition cost (include date / source of

acquisition)

Fair market value if sold

Provide the name, title and contact information of the person most

knowledgeable about the trade secret’s valuation:

3. MeasuresTakentoProtectthePhysicalTradeSecretLocation

Describe the company’s general security practices concerning entry to

and moving within its premises, such as fencing the perimeter of the

premises, visitor control systems, using alarming or self-locking doors

or security personnel.

Describe any security measures the company has employed to prevent

unauthorized viewing or access to the trade secret, such as locked

storage facilities or “Authorized Personnel Only” signs at access points.

Describe any protocol the company employs to keep track of employees

accessing trade secret material such as sign in/out procedures for access

to and return of trade secret materials.

Are employees required to wear identication badges?

___YES ___ NO

Does the company have a written security policy? ___YES ___NO

Appendix H 461

If yes, please provide the following information:

Does the security policy address in any way protocols on handling

trade secret information? ___YES ___NO

How are employees advised of the security policy?

Are employees required to sign a written acknowledgment of the

security policy? ___YES ___NO

e name, title, and contact information of the person most knowledgeable

about matters relating to the security policy:

How many employees have access to the trade secret?

Was access to the trade secret limited to a “need to know” basis?

___YES ___NO

If yes, describe how “need to know” was maintained in any ways not

identied elsewhere (e.g., closed meetings, splitting tasks between

employees and/or vendors to restrict knowledge, etc.):

4. CondentialityandNon-DisclosureAgreements

Does the company enter into condentiality and non-disclosure agreements

with employees and third parties concerning the trade secret?

___YES ___NO

Has the company established and distributed written condentiality

policies to all employees? ___YES ___NO

Does the company have a policy for advising company employees regarding

the company’s trade secrets? ___YES ___NO

5. Electronically-StoredTradeSecrets

If the trade secret is computer source code or other electronically-

stored information, how is access regulated (e.g., are employees

given unique user names, passwords, and electronic storage space,

and was the information encrypted)?

462 Prosecuting Intellectual Property Crimes

If the company stores the trade secret on a computer network, is the

network protected by a rewall? ___YES ___NO

Is remote access permitted into the computer network? ___YES ___NO

If yes, is a virtual private network utilized? ___YES ___NO

Is the trade secret maintained on a separate computer server?

___YES ___NO

Does the company prohibit employees from using unauthorized computer

programs or unapproved peripherals, such as high capacity portable storage

devices? ___YES ___NO

Does the company maintain electronic access records such as computer

logs? ___YES ___NO

6. DocumentControls

If the trade secret consists of documents, were they clearly marked

“CONFIDENTIAL” or “PROPRIETARY”? ___YES ___NO

Describe the document control procedures employed by the company, such

as limiting access and sign in/out policies.

Was there a written policy concerning document control procedures?

___YES ___NO

If yes, how were employees advised of it?

Provide the name, title, and contact information of the person most

knowledgeable about the document control procedures:

7. EmployeeControls

Are new employees subject to a background investigation?

___YES ___NO

Appendix H 463

Does the company conduct regular training for employees concerning

steps to safeguard trade secrets?___YES ___NO

Does the company hold “exit interviews” to remind departing

employees of their obligation not to disclose trade secrets?

___YES ___NO

8. DescriptionoftheMisappropriationoftheTradeSecret

Identify the name(s) or location(s) of possible suspects, including the

following information:

Name (Suspect #1):

Phone number:

Email address:

Physical address:

Current employer, if known:

Any other identiers:

Reason for suspicion:

Name (Suspect #2):

Phone number:

Email address:

Physical address:

Current employer, if known:

Any other identiers:

Reason for suspicion:

Describe how the misappropriation of the trade secret was discovered.

Describe the type(s) of misappropriation (e.g., stealing, copying,

drawing, photographing, downloading, uploading, altering, destroying,

transmitting, receiving).

Was the trade secret stolen to benet a third party, such as a competitor or

another business? ___YES ___NO

464 Prosecuting Intellectual Property Crimes

If yes, identify that business and its location.

Do you have any information that the trade secret was stolen to benet a

foreign government or instrumentality of a foreign government?

___YES ___NO

If yes, identify the foreign government or instrumentality and

describe that information.

If the suspect is a current or former employee, describe all condentiality

and non-disclosure agreements in eect.

Identify any physical locations associated with the misappropriated trade

secret, such as where it may be currently stored or used.

If you have conducted an internal investigation into the misappropriation,

please describe any evidence acquired and provide any investigative reports

that you can.

9. CivilEnforcementProceedings

Has a civil enforcement action been led against the suspects identied

above? ___YES ___NO

If yes, please provide the following information:

Name of court and case number:

Date of ling:

Names of attorneys:

Status of case:

If no, please state whether a civil action was contemplated, what type

and when.

Please provide any information concerning the suspected crime not

described above that you believe might assist law enforcement.

465

Appendix I

Pre-PRO-IP Act Forfeiture Statutes

for IP Oenses

CriminalCopyrightInfringement

Administrative

Infringing Items Yes.

• 17 U.S.C. § 509(b) (West 2007)

(administrative forfeiture of infringing items

forfeitable civilly).

• 17 U.S.C. §§ 602-603 (West 2007)

(forfeiture of prohibited1 imports of

infringing items).

• 19 U.S.C. § 1595a(c)(2)(C) (CBP forfeiture

of imports of infringing2 items).

Facilitating Property Yes.

• 17 U.S.C. § 509(b) (West 2007) (permitting

administrative forfeiture of facilitating

property forfeitable civilly).

• 19U.S.C.§1595a(a) (CBP forfeiture

of property facilitating importation of

infringing items).

Proceeds Yes.

• 18 U.S.C. § 981(d) (permitting

administrative forfeiture of proceeds

forfeitable civilly).

Civil

Infringing Items Yes.

• 17 U.S.C. § 509(a) (West 2007).

• 17 U.S.C. §§ 602-603 (West 2007).

Facilitating Property Yes.

• 17 U.S.C. § 509(a) (West 2007) (plates,

molds, masters and other equipment used to

make infringing copies).

Proceeds Yes.

• 18 U.S.C. § 981(a)(1)(C).

466 Prosecuting Intellectual Property Crimes

Criminal

Infringing Items Yes(mandatory).

• 17 U.S.C. § 506(b) (West 2007) (mandating

criminal forfeiture upon a criminal

conviction).

• 17 U.S.C. §§ 602-603 (West 2007).

• 28 U.S.C. § 2461(c) (permitting criminal

forfeiture of property forfeitable civilly).

Facilitating Property Yes(mandatory).

• 17 U.S.C. § 506(b) (West 2007).

• 28 U.S.C. § 2461(c).

Proceeds Yes.

• 18 U.S.C. § 2461(c).

DigitalMillenniumCopyrightAct

Administrative No.

Civil No.

Criminal No.

EconomicEspionageAct(TradeSecreteft)

Administrative

Contraband No.

Facilitating Property No.

Proceeds No.

Civil

Contraband No.

Facilitating Property No.

Proceeds No.

Criminal

Contraband No.

Facilitating Property Yes.

• 18 U.S.C. § 1834(a)(2) (West 2007).

Proceeds Yes(mandatory).

• 18U.S.C.§1834 (a)(1) (West 2007).

 

Appendix I 467

Counterfeit/IllicitLabels,Documentation,andPackaging

forCopyrightedWorks

Administrative

Counterfeit/Infringing Items Yes.

• 17 U.S.C. § 509(b) (West 2007).

• 19 U.S.C. §1595a(c)(2)(C) (CBP forfeiture

of imports of infringing3 items).

Facilitating Property Yes.

• 17 U.S.C. § 509(b) (West 2007).

• 19 U.S.C. §1595a(a) (CBP forfeiture

of property facilitating importation of

infringing items).

Proceeds Yes.

• 18 U.S.C. § 981(d) (permitting

administrative forfeiture of proceeds

forfeitable civilly).

Civil

Counterfeit/Infringing Items Yes.

• 17 U.S.C. § 509(a) (West 2007).

Facilitating Property Yes.

• 17 U.S.C. § 509(a) (West 2007).

Proceeds Yes.

• 18 U.S.C. § 981(a)(1)(C).

Criminal

Counterfeit/Infringing Items Yes(mandatory).

• 18 U.S.C. § 2318(d) (West 2007)

(mandating criminal forfeiture upon a

criminal conviction).

• 28 U.S.C. § 2461(c) (permitting criminal

forfeiture of property forfeitable civilly).

Facilitating Property Yes(mandatory).

• 17 U.S.C. § 2318(d) (West 2007).

• 28 U.S.C. § 2461(c).

Proceeds Yes.

• 18 U.S.C. § 981(a)(1)(C).

• 28 U.S.C. § 2461(c).

468 Prosecuting Intellectual Property Crimes

UnauthorizedFixationsofLiveMusicalPerformances(“Bootlegging”)

Administrative

Unauthorized Recordings Yes.

• 18 U.S.C. § 2319A(c).

• 19 U.S.C. § 1595a(c)(2)(C) (CBP forfeiture

of imports of infringing4 items).

Facilitating Property Yes.

• 19 U.S.C. § 1595a(a) (CBP forfeiture

of property facilitating importation of

infringing items).

Proceeds Yes.

• 18 U.S.C. § 981(d) (permitting

administrative forfeiture of proceeds

forfeitable civilly).

Civil

Unauthorized Recordings Yes.

• 18 U.S.C. § 2319A(c).

Facilitating Property No.

Proceeds Yes.

• 18 U.S.C. § 981(a)(1)(C).

Criminal

Unauthorized Recordings Yes(mandatory).

• 18 U.S.C. § 2319A(b) (West 2007)

(mandating criminal forfeiture upon a

criminal conviction).

• 28 U.S.C. § 2461(c) (permitting criminal

forfeiture of property forfeitable civilly).

Facilitating Property Yes(mandatory).

• 18 U.S.C. § 2319A(b) (West 2007) (plates,

molds, matrices, masters, tapes and lm

negatives – discretionary as to additional

equipment).

Proceeds Yes.

• 28 U.S.C. § 2461(c).

Appendix I 469

UnauthorizedRecordingofMotionPictures(“Camcording”)

Administrative

Unauthorized Recordings Yes.

• 19 U.S.C. § 1595a(c)(2)(C) (CBP forfeiture

of imports of infringing5 items).

Facilitating Property Yes.

• 19 U.S.C. § 1595a(a) (CBP forfeiture

of property facilitating importation of

infringing items).

Proceeds No.

Civil

Unauthorized Recordings No.

Facilitating Property No.

Proceeds No.

Criminal

Unauthorized Recordings Yes(mandatory).

• 18 U.S.C. § 2319B(b) (West 2007).

Facilitating Property Yes(mandatory).

• 18 U.S.C. § 2319B(b) (West 2007).

Proceeds No.

470 Prosecuting Intellectual Property Crimes

Goods,Services,Labels,Documentation,andPackaging

withCounterfeitMarks

Administrative

Counterfeit Items Yes.

• 18 U.S.C. § 2320(b)(2) (West 2007) (for

oenses committed from March 16, 2006

through October 12, 2008).

• 19U.S.C.§1595a(c)(2)(C) (CBP forfeiture

of imports of infringing6 items).

Facilitating Property Yes.

• 18 U.S.C. § 2320(b)(2) (West 2007) (for

oenses committed from March 16, 2006

through October 12, 2008).

• 19U.S.C.§1595a(a) (CBP forfeiture

of property facilitating importation of

infringing items).

Proceeds Yes.

• 18 U.S.C. § 981(d) (permitting

administrative forfeiture of items forfeitable

civilly).

Civil

Counterfeit Items Yes(mandatory).

• 18U.S.C.§ 2320(b)(1)(A), (C) (West 2007)

(for oenses committed from March 16,

2006 through October 12, 2008).

Facilitating Property Yes.

• 18U.S.C.§ 2320(b)(1)(B) (West 2007) (for

oenses committed from March 16, 2006

through October 12, 2008).

Proceeds Yes.

• 18U.S.C.§981(a)(1)(C).

Appendix I 471

Criminal

Counterfeit Items Yes(mandatoryforoensescommittedonor

afterMarch16,2006).

• 18 U.S.C. § 2320(b) (West 2005) (for

oenses committed before March 16,

2006 – discretionary, and did not require

a criminal conviction – the United States

could obtain an order for the destruction

of the items upon a preponderance of the

evidence showing).

• 18 U.S.C. § 2320(b)(3)(A)(iii) (West 2007)

(for oenses committed from March

16, 2006 through October 12, 2008)

(mandatory criminal forfeiture upon a

criminal conviction).

• 28 U.S.C. § 2461(c) (permitting criminal

forfeiture of property forfeitable civilly).

Facilitating Property Yes(mandatoryforoensescommittedonor

afterMarch16,2006).

• 18 U.S.C. § 2320(b)(3)(A)(ii) (West 2007)

(for oenses committed from March 16,

2006 through October 12, 2008).

• 28 U.S.C. § 2461(c).

Proceeds Yes(mandatoryforoensescommittedonor

afterMarch16,2006).

• 18 U.S.C. § 2320(b)(3)(A)(i) (West 2007)

(for oenses committed from March 16,

2006 through October 12, 2008).

• 28 U.S.C. § 2461(c).

(Footnotes)

1 17 U.S.C. § 602(a) provides that unauthorized importation is an infringement merely

if the copies or phonorecords “have been acquired outside the United States,” even if they

were lawfully manufactured abroad, and their importation may be enjoined by the rights

holder, who enjoys the exclusive right to distribution within the United States. 17 U.S.C.

§ 602(b), however, provides that only piratical copies – those whose making “would have

constituted an infringement of copyright if this title had been applicable” – are prohibited

from importation and thus subject to administrative seizure and forfeiture under 17 U.S.C.

§ 603(c).

2 Like 17 U.S.C. § 603(c), 19 U.S.C. § 1595a(c)(2)(C) permits administrative seizure

and forfeiture only of piratical copies – “merchandise or packaging in which copyright ...

violations are involved (including, but not limited to, violations of ... section 506 of title 17,

United States Code ...).”

472 Prosecuting Intellectual Property Crimes

3 19 U.S.C. § 1595a(c)(2)(C) permits administrative seizure and forfeiture of “merchandise

or packaging in which copyright ... violations are involved (including, but not limited to,

violations of ... section 2318 ... of title 18, United States Code ...).”

4 e theory would be that 19 U.S.C. § 1595a(c)(2)(C) permits administrative seizure and

forfeiture of “merchandise or packaging in which copyright ... violations are involved,” even

though the statute does not cite specically 18 U.S.C. § 2319A.

5 e theory would be that 19 U.S.C. § 1595a(c)(2)(C) permits administrative seizure and

forfeiture of “merchandise or packaging in which copyright ... violations are involved,” even

though the statute does not cite specically 18 U.S.C. § 2319B.

6 19 U.S.C. § 1595a(c)(2)(C) permits administrative seizure and forfeiture of “merchandise

or packaging in which ... trademark ... violations are involved (including, but not limited to,

violations of ... 15 U.S.C. 1124, 1125, or 1127 ... or section ... 2320 of title 18, United States

Code) ....”.

473

Appendix J

Examples of Traditional Assistance

and Gifts to Law Enforcement

e examples below of what constitutes traditional assistance to law

enforcement or a gift are based on the examples included with a memorandum

issued by Deputy Attorney General Paul J. McNulty entitled Guidance for

Acceptance of Assistance and Gifts from Private Parties for Use in Connection

with Investigations and Litigation (May 2006). ese examples highlight

certain factors to consider and addresses the consultative process that should

be followed. Please note that not every factor that should be considered has

been identied below for each scenario. e examples are provided to highlight

certain elements, but do not reect the entire analysis.

1. Scenario: e Department has received information from a private

investigator who has an ongoing contract with a motion picture association

to investigate pirated and counterfeit goods, including pirated movie

DVDs. e investigator provides information regarding websites and

points of contact for persons/entities that may have a connection to the

counterfeit materials.

Analysis: is information constitutes traditional assistance; no particular

consultation is required before a Departmental employee may accept this

information.

Continuing Scenario: e Department has initiated its own investigation

based on the initial information provided by the association’s private

investigator. After the Department’s investigation has begun, and without

any further communications or direction from an FBI agent or the Criminal

Division attorney assigned to the matter, the private investigator uncovers

another source that appears to be involved with the counterfeit materials.

e investigator reports this new information to the FBI agent.

474 Prosecuting Intellectual Property Crimes

Analysis: is information also constitutes traditional assistance that the

FBI agent and attorney may accept. e attorney and agent may need to

consult with each other to determine whether the investigator’s eorts may

interfere with the Department’s activities, and whether the investigator

should be advised to alter his activities in some manner in order to avoid any

interference. Neither the agent nor attorney should advise the investigator

what types of evidence are desired for the Department’s investigation.

2. Scenario: A nationwide retail giant has its own security force and has

spent considerable resources to set up its own forensics laboratory to ght

shoplifting and other crimes against the company. e local FBI oce is

investigating a matter that has no connection to the retail company. e

FBI oce, however, believes that the equipment at the retail company’s

laboratory is superior to the Department’s capabilities for enhancing

photographs for identication. e FBI oce solicits the retail giant

for help, and the business readily agrees to provide forensic assistance

without charge. e enhanced photograph allows the FBI to continue its

investigation with greater eciency.

Analysis: Initially, the FBI must obtain prior approval from the Deputy

Attorney General or the Attorney General before any representative may

contact the retail company to seek its services. e free forensic services

constitute a gift. Since the value of these services is less than $50,000,

the agent and attorney must seek the component head’s approval in order

to accept these services for free. In considering this oer, the component

head must consider why the Department is seeking outside forensics aid.

e Department may need a third party’s gift because the Department

does not own or have at its disposal the same equipment. In addition, the

time-sensitive nature of the case might require immediate action, and the

Department might not gain access to such equipment with the same speed

as that oered as a gift. In this situation, with advance approval of the

solicitation the Department may accept the gift.

3. Scenario: Consider the same facts set forth in Scenario #2, but assume

that the retail giant informed the local FBI oce that it had a forensics

laboratory with equipment capable of performing a variety of functions,

and that it was oering general access to its equipment and sta for

Appendix J 475

investigative purposes any time that the Department determined the

company’s resources would benet the Department.

Analysis: A retail giant’s standing oer to allow the Department to use its

forensic facilities, whether for case-specic matters or general investigative

purposes, should be considered carefully. (Initially, this company’s oer

does not trigger the same considerations set forth in No. 2, where the

Department solicited the gift.). As noted above, there may be instances

when private industry has forensic resources that are not available to

the Department, and the immediacy of the situation may warrant the

Department’s use of outside resources. However, the decision to use a third

party’s services is distinct from the decision to accept such services free of

cost. In deciding whether to accept the services for free, counsel should

consider whether there are any pending matters in the Department in

which the retail giant is a party or could be aected directly by a particular

matter.

One-time gifts of free assistance may be permissible. However, it is

particularly important that the Department carefully scrutinize a third

party’s oer to use its services for free on multiple occasions or on a

periodic basis for separate cases or matters (e.g., several times a year). e

Department should be circumspect in accepting more than one gift from

the same source within one scal year.

Again, while the donor may have resources unavailable to the Department,

the Department should consider paying for the services provided. Even

if the full cost is dicult to assess, the Department and a third party can

identify a reasonable value for the unique services provided.

One reason for the Department’s disinclination to accept multiple oers

from one source is that the costs of pursuing the Department’s mission

must be fully identied and presented as part of its budget for Congress to

accept or reject. Accepting free services that are critical to the Department’s

performance of its mission on a frequent or regular basis masks the actual

costs of its annual operations. Second, periodic or regular acceptance of

free services from an entity can raise an appearance of a conict of interest,

particularly if any matter later arises involving that donor.

476 Prosecuting Intellectual Property Crimes

e component head may accept the rst oer from a source up to $50,000.

A second or subsequent oer in the same scal year from the same source

must be submitted to the Assistant Attorney General for Administration

(AAG/A) for approval when the value combined with the rst gift exceeds

$50,000.

4. Scenario: A corporation’s products are being counterfeited and its computer

network has been inltrated. e corporation has hired a computer security

rm to evaluate the extent of the computer breach and to recommend

modications to its system. e corporation has told Departmental

attorneys and investigators that it may speak with its employees and the

computer security rm’s personnel about the breach, and utilize their

expertise as necessary. e corporation is paying for the computer security

rm’s services throughout the Department’s investigation, including time

spent meeting with Department employees. One computer rm employee

has particular prociency in computer programming, and he would be

an expert witness in any litigation against the defendant to discuss the

unauthorized access and damage to the corporation’s security and

computer privacy. e victim corporation also has provided oce space

for Departmental employees to interview corporate sta and the computer

rm employees.

Analysis: e corporation is a victim. e computer rm is a ‘related

party’ because it is retained by the corporation. Access to both companies'

personnel during the investigation is traditional assistance that does not

warrant any formal approval process. e corporate and security rm

employees are in a unique position to provide useful information on behalf

of their employer/contractor. e agent and attorney should consult with

each other, and potentially with the Professional Responsibility Ocer

(PRO) and the Deputy Designated Agency Ethics Ocial (DDAEO), to

determine the extent to which they will accept the corporation's oers.

Using corporate space for interviews does not raise any particular concerns.

e computer security expert who assessed the damage to the corporation

has distinct advantages over another computer expert who was not involved

in the assessment. Despite this favorable position, the trial attorney

should determine whether the potential appearance of the corporation's

self-interest in paying for the expert witness' testimony does not outweigh

the benet of this expert's testimony before accepting the services.

Appendix J 477

5. Scenario: e DEA is investigating a suspect for selling and delivering drugs

from his apartment. In order to enhance its surveillance and consistent

with its investigative procedures, DEA wants to rent an apartment in the

building where the suspect lives. DEA approaches the owner of the building

and oers to pay market rent for an apartment. e owner has a vacant

apartment in a desirable location to conduct surveillance in the building.

e owner is supportive of the DEA’s eorts and oers the apartment to

DEA for three months free of charge. e fair market value of the vacant

apartment is $1,500/month.

Analysis: e owner is an indirect victim since the suspect’s illegal activities

have an adverse aect on the owner’s property. Oers of aid from an

indirect victim generally constitute assistance, although the value of the

oer may be such that it should be considered a gift. Given the short time

frame (three months) and the value involved ($4,500), this oer constitutes

assistance, and an agent in consultation with an attorney may decide to

accept the oer. However, if the owner oered the DEA agent free use of

the apartment for nine months and that amount of time (or longer) was

necessary for a more complex investigation, the agent and attorney should

seek approval to accept the oer as a gift. Given that the owner is taking

the apartment o the market for an extended period of time, the oer is

more substantial than before, and higher-level approval (by the component

head for a gift) is warranted. ere is no clear line dening when assistance

becomes a gift because of the nancial value or imposition involved. For

oers that exceed three months, an attorney should consult with the

DDAEO to determine whether the oer may be accepted as assistance, or

considered a gift.

6. Scenario: e Criminal Division is investigating a highly technical

computer crimes case. A university professor has conducted research in

the narrow eld at issue. A Criminal Division attorney contacted the

professor for general background information on this issue, saying that the

Department is willing to pay for his consultative services. e professor is

willing to provide advice, assistance, and testimony in federal court for free.

Although the professor has no prior experience as a witness, the attorney

intends to proer the professor as an expert.

478 Prosecuting Intellectual Property Crimes

Analysis: e professor is a third party and he has oered the attorney a

gift. Assuming that the number of hours to prepare and present testimony

is limited, the value of the professor’s services will be below $50,000.

Although the Department (and component’s budget) will always benet

from no-cost expert services, it is not always appropriate to accept this

type of oer. While the professor will benet professionally from his

‘expert’ qualication, this intangible benet does not necessarily mean

the Department should avoid the costs of payment. e attorney should

consult with the PRO and DDAEO to determine the appropriate course

of action.

7. Scenario: e FBI is investigating the sale of counterfeit goods. e

corporate maker of the true product has oered to give the FBI $1million

to purchase the counterfeit goods from an identied broker. e FBI, in

consultation with the local United States Attorney’s Oce, accepts the

oer, and makes arrangements with the corporation to provide the $1

million. e counterfeit goods are purchased. e corporation arranged

for the goods to be transported and stored in its warehouse pending its

initiation of a civil proceeding.

Analysis: Because the Department is serving as the conduit for cash to

recover counterfeit materials, the Department may accept the victim’s oer

of funds for this particular purpose. e agent should seek approval from

the AUSA prior to accepting the victim’s funds. Because the cost of storage

to the company at its own facilities is minimal, the Department may accept

the company’s oer to store the goods at the victim’s expense.

8. Scenario: An industry leader in the computer eld has developed a software

program that can meld various databases and enhance search capabilities for

the law enforcement community. e company has oered this program

to the Department. While it is not available for sale to the public, the

program (including the technical support to assist its operations) is valued

over $800,000.

Analysis: Given the high value, this oer must be submitted to the AAG/A

for acceptance. Moreover, more concerns arise because this program would

enhance the Department’s general capabilities, and not just be used for a

specic case investigation. Again, there are appearance issues in accepting

Appendix J 479

resources of such signicant value from an entity that may be the subject of

Department action in another arena. is type of oer also directly impacts

the Department’s operations and mission. However, the company is also

oering a capability that is unparalleled. Given the magnitude of this oer,

high-level attention to determine whether this oer may be accepted is

warranted.

480 Prosecuting Intellectual Property Crimes

481

ACCESS CONTROL

See generally Chapters V.B., V.C.

Key Concepts ... 234

Access Controls vs. Copy/Use Controls

235

Circumvention vs. Tracking in

Circumvention Tools 237

Dierences Between the DMCA and

Traditional Copyright Law 238

Decryption or Circumvention of Access

Controls May Increase the Oense Level

329

ACCESSIBLE TO MEMBERS OF THE

PUBLIC

See generally Chapter 2

Pre-release Piracy Increases the Oense

Level by 2 324

ACTUAL CONFUSION

e Counterfeit Mark Must Be Identical

…109

Likelihood of Confusion, Mistake, or

Deception 117

ACTUAL DISSEMINATION

Distribution 44

Distribution 52

ACTUAL LOSS

Restitution 148

Use Greater of Actual or Intended Loss

332

ADMINISTRATIVE FORFEITURE

Administrative Forfeiture Proceedings 361

Table of Forfeiture Provisions Arranged

by Criminal IP Statute 362

Choosing a Forfeiture Procedure 368

e Adequacy of Alternative Non-

Criminal Remedies 384

ADVICE OF COUNSEL DEFENSE

Advice of counsel 200

AFFIRMATIVE DEFENSES

Lanham Act Defenses 137

Statute of Limitations 139

AFFIXED

See generally Chapter VI.B.3.

Not Genuine or Authentic 105

Federal Jurisdiction 288

Sentencing Guidelines 293

Number of Infringing Items 314

AIDING OR ABETTING

Special Rules for Rental, Lease, and

Lending 68

Cyberlockers and Linking Sites 78

Other Charges to Consider 81

Goods and Services … 102

Use of the Counterfeit Mark “On or In

Connection With” Goods or Services 114

Sentencing Guidelines 149

ARCHIVAL EXCEPTION

Operation of the Doctrine 63

“Archival Exception” for Computer

Software 74

ATTORNEYS’ FEES

When Copyright Protection Begins and

Ends 13

Choosing a Forfeiture Procedure 368

e Adequacy of Alternative Non-

Criminal Remedies 384

AUDIOVISUAL RECORDING DEVICE

Other Charges to Consider 83

AUTHORIZED USE DEFENSE

Authorized-Use Defense: Overrun Goods

130

Authorized-Use Defense: Gray Market

Goods 133

Index

482 Prosecuting Intellectual Property Crimes

BERNE CONVENTION

IMPLEMENTATION ACT OF 1988 25

BOOTLEGGING

Tracking in recordings of live musical

performances 81

Racketeer Inuenced and Corrupt

Organizations Act (RICO) 87

e Labels, Documentation, or Packaging

Materials Are Counterfeit or Illicit 286

Oenses Involving Copyright 311

Restitution is Available—and Often

Required—in Intellectual Property

Prosecutions 346

Table of Forfeiture Provisions Arranged by

Criminal IP Statute 365

BUSINESS ORGANIZATIONS

Special Considerations in Deciding

Whether to Charge Corporations and

Other Business Organizations 385

CABLE AND SATELLITE SERVICE

Other Charges to Consider 85

Oenses Involving Copyright 311

CAMCORDING

Other Charges to Consider 83

Oenses Involving Copyright 311

Manufacturing, Importing, or Uploading

Infringing Items Increases the Oense

Level by 2 325

Table of Forfeiture Provisions Arranged

by Criminal IP Statute 366

Appendix I

CASH 402

Gift Issues 399

Acceptance of Gifts 407

CERTIFICATION MARKS

See generally Chapter III

Oenses Involving Copyright 311

CHILDREN

Infringement of at Least 10 Copies of 1 or

More Copyrighted Works 47

Restricting Minors’ Access to the Internet

269

CHIP UNITS

Why Is Intellectual Property Enforcement

Important? 5

Federal Law Enforcement Priorities 379

CIRCUMVENTION

See generally Chapter 5

Number of Infringing Items 314

Decryption or Circumvention of Access

Controls May Increase the Oense Level

329

Identifying Victims Who Qualify for

Restitution 348

COLLECTIVE MARKS

Overview 89

COMMERCE CLAUSE

See INTERSTATE AND FOREIGN

COMMERCE

COMMERCIA L A DVANTAGE

See PURPOSES OF COMMERCIAL

ADVANTAGE OR PRIVATE

FINANCIAL GAIN

COMMERCIAL ECONOMIC

ESPIONAGE

See ECONOMIC ESPIONAGE

COMMERCIAL SPEECH

Knowingly Marketed for Circumvention

258

COMPUTER HACKING AND

INTELLECTUAL PROPERTY (CHIP)

COORDINATORS see CHIP UNITS

CONSCIOUS AVOIDANCE

e Defendant Used the Counterfeit

Mark “Knowingly” 121

e Defendant Acted “Knowingly” 284

Index 483

CONSPIRACY

Distribution 47

Jurisdiction 62

Cyberlockers and Linking Sites 78

Other Charges to Consider 81

Overview 91

Units of Prosecution 143

Other Charges to Consider 151

Overvie w 158

“Information” 164

Attempts and Conspiracies, Including the

Impossibility Defense 189

Electronic Copies of Labels,

Documentation, or Packaging 291

Applicable Guideline is § 2B1.1, Except

for Attempts and Conspiracies 331

Identifying Victims Who Qualify for

Restitution 350

CONTRABAND

Making and Obtaining Counterfeits vs.

Possession with Intent to Trac 100

e Defendant Tracked 285

Property Subject to Forfeiture 360

Table of Forfeiture Provisions Arranged by

Criminal IP Statute 362

Civil Forfeiture in Intellectual Property

Matters 369

Criminal Forfeiture in IP Matters 372

Appendix I

COOKIE FILES

Protection of Personally Identifying

Information 269

COPY CONTROLS

See generally Chapter V

Decryption or Circumvention of Access

Controls May Increase the Oense Level

329

See generally Chapters II, V, VI

Distinguished from Trademark and

Oenses Involving Copyright 381

Other Charges to Consider 151

Disclosure rough the Patent and

Other Charges to Consider 226

Overview of Patent 297

Oenses Involving Copyright 311

Restitution 343

Forfeiture 357

Whether the Person Is Subject to

Prosecution in Another Jurisdiction 382

Private Civil Remedies 393

Appendix I

Federal Preemption 12

INFORMATION

Falsifying, Altering, or Removing

DMCA’s Background and Purpose 233

COPYRIGHTABILITY

Copyrightability 18

Work Being Prepared for Commercial

Distribution 55

COST OF REPAIRS

Methods of Calculating Loss 332

COUNTERFEIT GOODS OR SERVICES

See GOODS AND SERVICES

COUNTERFEIT PHARMACEUTICALS

See PHARMACEUTICALS

COUNTERFEIT TRADEMARKS

See TRADEMARKS

COUNTERFEIT DOCUMENTATION

AND PACKAGING

See generally Chapter VI

COUNTERFEIT LABELS

See generally Chapters III, VI

Oenses Involving Copyright 311

Property Subject to Forfeiture 360

Table of Forfeiture Provisions Arranged

by Criminal IP Statute 364

484 Prosecuting Intellectual Property Crimes

Victims’ Ability to Forfeit Property 371

Appendix I

COUNTERFEIT MARKS

See generally Chapters III, VI

Table of Forfeiture Provisions Arranged by

Criminal IP Statute 367

Parallel Civil Suits 393

CRIMINAL FORFEITURE

See FORFEITURE

CUSTOMER LISTS

Introduction 155

“Information” 164

Independent Economic Value 168

DECALS

Electronic Copies of Labels,

Documentation, or Packaging 291

DECRYPTION

Technological Measures at Eectively

Control Access (“Access Control”) 245

Decryption or Circumvention of Access

Controls May Increase the Oense Level

329

Appendix A

DELIBERATE IGNORANCE

e Defendant Used the Counterfeit

Mark “Knowingly” 122

e Defendant Acted “Knowingly” 284

DEPOSITIONS

e Information Was a Trade Secret 163

Interlocutory Appeals 209

Due Process and Prosecutorial Misconduct

Considerations 217

Choosing a Forfeiture Procedure 368

DERIVATIVE WORKS

e Rights Protected by Copyright 14

Infringement of the Copyright 33

Fair Use 71

Access Controls vs. Copy/Use Controls

236

Constitutionality of the DMCA 272

DESTRUCTION

e First Sale Doctrine 64

Storage Costs and Destruction 142

Forfeiture 293

Forfeiture 359

Storage Costs in Counterfeit or Infringing

Products Cases 403

DIGITAL LOCKS

Access Controls vs. Copy/Use Controls

235

DISCLOSURES TO THE

GOVERNMENT

Other Charges to Consider 224

DISTANCE LEARNING

Other DMCA Sections at Do Not

Concern Prosecutors 240

DONATED RESOURCES

Oers of Assistance From Victims and

Related Parties 397

DRUGS

See FOOD AND DRUG

ADMINISTRATION

E-BOOKS

Reproduction 36

ECONOMIC ESPIONAGE

See generally Chapter IV

Oenses Involving the Economic

Espionage Act (EEA) 331

Table of Forfeiture Provisions Arranged by

Criminal IP Statute 364

Introduction 377

Whether the Person Is Subject to

Prosecution in Another Jurisdiction 383

ELECTRONIC TRANSMISSION OF A

GENUINE CERTIFICATE

Electronic Copies of Labels,

Documentation, or Packaging 291

EMOTIONAL HARM

Upward Departure Considerations 341

Index 485

ENCRYPTION

Introduction 155

Access Controls vs. Copy/Use Controls

236

Technological Measures at Eectively

Control Access (“Access Control”) 246

Encryption Research 267

EPHEMERAL REPRODUCTIONS

Other DMCA Sections at Do Not

Concern Prosecutors 241

ETHICS

See generally Chapter X

EXPERT WITNESSES

e Information Was a Trade Secret 163

Interlocutory Appeals 209

Oers of Assistance From Victims and

Related Parties 397

EXTRADITION

Interbank Account Seizures of Foreign

Bank Funds 375

EXTRATERRITORIAL

Jurisdiction 61

Overview 161

Extraterritorial 221

FAIR MARKET VALUE

Methods of Calculating Loss 332

FAIR USE

Legal Basis for Copyright and Related

Laws 11

e Defendant Acted “Willfully” 26

Infringement of the Copyright 33

Additional Element for Enhanced

Sentence: Purpose of Commercial

Advantage or Private Financial Gain 56

Fair Use 69

Other Charges to Consider 84

Circumventing Access Controls 242

How Congress Intended the Anti-

Circumvention Prohibition to Apply 248

Technological Measure at Eectively

Protects a Right of a Copyright Owner

Under is Title (“Copy Control”) 260

Reverse Engineering and Interoperability

of Computer Programs 264

Vagueness 276

Fair Use 277

FALSE MARKING

False Marking of Patent 299

FAMILY ENTERTAINMENT AND

Elements 17

“Preregistration” of Certain Types of

Works 20

Retail Value for Pre-release Works 50

Distribution of a Work Being Prepared for

Commercial Distribution 51

Other Charges to Consider 83

Oenses Involving Copyright 312

FDA

See FOOD AND DRUG

ADMINISTRATION

FEDERAL PREEMPTION

See PREEMPTION

FEDERAL REGISTRATION

See REGISTRATION

FINANCIAL GAIN

Elements 16

Additional Element for Enhanced

Sentence: Purpose of Commercial

Advantage or Private Financial Gain 55

Fair Use in Criminal Cases

Statutory Penalties 80

Tracked 98

Consideration vs. Commercial Advantage

and Private Financial Gain 99

Key Concepts: Access Controls vs. Copy

Controls, Circumvention vs. Tracking

234

Circumventing Access Controls 241

Tracking in Access Control

Circumvention Tools and Services 253

Tracking in Tools, Devices, and Services

to Circumvent Copy Controls 259

Oenses Involving Copyright 311

Oense Not Committed ... 326

486 Prosecuting Intellectual Property Crimes

FIRST AMENDMENT

Fair Use 69

e First Amendment 202

Void-for-Vagueness 203

Closing the Courtroom 213

Knowingly Marketed for Circumvention

258

e First Amendment 273

Fair Use 277

FIRST SALE DOCTRINE

First Sale 47

e First Sale Doctrine 63

First Sale (Does Not Apply) 290

FIXED IN ANY TANGIBLE MEDIUM

OF EXPRESSION

See TANGIBLE MEDIUM

FONT EMBEDDING BITS

Technological Measures at Eectively

Control Access (“Access Control”) 245

Technological Measure at Eectively

Protects a Right ... 260

FOOD

See MISBRANDED FOOD, DRUGS,

AND COSMETICS

FOOD AND DRUG

ADMINISTRATION

Other Charges to Consider 153

FOREIGN AGENT

Overview 157

Elements Common to 18 U.S.C.

§§1831, 1832 177

Additional 18 U.S.C. § 1831 Element:

Intent to Benet a Foreign Government,

Foreign Instrumentality, or Foreign

Agent 182

Introduction 377

FOREIGN COMMERCE

See INTERSTATE AND FOREIGN

COMMERCE

FOREIGN ECONOMIC ESPIONAGE

See ECONOMIC ESPIONAGE

FOREIGN GOVERNMENTS

Trade Secrets 8

Overview 158

Elements Common to 18 U.S.C.

§§1831, 1832 162

Additional 18 U.S.C. § 1831 Element:

Intent to Benet ...182

Economic Benet to a ird Party 185

Department of Justice Oversight 222

Imprisonment and Fines 222

Intent to Benet a Foreign Government,

Instrumentality, or Agent 339

Intent to Transport or Transmit …339

FOREIGN INSTRUMENTALITY

Overview 158

Intent to Transport or Transmit the

Trade Secret out of the United States

or to Benet a Foreign Government,

Instrumentality, or Agent 339

Introduction 378

FOREIGN VICTIMS

Other Charges to Consider 151

FOREIGN WORKS

Signicance of Registration 21

FORFEITURE

See generally Chapters VI.E.4., VIII

Criminal Forfeiture 223

e Adequacy of Alternative Non-

Criminal Remedies 384

Appendix I

GENERIC LABELS

e Labels, Documentation, or Packaging

Materials Are Counterfeit or Illicit 287

GIFTS

Distribution 39

Oers of Assistance From Victims and

Related Parties 397

Gift Issues 398

Appendix J

Index 487

GLOBAL SETTLEMENTS

See PARALLEL PROCEEDINGS

GOOD FAITH

e Defendant Acted “Willfully” 26

Fair Use in Criminal Cases 72

e Defendant Used the Counterfeit

Mark “Knowingly” 122

Lanham Act Defenses 137

Advice of Counsel 200

Claim of Right—Public Domain and

Proprietary Rights 201

Due Process and Prosecutorial Misconduct

Considerations 216

Encryption Research 267

Security Testing 270

GOODS AND SERVICES

Overview 90

Goods and Services ... 101

e Counterfeit Mark Must Have Been

Used for the Same Class of Goods or

Services for Which the Genuine Mark

Was Registered 115

Authorized-Use Defense: Overrun Goods

130

Oenses Involving Copyright 311

Oense Involving Counterfeit Military

Goods and Services ... 328

e Nature and Seriousness of the Oense

380

GOVERNMENT TRADE SECRETS

Other Charges to Consider 224

GRAY MARKET GOODS

Authorized-Use Defense: Gray Market

Goods 133

IN PERSONAM

Civil and Criminal Proceedings 361

Criminal Forfeiture in IP Matters 370

IN REM

Civil and Criminal Proceedings 361

Criminal Forfeiture in IP Matters 370

IN USE

e Trademark Counterfeiting Crime in

General 96

e Defendant Used a “Counterfeit

Mark”: Denition of a Counterfeit Mark

104

INAUTHENTIC

Goods and Services … 103

Authorized-Use Defense: Overrun Goods

132

Retail Value 316

IGNORANCE OF THE LAW

e Defendant Acted “Willfully” 26

ILLICIT LABELS

See generally Chapter VI

Distinguished from Trademark and

Oenses Involving Copyright 311

Table of Forfeiture Provisions Arranged

by Criminal IP Statute 364

Victims’ Ability to Forfeit Property 371

Appendix I

INDEPENDENT ECONOMIC VALUE

Elements Common to 18 U.S.C.

§§1831, 1832 162

INDICTMENTS

See Appendices B-F

INFORMATION SECURITY

Information Security Exemption 264

INJUNCTIONS

e Nature and Seriousness of the Oense

379

e Adequacy of Alternative Non-

Criminal Remedies 384

INNOCENT OWNER DEFENSE

Innocent Owner Defense 369

INTELLECTUAL PROPERTY CLAUSE

Constitutionality of the DMCA 270

INTENT TO DECEIVE

Likelihood of Confusion, Mistake, or

Deception 118

Repackaging Genuine Goods 136

488 Prosecuting Intellectual Property Crimes

False Marking of Patent 303

Identifying Victims Who Qualify for

Restitution 352

INTERLOCUTORY APPEAL

Overview 206

Interlocutory Appeals 207

INTERNAL INVESTIGATIONS

Determining a Restitution Figure 356

INTERNET PIRACY

Retail Value for Pre-release Works 49

Distribution of a Work Being Prepared

for Commercial Distribution … 51

Additional Element for Enhanced

Sentence: ... 56

Emerging and Special Issues 76

INTEROPERABILITY

Reverse Engineering and Interoperability

of Computer Programs 264

INTERSTATE OR FOREIGN

COMMERCE

Other Charges to Consider 86

Introduction 155

Overvie w 159

Product or Service Used or Intended for

Use in Interstate or Foreign Commerce

186

Void-for-Vagueness 203

Other Charges to Consider 224

Constitutionality of the DMCA 270

Elements 282

Federal Jurisdiction 288

Venue 290

INTERSTATE TRANSPORTATION

Other Charges to Consider 81

Introduction 155

e First Amendment 202

Other Charges to Consider 227

No Prosecution for Interstate

Transportation or Receipt of Stolen

Property 304

Oenses Involving the Economic

Espionage Act (EEA) 334

JUDICIAL NOTICE

Proof of Copyright at Trial 24

e Genuine Mark Must Be Federally

Registered on the U.S. Patent and

Trademark Oce’s Principal Register

110

JURY INSTRUCTIONS

See Appendices B-F

JUSTICE FOR ALL ACT OF 2004

Victims’ Rights 388

KNOWINGLY

Other Charges to Consider 81

Overview 91

e Trademark Counterfeiting Crime in

General 94

Intentionally Tracked in Goods or

Services (or Labels, Documentation, or

Packaging for Goods or Services) 102

e Defendant Used a “Counterfeit

Mark”: Denition of a Counterfeit Mark

104

e Defendant Used the Counterfeit

Mark “Knowingly” 121

Tracking in Counterfeit Drugs 128

Fines and Imprisonment 146

Overvie w 157

Knowledge 177

Product or Service Used or Intended for

Use in Interstate or Foreign Commerce

186

Purpose or Marketing of Circumvention

Technology 256

Knowingly Marketed for Circumvention

258

Falsifying, Altering, or Removing

262

e Defendant Acted “Knowingly” 283

Federal Jurisdiction 290

Index 489

LANHAM ACT

See generally Chapter III

LETTERS PATENT

Overview of Patent 297

Forgery of Letters Patent 298

LIBRARIAN OF CONGRESS

Regulatory Exemptions to Liability Under

§ 1201(a)(1) 250

Librarian of Congress Regulations 263

LIKELIHOOD OF CONFUSION

e Counterfeit Mark Must Be Identical

to or Indistinguishable from a Genuine

Mark Owned by Another 107

Likelihood of Confusion, Mistake, or

Deception 116

LIMITED FEDERAL RESOURCES

e Nature and Seriousness of the Oense

380

LIMITED TIMES

What Copyright Law Protects 10

Legal Basis for Copyright and Related

Laws 11

Other Charges to Consider 83

Constitutionality of the DMCA 272

Overview of Patent 297

LINUX

Primarily Designed or Produced 257

Reverse Engineering and Interoperability

of Computer Programs 266

LIVE MUSICAL PERFORMANCES

Other Charges to Consider 81

Other Charges to Consider 152

Oenses Involving Copyright 311

Property Subject to Forfeiture 360

Table of Forfeiture Provisions Arranged by

Criminal IP Statute 362

MAIL AND WIRE FRAUD

Other Charges to Consider 85

Other Charges to Consider 151

Other Charges to Consider 226

Other Charges to Consider 296

Identifying Victims Who Qualify for

Restitution 352

Appendix A

MAKING AVAILABLE

Distribution 42

Distribution 52

MANDAMUS

e Information Was a Trade Secret 162

Interlocutory Appeals 207

Victims’ Rights 388

MANDATORY VICTIMS

RESTITUTION ACT OF 1996 (MVRA)

Restitution 223

Restitution is Available—and Often

Required—in Intellectual Property

Prosecutions 343

MARKET STRATEGIES

Trade Secrets 8

MINIMAL NOVELTY

Secrecy 164

MISAPPROPRIATION

See generally Chapter IV

Overview 158

Oenses Involving the Economic

Espionage Act (EEA) 331

Methods of Calculating Loss 333

MISBRANDED FOOD, DRUGS, AND

COSMETICS

Repackaging Genuine Goods 137

Other Charges to Consider 152

Vulnerable Victims 330

Restitution is Available—and Often

Required—in Intellectual Property

Prosecutions 347

490 Prosecuting Intellectual Property Crimes

MISLABELED WOOL, FUR, AND

TEXTILE FIBER PRODUCTS

Other Charges to Consider 152

MISMARKING

False Marking of Patent 303

MISREPRESENTATION

Other Charges to Consider 85

Advice of Counsel 201

Due Process and Prosecutorial Misconduct

Considerations 216

False Marking of Patent 303

MONEY LAUNDERING

Other Charges to Consider 87

Other Charges to Consider 153

Table of Forfeiture Provisions Arranged by

Criminal IP Statute 362

Proceeds 372

MOTION FOR A NEW TRIAL

Victims’ Rights 388

MOVIES AND MOTION PICTURES

“Preregistration” of Certain Types of

Works 21

Infringement by Reproduction or

Distribution 36

Work Being Prepared for Commercial

Distribution 54

e First Sale Doctrine 64

Internet Streaming 76

Other Charges to Consider 83

Access Controls vs. Copy/Use Controls

236

Circumventing 243

Primarily Designed or Produced 256

Reverse Engineering and Interoperability

of Computer Programs 265

Distinguished from Trademark and

Tracking in Labels … 285

Oenses Involving Copyright 311

Domain Name Forfeiture 372

MULTIPLE CRIME VICTIMS

Victims’ Rights 389

NO ELECTRONIC THEFT (NET) ACT

Elements 17

History 56

Legal Standard 57

Oenses Involving Copyright 311

NONPROFIT USE

Fair Use in Criminal Cases 73

NUMBER OF INFRINGING ITEMS

Sentencing Guidelines 293

Number of Infringing Items 314

Determining Amounts and Values—

Reasonable Estimates Allowed 321

OLYMPIC CHARTER ACT

e Defendant Used a “Counterfeit

Mark”: Denition of a Counterfeit Mark

104

Olympic Symbols 145

OLYMPIC SYMBOLS

e Genuine Mark Must Be Federally

Registered ... 110

e Genuine Mark Must Have Been in

Use by the Mark-Holder or Its Licensee

112

Olympic Symbols 145

ONLINE INFRINGEMENT

Distribution 41

Distribution of a Work 51

Internet Streaming 76

ORIGINAL WORK FIXED IN A

TANGIBLE MEDIUM

See TANGIBLE MEDIUM

ORIGINAL WORK OF AUTHORSHIP

Copyrights vs. Registrations vs.

Certicates 20

Constitutionality of the DMCA 272

Overview of Patent 298

OVERBREADTH

e First Amendment 273

Index 491

OVERRUN GOODS

Overrun Goods 130

PACKING SLIPS

e Labels, Documentation, or Packaging

Materials Are Counterfeit or Illicit 287

PARALLEL IMPORTS

Authorized-Use Defense: Gray Market

Goods 133

PARALLEL PROCEEDINGS

Parallel Proceedings 215

Global Settlement Negotiations 392

Parallel Civil Suits 393

PASSWORD

Reasonable Measures 171

Access Controls vs. Copy/Use Controls

235

Circumventing 244

PATENT

See generally Chapter VII

Patents 7

Copyrightability 18

Information is Not Secret 195

Parallel Development 198

Methods of Calculating Loss 338

PEER-TO-PEER

Reproduction 41

Distribution of a Work … 51

Fair Use in Criminal Cases 72

Determining a Restitution Figure 354

PERFORMANCES AND

PHONOGRAMS TREATY

DMCA’s Background and Purpose 233

PHONORECORDS

Elements 16

Infringement of the Copyright 33

Infringement of at Least 10 Copies ... 47

Tracking in Labels Axed to,

Enclosing ... 285

Property Subject to Forfeiture 360

PORNOGRAPHY

Restricting Minors’ Access to the Internet

269

POST-SALE CONFUSION

Likelihood of Confusion, Mistake, or

Deception 117

PREEMPTION

Federal Preemption 12

Other Charges to Consider 231

Whether the Person Is Subject to

Prosecution in Another Jurisdiction 383

PREREGISTRATION

“Preregistration” of Certain Types of

Works 20

Work Being Prepared for Commercial

Distribution 53

PRE-RELEASE PIRACY

Elements 16

Distribution of a Work … 51

Emerging and Special Issues 76

Retail Value 320

Pre-release Piracy Increases the Oense

Level by 2 324

PRESCRIPTION DRUGS

Protecting consumers from fraud 93

PRINCIPLES OF FEDERAL

PROSECUTION

Introduction 377

Special Considerations in Deciding

Whether to Charge Corporations and

Other Business Organizations 385

PRIOR APPROVAL

Other Charges to Consider 152

Department of Justice Oversight 222

Other Charges to Consider 230

Gift Issues 398

PRIVATE FINANCIAL GAIN

See PURPOSES OF COMMERCIAL

ADVANTAGE OR PRIVATE

FINANCIAL GAIN

PRIVATE INVESTIGATORS

Determining a Restitution Figure 356

e Individual’s History of Criminal

492 Prosecuting Intellectual Property Crimes

Oenses and Civil Intellectual Property

Violations 382

Oers of Assistance From Victims and

Related Parties 397

Private Investigators 401

PRODUCT TAMPERING

See TAMPERING

PROSECUTORIAL PRIORITIES

Federal Law Enforcement Priorities 378

PROTECTING AMERICAN GOODS

AND SERVICES ACT OF 2005

Overview 90

Tracked 99

PROTECTIVE ORDERS

See generally Chapter IV.D.

Reasonable Measures 174

Domain Name Forfeiture 374

Stays and Protective Orders to Delay

Civil Proceedings During Criminal

Prosecution 396

PUBLIC DOMAIN

See generally Chapter IV.C.6.

Reproduction 37

Elements in the Public Domain 166

Information is Not Secret 194

Claim of Right—Public Domain and

Proprietary Rights 201

To a Copyrighted Work 248

Congress’s Constitutional Authority to

Enact § 1201 of the DMCA 272

Fair Use 279

False Marking of Patent 300

PUBLIC DISTRIBUTION

e Rights Protected by Copyright 14

PUBLIC PERFORMANCE

e Rights Protected by Copyright 14

Proof of Copyright at Trial 24

Distribution 41

Jurisdiction 62

Internet Streaming 77

PUBLICALLY ACCESSIBLE

COMPUTER NETWORK

See ACCESSIBLE TO THE GENERAL

PUBLIC

PURPOSES OF COMMERCIAL

ADVANTAGE OR PRIVATE

FINANCIAL GAIN

When Infringement Is Criminal 15

Elements 16

Additional Element for Enhanced

Sentence ... 55

Misdemeanor Copyright Infringement 59

Fair Use in Criminal Cases 73

Internet Streaming 78

Cyberlockers and Linking Sites 78

Statutory Penalties 80

Other Charges to Consider 81

Tracked 98

Consideration vs. Commercial Advantage

and Private Financial Gain 99

Additional 18 U.S.C. § 1832 Elements

185

Other Charges to Consider 225

Key Concepts: Access Controls vs. Copy

Controls, Circumvention vs. Tracking

234

Circumventing Access Controls 241

Tracking in Access Control

Circumvention Tools and Services 253

Tracking in Tools, Devices, and

Services to Circumvent Copy Controls

259

Falsifying, Altering, or Removing

e Defendant Tracked 284

Oenses Involving Copyright … 311

Oense Not Committed for Commercial

Advantage or Private Financial Gain

Reduces the Oense Level by 2 326

QUID PRO QUO

Consideration vs. Commercial Advantage

and Private Financial Gain 100

Index 493

RACKETEER INFLUENCED AND

CORRUPT ORGANIZATIONS (RICO)

Other Charges to Consider 87

Other Charges to Consider 152

Other Charges to Consider 296

Proceeds 369

READ-ALOUD

Regulatory Exemptions to Liability Under

§ 1201(a)(1) 250

READILY ASCERTAINABLE BY THE

PUBLIC

Elements Common to 18 U.S.C. §§

1831, 1832 163

Information is Not Secret 194

Reverse Engineering 199

Void-for-Vagueness 204

REASONABLE MEASURES

Elements Common to 18 U.S.C.

§§1831, 1832 162

Reasonable Measures 169

Knowledge 178

Owner Failed to Take Reasonable

Measures to Protect Secrecy 193

Void-for-Vagueness 204

REASONABLE ROYALTY

Methods of Calculating Loss 337

REASONABLY FORESEEABLE

PECUNIARY HARM

Loss 332

RECKLESS DISREGARD

Legal Standard 26

When Copyright Protection Begins and

Ends 13

Infringement by Reproduction or

Distribution 38

REGISTRATION

When Copyright Protection Begins and

Ends 13

Existence of a Copyright 20

Denition of “Retail Value” as an Element

of the Oense 49

Emerging and Special Issues 76

Goods and Services 103

e Defendant Used a “Counterfeit

Mark”: Denition of a Counterfeit Mark

110

Lanham Act Defenses 137

Mark-Holder’s Failure to Use ® Symbol

142

Restitution 148

RELATED PARTIES

Oers of Assistance From Victims and

Related Parties 397

RENTAL OF SOFTWARE

Proof at Trial 33

REPACKAGING OF AUTHENTIC OR

GENUINE GOODS

Fair Use 70

Importing and Exporting Related to

Transporting 103

Not Genuine or Authentic 105

Repackaging Genuine Goods 134

RESTITUTION

See generally Chapters III.E.2., IV.F.1.c.,

VI.E.3., VIII, Appendix I

RETAIL VALUE

When Infringement Is Criminal 15

Elements 16

Infringement of at Least 10 Copies of 1 or

More Copyrighted ... 47

Misdemeanor Copyright Infringement 59

Sentencing Guidelines 150

Sentencing Guidelines 293

Oenses Involving Copyright 311

REVERSE ENGINEERING

Elements Common to 18 U.S.C.

§§1831, 1832 162

Reverse Engineering 199

Reverse Engineering and Interoperability

of Computer Programs 264

RICO

See RACKETEER INFLUENCED AND

CORRUPT ORGANIZATIONS

494 Prosecuting Intellectual Property Crimes

SATELLITE SERVICE

See CABLE AND SATELLITE SERVICE

SECRECY

Overview 161

Secrecy 164

Owner Failed to Take Reasonable

Measures to Protect Secrecy 193

SECURITY TESTING

Security Testing 270

SENTENCING GUIDELINES

See generally Chapter VIII

Denition of “Retail Value” as an Element

of the Oense 48

Sentencing Guidelines 80

Restitution 146

Sentencing Guidelines 149

Sentencing Guidelines 224

Restitution 292

Sentencing Guidelines 293

SERVICE MARKS

See generally Chapter III

Trademarks and Service Marks 6

Property Subject to Forfeiture 360

SHAM USE

e Genuine Mark Must Have Been in

Use by the Mark-Holder or Its Licensee

113

SHORT PHRASES

Short Phrases Are Not Copyrightable 18

SOFTWARE

See generally Chapter VI

“Preregistration” of Certain Types of

Works 21

Infringement of the Copyright 33

Infringement by Reproduction or

Distribution 34

Distribution 39

Denition of “Retail Value” as an Element

of the Oense 48

Work Being Prepared for Commercial

Distribution 54

Legal Standard 58

Operation of the Doctrine 64

“Archival Exception” for Computer

Software 74

Elements in the Public Domain 166

Product or Service Used or Intended for

Use in Interstate or Foreign Commerce

187

Dierences Between the DMCA and

Traditional Copyright Law 239

Regulatory Exemptions to Liability Under

§ 1201(a)(1) 250

Information Security Exemption 264

SOLICITATION OF GIFTS

See GIFTS

SOPHISTICATED MEANS

Sophisticated Means 340

Abuse of a Position of Trust 342

Use of Special Skill 342

SOUND RECORDINGS

Federal Preemption 14

“Preregistration” of Certain Types of

Works 20

Infringement of the Copyright 33

Work Being Prepared for Commercial

Distribution 53

Venue 63

Special Rules for Rental, Lease, and

Lending 68

Distinguished from Trademark and

Federal Jurisdiction 289

SPECIAL SKILL

Sentencing Guidelines 310

Decryption or Circumvention of Access

Controls May Increase the Oense Level

329

Sophisticated Means 340

Use of Special Skill 342

SPECIFIED UNLAWFUL ACTIVITY

Other Charges to Consider 87

Civil Forfeiture in Intellectual Property

Matters 369

Index 495

SPURIOUS MARK

Not Genuine or Authentic 104

e Counterfeit Mark Must Be Identical

to or Indistinguishable from a Genuine

Mark Owned by Another 106

STATE AND LOCAL

Other Charges to Consider 231

Federal Law Enforcement Priorities 379

Whether the Person Is Subject to

Prosecution in Another Jurisdiction 383

STATUTE OF LIMITATION

Statute of Limitations: 5 years 60

Statute of Limitations 138

Means of Misappropriation 174

Statute of Limitations 263

Statute of Limitations 290

STATUTORY DAMAGES

When Copyright Protection Begins and

Ends 13

e Defendant Acted “Willfully” 29

Determining a Restitution Figure 355

Parallel Civil Suits 393

STING OPERATIONS

Information is Not Secret 197

Void-for-Vagueness 20 3

Use Greater of Actual or Intended Loss

332

STIPULATION

Types of Protective Orders 210

Identifying Victims Who Qualify for

Restitution 351

STOP COUNTERFEITING IN

MANUFACTURED GOODS ACT

Overview 90

Intentionally 98

Goods and Services … 103

Likelihood of Confusion, Mistake, or

Deception 118

e Defendant Used the Counterfeit

Mark “Knowingly” 122

Authorized-Use Defense: Overrun Goods

130

Repackaging Genuine Goods 134

Sentencing Guidelines 294

Applicable Guideline is § 2B5.3 312

Retail Value 320

Restitution is Available—and Often

Required—in Intellectual Property

Prosecutions 344

STORAGE COSTS

Storage Costs and Destruction 142

Storage Costs in Counterfeit or Infringing

Products Cases 403

STUDIO OUT-TAKES

Other Charges to Consider 82

SUBPOENAS

e Genuine Mark Must Be Federally

Registered on the U.S. Patent and

Trademark Oce’s Principal Register

111

Pre-Trial Protective Order Issues 211

Other DMCA Sections at Do Not

Concern Prosecutors 240

Advantages and Disadvantages of Parallel

Civil and Criminal Proceedings 396

Assistance from Private ird Parties 404

SUBSTANTIAL STEP

Attempts and Conspiracies, Including the

Impossibility Defense 189

SUBSTANTIALLY OVERSTATES THE

SERIOUSNESS OF THE OFFENSE

Downward Departure Considerations

341

TAMPERING

Other Charges to Consider 152

TANGIBLE MEDIUM

What Copyright Law Protects 10

Existence of a Copyright 18

Other Charges to Consider 81

TECHNICAL JOURNAL

Information is Not Secret 196

496 Prosecuting Intellectual Property Crimes

TECHNOLOGICAL MEASURES

See generally Chapter V

Number of Infringing Items 315

Identifying Victims Who Qualify for

Restitution 348

THE GREATER OF ACTUAL LOSS OR

INTENDED LOSS

Loss 332

THREATS OF PROSECUTION

Victims Who Seek Advantage by reats

of Criminal Prosecution 391

TIMELY NOTICE OF ANY PUBLIC

COURT PROCEEDING

Victims’ Rights 388

TR ADE SHOWS

Information is Not Secret 196

TRADE SECRETS

See generally Chapters I, IV

Expression of an Idea vs. Idea Itself 19

Overview of Patent 298

e Statutory Sentencing Factors 308

Oenses Involving the Economic

Espionage Act (EEA) 331

Identifying Victims Who Qualify for

Restitution 348

Determining a Restitution Figure 353

Table of Forfeiture Provisions Arranged

by Criminal IP Statute 364

Introduction 378

Whether the Person Is Subject to

Prosecution in Another Jurisdiction 383

Gift Issues 400

TRADEMARKS

See generally Chapters I, III, VIII.C.1

Short Phrases Are Not Copyrightable 19

Distinguished from Trademark and

e Labels, Documentation, or Packaging

Materials Are Counterfeit or Illicit 286

Advantages of Charging a § 2318 Oense

291

Sentencing Guidelines 293

Other Charges to Consider 296

e Statutory Sentencing Factors 308

Restitution is Available—and Often

Required—in Intellectual Property

Prosecutions 343

Determining a Restitution Figure 352

Property Subject to Forfeiture 360

Civil Forfeiture in Intellectual Property

Matters 369

Parallel Civil Suits 393

Storage Costs in Counterfeit or Infringing

Products Cases 403

TRAFFICKING IN ACCESS CONTROL

CIRCUMVENTION

Tracking in Access Control

Circumvention Tools and Services 253

TREBLE DAMAGES

Global Settlement Negotiations 392

UNAUTHORIZED DISCLOSURE OF

GOVERNMENT INFORMATION

Introduction 155

UNIFORM TRADE SECRETS ACT

Introduction 156

Relevance of Civil Cases 162

Elements Common to 18 U.S.C. §§ 1831,

1832 168

Void-for-Vagueness 204

Methods of Calculating Loss 336

UNITS OF PROSECUTION

Units of Prosecution 143

False Marking of Patent 302

UNPUBLISHED COPYRIGHTED

WORK

Unpublished Works 71

UPLOADING

Distribution 41

Additional Element for Enhanced

Sentence: Purpose of Commercial

Advantage or Private Financial Gain 55

Overvie w 158

Means of Misappropriation 174

Applicable Guideline is § 2B5.3 311

Index 497

Manufacturing, Importing, or Uploading

Infringing Items Increases the Oense

Level by 2 324

e Nature and Seriousness of the

Oense 380

USE IN COMMERCE

e Genuine Mark Must Have Been in

Use by the Mark-Holder or Its Licensee

113

UTILITY PATENTS

Patents 7

VAGUENESS

Vagueness Challenges 139

Reasonable Measures 174

Knowledge 179

Void-for-Vagueness 203

Vagueness 276

VENUE

Venue 63

Venue 129

Venue 290

VICTIM AND WITNESS

PROTECTION ACT OF 1982

Determining a Restitution Figure 354

Victims’ Rights 387

VICTIM’S PARTICIPATION

No Downward Departure for the Victim’s

Participation in Prosecution 330

No Downward Departure for Victim’s

Participation in Developing the Case

342

VICTIMS’ RIGHTS

Victims’ Rights 387

VIDEO GAMES

“Preregistration” of Certain Types of

Works 21

How Congress Intended the Anti-

Circumvention Prohibition to Apply 248

Tracking in Access Control

Circumvention Tools and Services 256

Circumventing 260

VULNERABLE VICTIMS

Vulnerable Victims 330

WILLFUL BLINDNESS

Proof at Trial 32

e Defendant Used the Counterfeit

Mark “Knowingly” 122

e Defendant Acted “Knowingly” 284

WORK BEING PREPARED FOR

COMMERCIAL DISTRIBUTION

Elements 16

Proof at Trial 34

Retail Value for Pre-release Works 50

Distribution of a Work Being Prepared

for Commercial Distribution … 51

Retail Value 319

Pre-release Piracy Increases the Oense

Level by 2 324

WORKS MADE FOR HIRE

When Copyright Protection Begins and

Ends 13

WORLD INTELLECTUAL PROPERTY

ORGANIZATION (WIPO)

DMCA’s Background and Purpose 233

WRIT OF MANDAMUS

See Mandamus

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