Criminal Copyright Infringement Does Not Equal Strict Liability

This case highlights one of the differences between civil liability and criminal liability in copyright infringement cases.  Julius Liu owned Super DVD, a company that commercially replicated CDs and DVDs for customers.  Replication is a different copying process than making a copy by burning.  Replication involves using a master copy to stamp content onto CDs and DVDs with a molding machine.  Immigration and Customs Enforcement agents obtained a warrant and searched the Super DVD warehouse in July 2003.  Lui was convicted of three counts of criminal copyright infringement and one count of trafficking in counterfeit labels after the grand jury returned the second superseding indictment in February 2010.

Liu appealed his convictions to the Ninth Circuit Court of Appeals.  The Ninth Circuit ordered dismissal of Liu’s conviction on the second count of criminal copyright infringement, ruling that Liu’s counsel was ineffective for failing to raise a statute of limitations defense to that count.  The Ninth Circuit vacated and remanded Liu’s convictions on the other counts, ruling that the district court improperly instructed the jury on the meaning of the words “willfully” and “knowingly” in the context of a criminal case.

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Washington State Copyright Infringer Sent to Prison

Everett, Washington resident and Korean national Sang Jin Kim was sentenced to 40 months in prison for criminal copyright infringement.  Kim was also ordered to forfeit to the U.S. government $409,776 of proceeds from his infringing activities.  Kim pled guilty to two counts of criminal copyright infringement.

According to the U.S. Department of Justice (DOJ), Kim offered a variety of copyrighted materials for download through his websites, including Korean television shows, U.S. movies, U.S. television shows, software, video games, fitness videos, wrestling videos and championship fight videos.  Kim did not have licenses to distribute any of these copyrighted materials and charged users subscription fees to download content.  Approximately 20,000 users subscribed to Kim’s websites.  Some of the U.S. movies Kim made available on his websites were still playing in theaters and were not available on DVD.  He also made Korean television programs available in the U.S. weeks before authorized U.S. distributors made them available.

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Possible Prison Sentences for Operators of Illegal Movie Downloading Website

Earlier this week, the U.S. Department of Justice released its announcement that two individuals from the Northwest, Joshua David Evans of North Bend, Washington and Jeremy Lynn Andrew, of Eugene, Oregon, pleaded guilty to criminal copyright infringement for their participation in the NinjaVideo.net website. 

NinjaVideo.net was “a website that provided millions of users with the ability to illegally download infringing copies of copyright-protected movies and television programs in high-quality formats,” according to DOJ releases.  Hundreds of television shows and movies were available for downloading on the website, including movies that were still playing in theaters and some that had yet to be released in theaters.  Many downloads were available for free, but even more content was available to website visitors who donated at least $25.  NinjaVideo.net also generated income from online advertising.  It generated a total of $505,000 in income during its two and one-half years of operation.  It was shut down by law enforcement in June 2010.

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Zediva DVD Streaming Service Infringing or Not?

Zediva recently captured the attention of copyright commentators with its new streaming movie service.  Zediva Streams New Releases Through Copyright Loophole, by Ryan Singel, captures the essence of what the service is about.  As soon as a movie is released on DVD, Zediva buys it, then rents it and a DVD player to you.  The DVD and DVD player remain in Zediva’s data center and the movie is streamed to you over the Internet so that you can see it on PC, Mac or Google TV devices with Adobe Flash.  You can’t download or copy the DVD – that’s a violation of Zediva’s Terms of Use.  The service is designed to allow movie watchers to see DVD releases sooner than they could on Nexflix, which has agreed not to rent out movies in the first month they are available on DVD.  According to Singel, Zediva doesn’t have any licensing agreements with the studios and does not intend to seek any.

Zediva’s FAQs draw analogies between its service and brick and mortar DVD rental stores. Perhaps Zediva’s founders and attorneys think Zediva’s service is noninfringing for the same reason a brick and mortar store’s service is noninfringing.  The first sale doctrine (17 USC §109)  allows the owner of a particular copy of a copyrighted work to sell or dispose of that particular copy without regard to the copyright owner.  That is why lending libraries and DVD rental stores are noninfringing uses of works.  Section 109 specifically excludes sound recordings and computer programs from the first sale doctrine and that is why you can’t rent a music CD or a computer program.  A software license can seem like a rental, but it is not.  You get a license because the copyright holder or someone authorized by the copyright holder grants you one.  With a rental, a third party rents something to you without the authorization of the copyright holder.

James Grimmelmann argues against Zediva’s success in That Zediva Thing? It’s So Not Going to Work. Grimmelmann makes the point that the first sale doctrine is a defense only to distribution and display rights and is irrelevant to a performance right claim.  The Copyright Act gives the copyright owner the right to perform the copyrighted work publicly.   

To perform or display a work “publicly” means —

(1) to perform or display it at a place open to the public or at any place where a substantial number of persons outside of a normal circle of a family and its social acquaintances is gathered; or

(2) to transmit or otherwise communicate a performance or display of the work to a place specified by clause (1) or to the public, by means of any device or process, whether the members of the public capable of receiving the performance or display receive it in the same place or in separate places and at the same time or at different times.

17 USC §101 

Grimmelmann compares two cases, Columbia Pictures Industries v. Redd Horne  and Cartoon Network LP, LLLP v. CSC Holdings, Inc. In Redd Horne, a video store rented video tapes together with private viewing rooms where its customers could view the videos.  The court held that was a public performance that could be prohibited by movie studio copyright owners.  In Cartoon Network, Cablevision offered a “cloud” DVR service in which a customer could record a TV show to a remote DVR system and have it played back to her TV set later on.  The court in Cartoon Network held that this was not a public performance.

Grimmelmann explains that the distinguishing factor in the two cases is that in Cartoon Network, each customer viewed a distinct copy, whereas in Redd Horne, the video store owner kept showing the same copy over and over again to different people.  So long as the customer views her own distinct copy, it is not a public performance.  There is certainly support for this interpretation in the Copyright Act, in which members of the public can “receive it [the performance] in the same place or in separate places and at the same time or at different times.”  Grimmelmann also thinks it’s significant that Zediva keeps physical control of its DVDs at all times, just as the video store in Redd Horne kept physical control of the videos at all times.  The customers in Cartoon Network controlled their viewing times.  Netflix and video store customers physically control the DVDs they rent.

Can Zediva get around these distinct copy and viewing in different places at different times predicaments?  A unique feature of the Zediva service is that once a customer starts watching a movie, that particular DVD of the movie is not available for other customers to use.  Zediva buys its DVDs and does not copy them.  A Zediva customer has up to two weeks to finish watching her movie.  She can even watch the movie again during those two weeks.  If she wants to stop in the middle and continue the next day at the same place in the movie, she can.  Are these differences enough to take Zediva from the Redd Horne result to the Cartoon Network result?

Even if Zediva clears the above hurdles, lack of control over the end users could turn a streamed DVD into an unauthorized public performance of that DVD.  How will Zediva police its users so that they do not publicly perform the streamed movies by playing them on screens in places open to the public, such as bars or other retail establishments?  Zediva’s Terms & Conditions of Use indicate that “public performance of any kind” is not allowed, but does not define “public performance.”  That language seems inadequate for anyone trying to prevent unauthorized public performances.

Finally, could this be the same kind of streaming as the illegal streaming that was targeted by the Obama Administration’s white paper and was the subject of last week’s post?  No, it could not.  Criminal streaming under the Copyright Act requires that the infringement occur after the motion picture has been released and before “copies for sale to the general public in the United States in a format intended to permit viewing outside a motion picture exhibition facility” are made available.  17 USC §506(a)(3)(B). Zediva streams DVDs it purchases after the movie has been released on DVD.

“Illegal Streaming” a Felony? White House White Paper Directed at Activity that is Already Criminal

The White House recently issued a white paper on intellectual property enforcement legislative recommendations. I read the white paper after reading White House wants new copyright law crackdown, by Declan McCullagh. McCullagh states, “The White House today proposed sweeping revisions to U.S. copyright law, including making “illegal streaming” of audio or video a federal felony and allowing FBI agents to wiretap suspected infringers.”  I think a more accurate description is to say that the White House requests Congress to enact measures that increase the ability of the federal government to prosecute conduct that is already criminal and involves the use of intellectual property.

The white paper recommends changes in the following categories:

  • Increasing the statutory maximum sentences for crimes involving economic espionage and drug offenses under the Federal Food, Drug and Cosmetic Act (FFDCA), particularly for counterfeit drug offenses.
  • Increasing the range of U.S. Sentencing Guidelines for intellectual property offenses for crimes involving (1) the theft of trade secrets and economic espionage, (2) trademark and copyright offenses when infringing products are knowingly sold for use in national defense, national security, critical infrastructure, or by law enforcement, (3) intellectual property offenses committed by organized criminal enterprises/gangs, (4) intellectual property offenses that risk death or serious bodily injury and for offenses involving counterfeit drugs and (5) repeat intellectual property offenders.
  • Legislative changes to give enforcement agencies the tools they need to combat infringement by (1) clarifying that, in appropriate circumstances, infringement by streaming, or by means of other similar new technology, is a felony, (2) authorizing Homeland Security (DHS) to share pre-seizure information with rightholders and (3) giving law enforcement authority to seek a wiretap for criminal copyright and trademark offenses.
  • Legislative changes to allow DHS to share information about enforcement activities with rightholders and information about and samples of circumvention devices with rightholders post-seizure.
  • Legislative changes to improve U.S. enforcement efforts involving pharmaceuticals, including counterfeit drugs.
  • Legislative changes increasing U.S. Customs and Border Protection’s (CBP) authority to issue administrative penalties.
  • A legislative change to create a right of public performance for copyright owners for sound recordings transmitted by over-the-air broadcast stations.

The white paper discusses increasing sentences and enabling law enforcement to use newer technology tools than those currently authorized to detect conduct that is already a crime.  Regarding infringement by streaming, the white paper states:

Existing law provides felony penalties for willful copyright infringement, but felony penalties are predicated on the defendant either illegally reproducing or distributing the copyrighted work.  Questions have arisen about whether streaming constitutes the distribution of copyrighted works (and thereby is a felony) and/or performance of those works (and thereby is a not a felony). These questions have impaired the criminal enforcement of copyright laws.  To ensure that Federal copyright law keeps pace with infringers, and to ensure that DOJ and U.S. law enforcement agencies are able to effectively combat infringement involving new technology, the Administration recommends that Congress clarify that infringement by streaming, or by means of other similar new technology, is a felony in appropriate circumstances.

Not all infringing streaming is a crime or “illegal streaming.”  Many people would say that the peer to peer streaming the U.S Supreme Court condemned in MGM v. Grokster  is “illegal streaming.”  That case, however, is about the extent to which the providers of software that could be used for non-infringing purposes could be held liable for the end users’ infringing uses.  Grokster was a civil copyright infringement case and there is no suggestion in the court’s opinion that MGM thought Grokster committed a crime.  The type of “illegal streaming” that is discussed in the white paper is streaming that is used by criminals to further their crimes. 

Presently, infringing downloading can be a criminal offense when it is willful.  17 USC §506.  An infringer acts “willfully” when she has knowledge that the act is infringing or recklessly disregards the possibility of infringement.  Subsection 506(a)(1)(C) provides that a person who willfully infringes a copyright commits a criminal 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.

To that extent, “illegal streaming” is already a crime and can be a felony under 18 USC §2319(d) and 18 USC §3559(a). The white paper proposes to clarify when “illegal streaming” is a felony and when it is not.

The white paper does not advocate increasing copyright and trademark protection and enforcement across the board.  Instead, it distinguishes activity that is more commonly thought of as a less serious violation.  For example, with respect to enhancing the offense level for a defendant who knowingly sells infringing products for military or other critical uses,

The Administration also recommends adding an application note to the provision to ensure that sales that only indirectly impact national defense or security, law enforcement functions, or critical infrastructure are not swept into the provision. Thus, a sale of counterfeit semiconductors for use in a military system qualifies for the enhancement; the sale of a counterfeit toner cartridge for a computer printer used at military headquarters would ordinarily not.

The changes proposed in the white paper are not sweeping changes to copyright law, but rather more modest changes to aid law enforcement and to protect people from truly harmful intellectual property infringements such as occur with counterfeit drugs.