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.

The “Willfulness” Element of Criminal Copyright Infringement Requires Knowledge that the Conduct Was Unlawful

Copyright infringers are strictly liable in civil copyright infringement cases.  Innocent intentions do not protect the infringer.  In contrast, criminal copyright enforcement aims to punish only violations that are both willful and economically motivated.  17 U.S.C. §506(a).  The economic motivation factor does not aid in distinguishing between civil and criminal cases, due to the broad definition of “financial gain” in §101 of the Copyright Act.  Courts therefore rely on the willfulness requirement in determining criminal conduct.

The Copyright Act does not define the word “willful.”  The meaning of “willful” has been interpreted to range from intentionally committing the infringing act to acting with an evil motive.  The Ninth Circuit held that

“Willfully” as used in 17 U.S.C. § 506(a) connotes a voluntary, intentional violation of a known legal duty.

(Opinion pdf page 14).

The government must prove that the infringer purposely either disobeyed or disregarded the law, as opposed to merely proving that the infringer knew she was copying.  The Ninth Circuit explained its rationale for its holding. 

Copying is of necessity an intentional act. If we were to read 17 U.S.C. § 506(a)’s willfulness requirement to mean only an intent to copy, there would be no meaningful distinction between civil and criminal liability in the vast majority of cases. That cannot be the result that Congress sought.

(Opinion pdf page 16).

At Liu’s trial, the district court judge erred by instructing the jury to apply a civil liability standard.  The district court did not instruct the jury that they must find that Liu knew his actions were unlawful before he could be convicted of criminal copyright infringement.

The Ninth Circuit further ruled that the district court’s error was not harmless.  Such an error is harmless when it is “clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error.”  (Opinion pdf page 18).  Liu presented evidence at his trial on which a jury could have found that he did not know he was illegally copying copyrighted material.  If the jury found that he did not know he was illegally copying copyrighted material, he could not be convicted of criminal copyright infringement.

The “Knowingly” Element of Trafficking in Counterfeit Labels Requires Knowledge that the Items Are Counterfeit

A conviction for trafficking in counterfeit labels requires the defendant to act “knowingly.”  18 U.S.C. §2318(a)(1)

Like “willfully,” the word “knowingly” is susceptible to more than one meaning in this context. It could mean either that the defendant knew that he was trafficking or that he knew that the labels were counterfeit. We hold that “knowingly” in this context means the latter, and thus the government must prove that Liu knew the labels were counterfeit.

(Opinion pdf page 21).

The district court did not clarify for the jury that Liu must be found to have known that the labels were counterfeit before he could be convicted.  That was error.  The Ninth Circuit concluded it was not harmless error, for the same reason it concluded the erroneous willfulness instruction was not harmless.

Ineffective Assistance of Counsel

The Ninth Circuit ruled that Liu’s counsel was ineffective for failing to raise a statute of limitations defense to the second count.  The second count of the February 17, 2010 second superseding indictment alleged that Liu willfully infringed musical works, including infringing the movie Crouching Tiger, Hidden Dragon between 2001 and July 31, 2003.  The district court corrected this count to refer to “motion picture,” and not “music.”  This was the first time that Crouching Tiger, Hidden Dragon appeared in the indictment.  The initial indictment was returned by the grand jury on November 29, 2006.

The statute of limitations in a criminal copyright case is five years.  17 U.S.C. §507(a).  An indictment usually tolls, i.e., stops, the statute of limitations from continuing to run.  For a superseding indictment to toll similar counts included in an earlier indictment, the defendant must be placed on notice of the charges against her.  In this case, there was a greater than five year gap between the most recent alleged incident of infringement, July 31, 2003, and the first date Liu was indicted for infringing Crouching Tiger, Hidden Dragon, November 29, 2006.

Plainly, count two of the second superseding indictment was not subject to tolling. Because the alleged conduct occurred more than five years earlier, this count was time-barred. We can think of no legitimate reason for Liu’s trial counsel not to have raised the obvious statute-of limitations defense, and Liu was unquestionably prejudiced by the result—he was convicted. Consequently, Liu’s counsel was constitutionally ineffective under Strickland v. Washington, 466 U.S. 668 (1984).

We have already vacated Liu’s conviction and sentence on count two based on the inadequate willfulness instruction.  Given that this count is time-barred, we see no reason the government should be allowed to retry him on it. On remand, the district court should dismiss count two.

(Opinion pdf page 31).

This case is U.S. v. Liu, No. 10-10613, Ninth Circuit Court of Appeals.

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