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when does copyright software infringement become a crime?

Posted by Steve Vondran | Feb 26, 2016 | 0 Comments

Criminal Software Infringement Law – Section 506 cases 


Software theft is a serious issue and where a company has widespread software installs without any proofs of purchase or without significant evidence that proper licenses have been obtained (ex. a partial or total lack of a defensible position in regard to properly licensing software) the officers and directors of a company have to be aware of the potential civil and criminal liability ramifications.  This blog will touch on some of the main legal areas that may be in play.

If our company has not purchased software licenses can it be a crime?

This is a question that pops up from time to time where we have a company that has NOTHING BUT unlicensed software.  In other words, say a company has 2 offices and there are 20 computer all running pirated Microsoft windows software or using Microsoft Office without ANY licenses.  This is a total lack of licensing.  Most companies are aware this can lead to civil liability as the Business Software Alliance (BSA) notes on its website when it says:

“If the copyright owner brings a civil action against you, the owner can seek to stop you from using its software immediately and can also request monetary damages. The copyright owner may then choose between actual damages, which include the amount it has lost because of your infringement as well as any profits attributable to the infringement, or statutory damages, which can be as much as $150,000 for each program copied.”

However, criminal sanctions for software or copyright infringement are also possible

Under Section 506 of the Copyright Act, it is a crime to infringe a copyright willfully and for purposes of commercial advantage.   17 U.S.C. 506 notes: (a) Criminal Infringement. (1) In general.  Any person who willfully infringes a copyright shall be punished as provided under section 2319 of title 18, if the infringement was committed (A) for purposes of commercial advantage or private financial gain;

(B) 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;

or (C) 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. Criminal copyright infringement is now punishable as a felony in certain circumstances. A person can receive five years of imprisonment if there has been reproduction or distribution in any 180-day period of at least 10 copies of one or more copyrighted works, with a retail value of more than $2,500. A second offense is punishable with up to ten years of imprisonment.  Criminal prosecutions of copyright infringement are handled by the U.S. Attorney's Office in the jurisdiction in which the criminal infringing activities took place.   Criminal actions are relatively rare, and usually reserved for large scale counterfeiting operations.  However, this is something that every company should be aware of.  According to the United States Attorney General website: “The principal criminal statute protecting copyrighted works is 17 U.S.C. § 506(a), which provides that “[a]ny person who infringes a copyright willfully and for purposes of commercial advantage or private financial gain” shall be punished as provided in 18 U.S.C. § 2319. Section 2319 provides, in pertinent part, that a 5-year felony shall apply if the offense “consists of the reproduction or distribution, during any 180-day period, of at least 10 copies or phonorecords, of 1 or more copyrighted works, with a retail value of more than $2,500.” 18 U.S.C. § 2319(b)(1).

The “three levels of copyright infringement”

According to wikipedia, (of course you need to look closer at the cases that apply in your jurisdiction), there are three different types of copyright infringement – innocent, ordinary and “willful” “There are three levels of civil copyright infringement: civil infringers may be “innocent”, “ordinary”, or “willful”. There is a range of penalties which can be imposed on criminal infringers depending on the egregiousness of the offense and in deference to prosecutorial discretion. Innocent infringers are those who are “not aware and had no reason to believe that his or her acts constituted infringement of copyright,” which implies that some degree of negligence or knowledge is required for ordinary civil infringement. Willful infringement, by extension, requires a higher degree of culpability. The degree of knowledge or “willfulness” required for civil liability for copyright infringement is rather low and undefined. No knowledge or intent is strictly necessary for a finding of civil infringement, insofar as it is a strict liability offense. While in certain cases there are indications that willful infringement in a civil suit requires some knowledge that the defendant knew that, “[h]is actions constituted copyright infringement or acted with a reckless disregard for the copyright holder's rights,” this position is disputed and some Circuits merely require the infringement is “knowing” to warrant an aggravated penalty for the defendant.”

Federal prosecution manual for intellectual property crimes provides its definition of criminal copyright

Since copyright crime is a federal crime, the United States Department of Justice and U.S. Attorneys will handle criminal copyright cases.  According to one federal IP crimes prosecution manual: “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 offense. Throughout 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 difficult.  As described in more detail below, a willful violation of any exclusive right for commercial advantage or private financial gain is a misdemeanor, whereas only a violation of the rights to reproduction and distribution under certain circumstances constitutes felony infringement. Copyright infringement is a crime if the defendant infringed willfully and did so either: (1) for commercial advantage or private financial 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 copyright infringement is punishable as a felony if the criminal conduct 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.” Thus, it is tough to say when the federal government may have interest in pursuing copyright crimes, but if there is widespread use (ex. mass software infringement throughout a company or organization), and a violation of the copyright holders exclusive reproduction or distribution rights was knowingly and intentionally done, and commercial or financial benefits were the motive then even the smallest of infringement cases (ex. 10-25 copies) can lead to criminal infringement proceedings.

What must the government prove to obtain a criminal copyright conviction?

Again, according to the USDOJ website: “There are four essential elements to a charge of criminal copyright infringement. In order to sustain a conviction under section 506(a), the government must demonstrate: (1) that a valid copyright; (2) was infringed by the defendant; (3) willfully; and (4) for purposes of commercial advantage or private financial gain. Attempts to infringe are prohibited to the same extent as the completed act. Conspiracies to violate the Act can be prosecuted under 18 U.S.C. § 371. A  minority of courts also require that the government prove the absence of a first sale, and refer to this as a fifth element of a section 506(a) offense. However, the majority position is that the absence of a first sale is an affirmative defense. Thus, the government does not need to allege it in the indictment or to present initially evidence to negate the defense.

Wrongful and willful distribution of copyrighted material

Section 506 also prohibits certain things: (3) Definition.–In this subsection, the term “work being prepared for commercial distribution” means (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 (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

Overview of other federal copyright criminal laws

Here are a few other laws that may be implicated:

(b) Forfeiture, destruction, and restitution.–Forfeiture, destruction, and restitution relating to this section shall be subject to section 2323 of title 18, to the extent provided in that section, in addition to any other similar remedies provided by law. (c) Fraudulent Copyright Notice.–Any person who, with fraudulent intent, places on any article a notice of copyright or words of the same purport that such person knows to be false, or who, with fraudulent intent, publicly distributes or imports for public distribution any article bearing such notice or words that such person knows to be false, shall be fined not more than $2,500. (d) Fraudulent Removal of Copyright Notice.–Any person who, with fraudulent intent, removes or alters any notice of copyright appearing on a copy of a copyrighted work shall be fined not more than $2,500. (e) False Representation.–Any person who knowingly makes a false representation of a material fact in the application for copyright registration provided for by section 409, or in any written statement filed in connection with the application, shall be fined not more than $2,500. (f) Rights of Attribution and Integrity.–Nothing in this section applies to infringement of the rights conferred by section 106A(a). 17 U.S.C.A. § 506.

What to do if your company is accused of being a software pirate?

Here is the most important tip to keep in mind:

The most important thing you can do when you receive a software audit letter and you know your company is completely short and there is widespread licensing shortages, “Lawyer up.” Do not talk to anyone, even your close friends and advisors.  Do not call the intellectual property lawyer on the letter and hope you can just “work it out.”  Big money can be at stake and the software attorneys will most likely NOT be sympathetic to your story.  Anyone you can speak with can be potentially called as witnesses against you.  Contact us at (877) 276-5084. 

Contact a federal copyright lawyer

If you are being charged with a federal copyright crime or facing a software audit, call us to discuss your case.  We can partner with federal criminal lawyers and team up to fight your case and handle any civil litigation that may be associated.  In addition, if you are concerned and facing a software licensing audit from the BSA, SIIA or other software publisher (ex. Adobe, Microsoft, Autodesk, Symantec, Oracle, IBM), call our firm to discuss your case.  We have experience representing officers, directors, corporations and businesses in civil software licensing disputes and compliance matters.   We offer low flat rate (predictable fees) for most cases and tenacious legal representation.  Contact us at (877) 276-5084. 

About the Author

Steve Vondran

Thank you for viewing our blogs, videos and podcasts. As noted, all information on this website is Attorney Advertising. Decisions to hire an attorney should never be based on advertising alone. Any past results discussed herein do not guarantee or predict any future results. All blogs are written by Steve Vondran, Esq. unless otherwise indicated. Our firm handles a wide variety of intellectual property and entertainment law cases from music and video law, Youtube disputes, DMCA litigation, copyright infringement cases involving software licensing disputes (ex. BSA, SIIA, Siemens, Autodesk, Vero, CNC, VB Conversion and others), torrent internet file-sharing (Strike 3 and Malibu Media), California right of publicity, TV Signal Piracy, and many other types of IP, piracy, technology, and social media disputes. Call us at (877) 276-5084. AZ Bar Lic. #025911 CA. Bar Lic. #232337


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