[Congressional Record Volume 143, Number 160 (Thursday, November 13, 1997)]
[Senate]
[Pages S12689-S12692]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     NO ELECTRONIC THEFT (NET) ACT

  Mr. LOTT. Mr. President, I ask unanimous consent that the Judiciary 
Committee be discharged from further consideration of H.R. 2265 and, 
further, that the Senate proceed to its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       A bill (H.R. 2265) to amend the provisions of title 17 and 
     18, United States Code, to provide greater copyright 
     protection by amending criminal copyright infringement 
     provisions, and for other purposes.

  The PRESIDING OFFICER. Is there objection to the immediate 
consideration of the bill?
  There being no objection, the Senate proceeded to consider the bill.
  Mr. HATCH. Mr. President, I rise in support of passage of H.R. 2265, 
The No Electronic Theft [NET] Act. This bill plugs the ``LaMacchia 
Loophole'' in criminal copyright enforcement.
  Current sec. 506(a) of the Copyright Act contains criminal penalties 
for willful copyright infringement for ``commercial advantage or 
private financial gain.'' In U.S. versus LaMacchia, 871 F. Supp. 535 
(D. Mass. 1994), defendant, a graduate student attending MIT, 
encouraged lawful purchasers of copyrighted computer games and other 
software to upload these works via a special password to an electronic 
bulletin board on the Internet. The defendant then transferred the 
works to another electronic address and urged other persons with access 
to a second password to download the materials for personal use without 
authorization by or compensation to the copyright owners. Because the 
defendant never benefited financially from any of these transactions, 
the current criminal copyright infringement could not be used. 
Furthermore, the court held that neither could the federal wire fraud 
statute, since Congress never envisioned protecting copyrights under 
that statute. For persons with few assets, civil liability is not an 
adequate deterrent.
  It is obvious that great harm could be done to copyright owners if 
this practice were to become widespread. Significant losses to 
copyright holders would undermine the monetary incentive to create 
which is recognized in our Constitution. Mr. President, I believe that 
willful, commercial-scale pirating of copyrighted works, even when the 
pirate receives no monetary reward, ought to be nipped in the bud. This 
bill does that.
  I will admit, Mr. President, that I initially had concerns about this 
bill. I was afraid that the language was so broad that the net could be 
cast too widely--pardon the pun--so that minor offenders or persons who 
honestly believed that they had a legitimate right to engage in the 
behavior prohibited by the bill would be swept in. What of the educator 
who feels that his or her action is a fair use of the copyrighted work? 
Although the bill is not failsafe, because of the severity of the 
potential losses to copyright owners from widespread LaMacchia-like 
behavior and the little time remaining in this session, on balance I 
was persuaded to support the bill.
  I place great store by the ``willfulness'' requirement in the bill. 
Although there is on-going debate about what precisely is the 
``willfulness'' standard in the Copyright Act--as the House Report 
records--I submit that in the LaMacchia context ``willful'' ought to 
mean the intent to violate a known legal duty. The Supreme Court has 
given the term ``willful'' that construction in numerous cases in the 
past 25 years, for example: U.S. versus Bishop, 412, U.S. 346 (1973); 
U.S. versus Pomponio, 429 U.S. 987 (1976); Cheek versus U.S., 498 U.S. 
192 (1991); and Ratzlaf versus U.S., 510 U.S. 135 (1994). As Chairman 
of the Judiciary Committee, that is the interpretation that I give to 
this term. Otherwise, I would have objected and not allowed this bill 
to pass by unanimous consent. Under this standard, then, 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.

  I am also relying upon the good sense of prosecutors and judges. 
Again, the purpose of the bill is to prosecute commercial-scale pirates 
who do not have commercial advantage or private financial gain from 
their illegal activities. But if an over-zealous prosecutor should 
bring and win a case against a college prankster, I am confident that 
the judge would exercise the discretion that he or she may have under 
the Sentencing Guidelines to be lenient. If the practical effect of the 
bill turns out to be draconian, we may have to revisit the issue.
  In addition to my concern that the bill's scope might be too broad, I 
wanted to make sure that the language of the bill would not prejudice 
in any way the debate about the copyright liability of on-line and 
Internet service providers. Mr. President, there are good arguments on 
both sides of the issue, and I will shortly begin the process of 
bringing the parties together to try to obtain a mutually agree-upon 
solution to this problem. It is my understanding that representatives 
of the OSP/ISP community and the fair use community were consulted 
during the passage of the bill in the House. This tends to confirm my 
judgment that the bill was not intended to affect the OSP/ISP liability 
debate.
  Finally, Mr. President, I would like to point out two areas that are 
susceptible to interpretation mischief. First,

[[Page S12690]]

the bill amends the term ``financial gain'' as used in the Copyright 
Act to include ``receipt, or expectation of receipt, of anything of 
value, including receipt of other copyrighted works.'' The intent of 
the change is to hold criminally liable those who do not receive or 
expect to receive money but who receive tangible value. It would be 
contrary to the intent of the provision, according to my understanding, 
if ``anything of value'' would be so broadly read as to include 
enhancement of reputation or value remote from the criminal act, such 
as a job promotion.
  Second, I am concerned about the interplay between criminal liability 
for ``reproduction'' in the bill and the commonly-held view that the 
loading of a computer program into random access memory [RAM] is a 
reproduction for purposes of the Copyright Act. Because most shrink-
wrap licenses purport to make the purchaser of computer software a 
licensee and not an owner of his or her copy of the software, the 
ordinary purchaser of software may not be able to take advantage of the 
exemption provided by sec. 117, allowing the ``owner'' of a copy to 
reproduce the work in order to use it in his or her computer.
  Many shrink-wrap licenses limit the purchaser to making only a single 
backup copy of his or her software. Thus, under a literal reading of 
the bill, the ordinary purchaser of computer software who loaded the 
software enough times in the 180-day period to reach the more-than-
$1,000 threshold may be a criminal. This is, of course, not the intent 
of the bill. Clearly, this kind of copying was not intended to be 
criminalized.
  Additionally, Congress has long recognized that it is necessary to 
make incidental copies of digital works in order to use them on 
computers. Programs or data must be transferred from a floppy disk to a 
hard disk or from a hard disk into RAM as a necessary step in their 
use. Modern operating systems swap data between RAM and hard disk to 
use the computer memory more efficiently. Given its purpose, it is not 
the intent of this bill to have the incidental copies made by the user 
of digital work be counted more than once in computing the total retail 
value of the infringing reproductions.
  As you can see, Mr. President, I do not believe this is the perfect 
bill, but it is a good bill that addresses a serious problem that has 
the potential of very soon undermining copyright in many works, not 
just computer software. I am confident that prosecutors and the courts 
will make their decisions with the purpose of the bill in mind--the 
elimination of willful, commercial-scale pirating of copyrighted works.
  Mr. LEAHY. Mr. President, America's founders recognized and valued 
the creativity of this Nation's citizens such that intellectual 
property rights are rooted in the Constitution. Article I, section 8, 
clause 8 of the Constitution states that ``The Congress shall have 
power * * * [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.'' The Continental 
Congress proclaimed, ``Nothing is more properly a man's own than the 
fruit of his study.''
  Protecting intellectual property rights is just as important today as 
it was when America was a fledgling nation.
  It is for this reason I am pleased that the Senate is considering 
H.R. 2265, the ``No Electronic Theft [NET] Act of 1997.'' I introduced 
the first legislation on this subject in 1995. The bill was the 
``Criminal Copyright Improvement Act of 1995,'' and it stood as the 
only legislation on this issue in the 104th Congress. I then made some 
changes to that bill and introduced it this session as the ``Criminal 
Copyright Improvement Act of 1997,'' S. 1044. Senator Kyl is an 
original cosponsor of S. 1044 and I thank him for his support.
  Like the Criminal Copyright Improvement Act of 1997, the NET Act of 
1997 would close a significant loophole in our copyright law and 
enhance the Government's ability to bring criminal charges in certain 
cases of willful copyright infringement. By insuring better protection 
of the creative works available online, this bill will also encourage 
the continued growth of the Internet and our National Information 
Infrastructure. It will encourage the ingenuity of the American people, 
and will send a powerful message to intellectual property pirates and 
thieves that we will not tolerate theft.
  For a criminal prosecution under current copyright law, a defendant's 
willful copyright infringement must be ``for purposes of commercial 
advantage or private financial gain.'' Not-for-profit or noncommercial 
copyright infringement is not subject to criminal law enforcement, no 
matter how egregious the infringement or how great the loss to the 
copyright holder. This presents an enormous loophole in criminal 
liability for willful infringers who can use digital technology to make 
exact copies of copyrighted software and other digitally encoded works, 
and then use computer networks for quick, inexpensive and mass 
distribution of pirated, infringing works. The NET Act would close this 
legal loophole.
  United States versus LaMacchia, 871 F. Supp. 535 (D. Mass. 1994), is 
an example of the problem this criminal copyright bill would fix. In 
that case, the defendant had set up computer bulletin board systems on 
the Internet. Users posted and downloaded copyrighted software 
programs. This resulted in an estimated loss to the copyright holders 
of over $1 million over a 6-week period. Since the defendant apparently 
did not profit from the software piracy, the Government could not 
prosecute him under criminal copyright law and instead charged him with 
wire fraud. The District Court described the student's conduct ``at 
best * * * as irresponsible, and at worst as nihilistic, self-
indulgent, and lacking in any fundamental sense of values.''
  Nevertheless, the Court dismissed the indictment in LaMacchia because 
it viewed copyright law as the exclusive authority for prosecuting 
criminal copyright infringement. The Court expressly invited Congress 
to revisit the copyright law and make any necessary adjustments, 
stating:

       Criminal as well as civil penalties should probably attach 
     to willful, multiple infringements of copyrighted software 
     even absent a commercial motive on the part of the infringer. 
     One can envision ways that the copyright law could be 
     modified to permit such prosecution. But, ``[i]t is the 
     legislature, not the Court which is to define a crime, and 
     ordain its punishment.''

  I introduced the Criminal Copyright Improvement Act of 1995 on August 
4, 1995 in response to this problem. The NET Act is the result of our 
efforts. It would ensure redress in the future for flagrant, willful 
copyright infringements in the following ways: First, it amends the 
term ``financial gain'' as used in the Copyright Act to include 
``receipt, or expectation of receipt, or anything of value, including 
the receipt of other copyrighted works.'' This revision would make 
clear that ``financial gain'' includes bartering for, and the trading 
of, pirated software.
  Second, it amends Section 506(a) of the Copyright Act to provide that 
any person who infringes a copyright willfully by the reproduction or 
distribution, including by electronic means, during any 180-day period, 
of one or more copies or phonorecords of one or more copyrighted works 
with a total retail value of more than $1,000, shall be subject to 
criminal liability.
  A misdemeanor offense under the bill is defined as an offense in 
which an individual reproduces or distributes one or more copies or 
phonorecords of one or more copyrighted works with a total value of 
more than $1,000.
  The felony threshold under the bill is defined as an offense in which 
an individual reproduces or distributes 10 or more copies of 
phonorecords of 1 or more copyrighted works with a total retail value 
of $2,500 or more.
  Section (2)(b) of the bill clarifies that for purposes of subsection 
506(a) of the Copyright Act only, ``willful infringement'' requires 
more than just evidence of making an unauthorized copy of a work. This 
clarification was included to address the concerns expressed by 
libraries and Internet access to services because the standard of 
``willfulness'' for criminal copyright infringement is not statutorily 
defined and the court's interpretation have varied somewhat among the 
Federal circuits.
  This clarification 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 definition of ``willful'' 
as it is used elsewhere in the Copyright Act.

[[Page S12691]]

  Third, the bill requires that any criminal proceeding brought under 
the Copyright Act must commence within 5 years from the time the cause 
of action arose. The current limit, as contained in section 507(a) of 
the Copyright Act, is 3 years. This brings copyright crimes into 
conformance with the statute of limitations for other criminal acts 
under title 18 of the United States Code.
  Fourth, the bill would insert new subsections in title 18 of the 
United States Code requiring that victims of offenses concerning 
unauthorized fixation and trafficking of live musical performances and 
victims of offenses concerning trafficking in counterfeit goods or 
services be given the opportunity to provide a victim impact statement 
to the probation officer preparing the presentence report. The bill 
directs that the statement identify the victim of the offense and the 
extent and scope of the injury and loss suffered, including the 
estimated economic impact of the offense on that victim.
  The NET Act reflects the recommendations and hard work of the 
Department of Justice and the Copyright Office. Specifically, Scott 
Charney and David Green of the Department of Justice and Marybeth 
Peters, Shira Perlmutter, and Jule Sigall of the Copyright Office 
helped me on this legislation. The Department of Justice and the 
Copyright Office provided valuable input as far back as 3 years ago, 
when I introduced the first legislation on this subject, and they have 
worked with me through the drafting of this year's Senate bill and with 
me and all the interested parties on this year's House version to 
ensure that the final product was one that could be widely accepted. In 
fact, just today the Senate received a letter from the Department of 
Justice providing its views on the NET Act and strongly supporting the 
enactment of this legislation.
  I also want to thank Mr. Hyde, Mr. Conyers, Mr. Coble, Mr. Frank, and 
Mr. Goodlatte for their fine work on this matter.
  By passing this legislation, we send a strong message that we value 
intellectual property, as abstract and arcane as it may be, in the same 
way that we value the real and personal property of our citizens. Just 
as we will not tolerate the theft of software, CD's, books, or movie 
cassettes from a store, so will we not permit the stealing of 
intellectual property over the Internet.
  I urge my colleagues to support H.R. 2265, and I ask unanimous 
consent that a letter from the U.S. Department of Justice dated 
November 7, 1997, be printed in the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                                       U.S. Department of Justice,


                                Office of Legislative Affairs,

                                 Washington, DC, November 7, 1997.
     Hon. Orrin G. Hatch,
     Chairman, Committee on the Judiciary,
     U.S. Senate, Washington, DC.
       Dear Mr. Chairman, This provides the views of the 
     Department of Justice on H.R. 2265, the ``No Electronic Theft 
     (NET) Act,'' which was passed by the House of Representatives 
     on November 4, 1997, and which we understand may shortly be 
     considered in the Senate. We strongly support enactment of 
     this legislation.
       As introduced, H.R. 2265 built upon, and closely resembled, 
     S. 1044 and its predecessor bill that was introduced in the 
     104th Congress. The Department of Justice testified in 
     support of H.R. 2265 while the bill was being considered by 
     the House Judiciary Committee. We worked extensively with the 
     bill's sponsors to ensure that it would meet the concerns of 
     interested parties, including the Department of Justice, the 
     copyright community, and those non-profit organizations and 
     Internet Service Providers concerned about the possibility 
     that the new legislation might sweep too broadly. The result, 
     in our view, is an excellent bill that protects copyrights in 
     the digital age in a careful and balanced manner. The House-
     passed bill accomplishes several important goals, including:
       Permitting the Department to prosecute large-scale illegal 
     reproduction or distribution of copyrighted works where the 
     infringers act without a discernible profit motive, while 
     making clear that small-scale non-commercial copying 
     (copyrighted works with a total retail value of less than 
     $1,000) is not prosecutable under federal law;
       Clarifying that ``willful'' infringement must consist of 
     evidence of more that the mere intentional reproduction or 
     distribution of copyrighted products;
       Defining ``financial gain'' to include the ``receipt, or 
     expectation of receipt, of anything of value, including the 
     receipt of other copyrighted works,'' to ensure that persons 
     who illegally traffic in copyrighted works by using barter 
     rather than cash are covered by the statute;
       Clarifying that ``reproduction or distribution'' includes 
     electronic as well as tangible means;
       Extending the statute of limitations from three to five 
     years, bringing the criminal copyright statute into line with 
     most other criminal statutes;
       Establishing a recidivist provision that raises penalties 
     for second or subsequent felony copyright offenses;
       Recognizing victims' rights by allowing the producers of 
     pirated works to provide a victim impact statement to the 
     sentencing court; and
       Enhancing the deterrent power of the copyright criminal 
     laws by directing the Sentencing Commission to amend the 
     Sentencing guideline for copyright and trademark infringement 
     to allow courts to impose sentence based on the retail value 
     of the good infringed upon, rather than the often lower value 
     of the infringing good.
       The Department of Justice believes that the differences 
     between S. 1044, as introduced, and H.R. 2265, as passed by 
     the House of Representatives, are not significant. We 
     therefore recommend that the Senate expedite final passage of 
     this important piece of legislation by adopting the House-
     passed bill before the end of the first session of the 105th 
     Congress.
       Please do not hesitate to contact us if we may be of 
     additional assistance in connection with this or any other 
     matter. The Office of Management and Budget has advised that 
     there is no objection from the standpoint of the 
     Administration's program to the presentation of this report.
           Sincerely,
                                                      Andrew Fois,
                                       Assistant Attorney General.

  Mr. KYL. Mr. President, I am proud to support H.R. 2265, the No 
Electronic Theft [NET] Act which is the companion bill to S. 1044, the 
Criminal Copyright Improvement Act of 1997, introduced by Senator Leahy 
and myself.
  H.R. 2265 passed the House of Representatives earlier this week and 
now has the opportunity to obtain Senate approval and be sent to the 
President before we adjourn for the session. The bill is supported by 
the Department of Justice, the U.S. Copyright Office, and the Software 
Publishers Association, which is the leading trade association of the 
computer software industry, representing over 1,200 companies that 
develop and market software for entertainment, business, education, and 
the Internet.
  H.R. 2265 will help combat software piracy by closing a major 
loophole in federal law, which was highlighted by the case of United 
States v. LaMacchia, 871 F.Supp. 535 (D. Mass. 1994). Under current 
law, a showing of financial gain is required to prove criminal 
copyright infringement. In LaMacchia, the defendant maliciously pirated 
software which resulted in an estimated loss to the copyright holders 
of over $1 million in just over 6 weeks. Because LaMacchia did not 
profit from the software piracy, he could not be prosecuted under 
criminal copyright law.
  Because much software piracy on the Internet apparently occurs 
without the exchange of money, the so-called ``LaMacchia loophole'' 
discourages law enforcement from taking action against willful, 
commercial-scale software pirates out to gain notoriety, not money.
  In sum, this bill extends criminal infringement of copyright to 
include any person--not just those who act for purposes of commercial 
advantage or private financial gain--who willfully infringe a 
copyright. Specifically, the bill: (1) expands the definition of 
``financial gain'' to include the expectation of receipt of anything of 
value--including the receipt of other copyrighted works; (2) sets 
penalties for willfully infringing a copyright by reproducing or 
distributing (including electronically), during any 180-day period, one 
or more copies of one or more copyrighted works with a total retail 
value of more than $1,000; (3) extends the statute of limitations for 
criminal copyright infringement from three to five years; (4) punishes 
recidivists more severely; (5) extends victims' rights with regard to 
criminal copyright infringement; and (6) directs the Sentencing 
Commission to determine sufficiently stringent guidelines to deter 
these types of crimes.
  H.R. 2265 is needed to help protect the interests of the entire 
software industry by protecting against the unauthorized copying and 
distribution of

[[Page S12692]]

computer programs. In 1996, piracy cost the software industry over $2 
billion in the United States and over $11 billion around the world.
  Mr. President, the United States is the world's leader in 
intellectual property. We export billions of dollars of copyrighted 
works every year. Our creative community is a bulwark of our national 
economy. By addressing the flaw in our copyright law that LaMacchia has 
brought to light, H.R. 2265 sends the strong message that we value the 
contributions of writers, artists, and other creators, and will not 
tolerate the theft of their intellectual endeavors.
  I urge my colleagues to join me in supporting this important piece of 
legislation.
  Mr. LOTT. Mr. President, I ask unanimous consent that the bill be 
considered read a third time and passed; that the motion to reconsider 
be laid upon the table; and that any statements relating to the bill 
appear at the appropriate place in the Record.
  The bill (H.R. 2265) was read the third time and passed.

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