[House Report 108-600]
[From the U.S. Government Publishing Office]



108th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     108-600

======================================================================
 
               ANTI-COUNTERFEITING AMENDMENTS ACT OF 2004

                                _______
                                

 July 13, 2004.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

 Mr. Sensenbrenner, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 3632]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 3632) to prevent and punish counterfeiting of copyrighted 
copies and phonorecords, and for other purposes, having 
considered the same, reports favorably thereon with an 
amendment and recommends that the bill as amended do pass.

                                CONTENTS

                                                                   Page
The Amendment....................................................     1
Purpose and Summary..............................................     4
Background and Need for the Legislation..........................     4
Hearings.........................................................     6
Committee Consideration..........................................     6
Vote of the Committee............................................     6
Committee Oversight Findings.....................................     7
New Budget Authority and Tax Expenditures........................     7
Congressional Budget Office Cost Estimate........................     7
Performance Goals and Objectives.................................     8
Constitutional Authority Statement...............................     8
Section-by-Section Analysis and Discussion.......................     8
Changes in Existing Law Made by the Bill, as Reported............     9
Markup Transcript................................................    13

                             The Amendment

    The amendment is as follows:
    Strike all after the enacting clause and insert the 
following:

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Anti-counterfeiting Amendments Act 
of 2004''.

SEC. 2. PROHIBITION AGAINST TRAFFICKING IN COUNTERFEIT COMPONENTS.

    (a) In General.--Section 2318 of title 18, United States Code, is 
amended--
            (1) by striking the section heading and inserting the 
        following:

``Sec. 2318. Trafficking in counterfeit labels, illicit labels, or 
                    counterfeit documentation or packaging'';

            (2) by striking subsection (a) and inserting the following:
    ``(a) Whoever, in any of the circumstances described in subsection 
(c), knowingly traffics in--
            ``(1) a counterfeit label or illicit label affixed to, 
        enclosing, or accompanying, or designed to be affixed to, 
        enclose, or accompany--
                    ``(A) a phonorecord;
                    ``(B) a copy of a computer program;
                    ``(C) a copy of a motion picture or other 
                audiovisual work;
                    ``(D) a copy of a literary work;
                    ``(E) a copy of a pictorial, graphic, or sculptural 
                work;
                    ``(F) a work of visual art; or
                    ``(G) documentation or packaging; or
            ``(2) counterfeit documentation or packaging,
shall be fined under this title or imprisoned for not more than 5 
years, or both.'';
            (3) in subsection (b)--
                    (A) in paragraph (2), by striking ``and'' after the 
                semicolon;
                    (B) in paragraph (3)--
                            (i) by striking ``and `audiovisual work' 
                        have'' and inserting the following: `` 
                        `audiovisual work', `literary work', 
                        `pictorial, graphic, or sculptural work', 
                        `sound recording', `work of visual art', and 
                        `copyright owner' have''; and
                            (ii) by striking the period at the end and 
                        inserting a semicolon; and
                    (C) by adding at the end the following:
            ``(4) the term `illicit label' means a genuine certificate, 
        licensing document, registration card, or similar labeling 
        component--
                    ``(A) that is used by the copyright owner to verify 
                that a phonorecord, a copy of a computer program, a 
                copy of a motion picture or other audiovisual work, a 
                copy of a literary work, a copy of a pictorial, 
                graphic, or sculptural work, a work of visual art, or 
                documentation or packaging is not counterfeit or 
                infringing of any copyright; and
                    ``(B) that is, without the authorization of the 
                copyright owner--
                            ``(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 
                        affixed by the respective copyright owner; or
                            ``(ii) in connection with a genuine 
                        certificate or licensing document, knowingly 
                        falsified in order to designate a higher number 
                        of licensed users or copies than authorized by 
                        the copyright owner, unless that certificate or 
                        document is used by the copyright owner solely 
                        for the purpose of monitoring or tracking the 
                        copyright owner's distribution channel and not 
                        for the purpose of verifying that a copy or 
                        phonorecord is noninfringing;
            ``(5) the term `documentation or packaging' means 
        documentation or packaging, in physical form, for a 
        phonorecord, copy of a computer program, copy of a motion 
        picture or other audiovisual work, copy of a literary work, 
        copy of a pictorial, graphic, or sculptural work, or work of 
        visual art; and
            ``(6) the term `counterfeit documentation or packaging' 
        means documentation or packaging that appears to be genuine, 
        but is not.'';
            (4) in subsection (c)--
                    (A) by striking paragraph (3) and inserting the 
                following:
            ``(3) the counterfeit label or illicit label is affixed to, 
        encloses, or accompanies, or is designed to be affixed to, 
        enclose, or accompany--
                    ``(A) a phonorecord of a copyrighted sound 
                recording or copyrighted musical work;
                    ``(B) a copy of a copyrighted computer program;
                    ``(C) a copy of a copyrighted motion picture or 
                other audiovisual work;
                    ``(D) a copy of a literary work;
                    ``(E) a copy of a pictorial, graphic, or sculptural 
                work;
                    ``(F) a work of visual art; or
                    ``(G) copyrighted documentation or packaging; or''; 
                and
                    (B) in paragraph (4), by striking ``for a computer 
                program''; and
            (5) in subsection (d)--
                    (A) by inserting ``or illicit labels'' after 
                ``counterfeit labels'' each place it appears; and
                    (B) by inserting before the period at the end the 
                following: ``, and of any equipment, device, or 
                material used to manufacture, reproduce, or assemble 
                the counterfeit labels or illicit labels''.
    (b) Civil Remedies.--Section 2318 of title 18, United States Code, 
is further amended by adding at the end the following:
    ``(f) Civil Remedies.--
            ``(1) In general.--Any copyright owner who is injured, or 
        is threatened with injury, by a violation of subsection (a) may 
        bring a civil action in an appropriate United States district 
        court.
            ``(2) Discretion of court.--In any action brought under 
        paragraph (1), the court--
                    ``(A) may grant 1 or more temporary or permanent 
                injunctions on such terms as the court determines to be 
                reasonable to prevent or restrain a violation of 
                subsection (a);
                    ``(B) at any time while the action is pending, may 
                order the impounding, on such terms as the court 
                determines to be reasonable, of any article that is in 
                the custody or control of the alleged violator and that 
                the court has reasonable cause to believe was involved 
                in a violation of subsection (a); and
                    ``(C) may award to the injured party--
                            ``(i) reasonable attorney fees and costs; 
                        and
                            ``(ii) (I) actual damages and any 
                        additional profits of the violator, as provided 
                        in paragraph (3); or
                            ``(II) statutory damages, as provided in 
                        paragraph (4).
            ``(3) Actual damages and profits.--
                    ``(A) In general.--The injured party is entitled to 
                recover--
                            ``(i) the actual damages suffered by the 
                        injured party as a result of a violation of 
                        subsection (a), as provided in subparagraph (B) 
                        of this paragraph; and
                            ``(ii) any profits of the violator that are 
                        attributable to a violation of subsection (a) 
                        and are not taken into account in computing the 
                        actual damages.
                    ``(B) Calculation of damages.--The court shall 
                calculate actual damages by multiplying--
                            ``(i) the value of the phonorecords, 
                        copies, or works of visual art which are, or 
                        are intended to be, affixed with, enclosed in, 
                        or accompanied by any counterfeit labels, 
                        illicit labels, or counterfeit documentation or 
                        packaging, by
                            ``(ii) the number of phonorecords, copies, 
                        or works of visual art which are, or are 
                        intended to be, affixed with, enclosed in, or 
                        accompanied by any counterfeit labels, illicit 
                        labels, or counterfeit documentation or 
                        packaging.
                    ``(C) Definition.--For purposes of this paragraph, 
                the `value' of a phonorecord, copy, or work of visual 
                art is--
                            ``(i) in the case of a copyrighted sound 
                        recording or copyrighted musical work, the 
                        retail value of an authorized phonorecord of 
                        that sound recording or musical work;
                            ``(ii) in the case of a copyrighted 
                        computer program, the retail value of an 
                        authorized copy of that computer program;
                            ``(iii) in the case of a copyrighted motion 
                        picture or other audiovisual work, the retail 
                        value of an authorized copy of that motion 
                        picture or audiovisual work;
                            ``(iv) in the case of a copyrighted 
                        literary work, the retail value of an 
                        authorized copy of that literary work;
                            ``(v) in the case of a pictorial, graphic, 
                        or sculptural work, the retail value of an 
                        authorized copy of that work; and
                            ``(vi) in the case of a work of visual art, 
                        the retail value of that work.
            ``(4) Statutory damages.--The injured party may elect, at 
        any time before final judgment is rendered, to recover, instead 
        of actual damages and profits, an award of statutory damages 
        for each violation of subsection (a) in a sum of not less than 
        $2,500 or more than $25,000, as the court considers 
        appropriate.
            ``(5) Subsequent violation.--The court may increase an 
        award of damages under this subsection by 3 times the amount 
        that would otherwise be awarded, as the court considers 
        appropriate, if the court finds that a person has subsequently 
        violated subsection (a) within 3 years after a final judgment 
        was entered against that person for a violation of that 
        subsection.
            ``(6) Limitation on actions.--A civil action may not be 
        commenced under section unless it is commenced within 3 years 
        after the date on which the claimant discovers the violation of 
        subsection (a).''.
    (c) Conforming Amendment.--The item relating to section 2318 in the 
table of sections for chapter 113 of title 18, United States Code, is 
amended to read as follows:

``2318. Trafficking in counterfeit labels, illicit labels, or 
counterfeit documentation or packaging.''.

SEC. 3. OTHER RIGHTS NOT AFFECTED.

    (a) Chapters 5 and 12 of Title 17; Electronic Transmissions.--The 
amendments made by this Act--
            (1) shall not enlarge, diminish, or otherwise affect any 
        liability or limitations on liability under sections 512, 1201 
        or 1202 of title 17, United States Code; and
            (2) shall not be construed to apply--
                    (A) in any case, to the electronic transmission of 
                a genuine certificate, licensing document, registration 
                card, similar labeling component, or documentation or 
                packaging described in paragraph (4) or (5) of section 
                2318(b) of title 18, United States Code, as amended by 
                this Act; and
                    (B) in the case of a civil action under section 
                2318(f) of title 18, United States Code, to the 
                electronic transmission of a counterfeit label or 
                counterfeit documentation or packaging defined in 
                paragraph (1) or (6) of section 2318(b) of title 18, 
                United States Code.
    (b) Fair Use.--The amendments made by this Act shall not affect the 
fair use, under section 107 of title 17, United States Code, of a 
genuine certificate, licensing document, registration card, similar 
labeling component, or documentation or packaging described in 
paragraph (4) or (5) of section 2318(b) of title 18, United States 
Code, as amended by this Act.

                          Purpose and Summary

    H.R. 3632, the ``Anti-counterfeiting Amendments Act of 
2004,'' would expand the criminal provisions of 18 U.S.C. 
Sec. 2318 to combat the trafficking of counterfeit intellectual 
property products.

                Background and Need for the Legislation

    Counterfeiting of intellectual property continues to grow 
because of its high profitability and the difficulty of 
prosecuting individuals and groups connected with it. H.R. 3632 
arises from a new activity associated with software 
counterfeiting. To deter counterfeiting, software companies 
increasingly use sophisticated identification features to 
verify product authenticity. Since the authentication features 
cannot be added to the actual product, they are bundled with, 
or placed on, the product packaging. Many of these features are 
found in U.S. and foreign currency, including holograms, micro-
printing, and special ink.
    Because of the enormous opportunities for profits and the 
low risk of prosecution and significant punishment, the 
bundling of authentic labeling components with counterfeit 
software has become part of an intricate web of international 
organized crime. Although crime groups based in Asia produce 
the largest quantity of sophisticated counterfeits, 
manufacturing and distribution centers exist throughout the 
world. In fact, the State of California is a major entry and 
assembly point for counterfeit software, CD-ROMs, and 
components. In November 2001, Operation ``White Horse'' led to 
a U.S. Customs seizure of approximately $100 million in 
counterfeit software that was brought into the port of Long 
Beach, California. However, other such components were not 
seized by U.S. Customs in northern California due to questions 
surrounding the existence of legal authority to seize such 
components that were not affixed to or bundled with counterfeit 
items.
    Consumers are now accustomed to looking for these 
authentication features to protect themselves from being 
defrauded into buying counterfeit products. Legitimate 
authentication features are in high demand by those who seek to 
pass off counterfeit software as authentic. There has been a 
sharp increase in the theft of legitimate authentication 
features from factories that produce them and from shipment 
facilities that store and transport them. One American software 
company estimates that over 500,000 of its legitimate 
authentication features have been stolen from authorized 
replicators. These features are then bundled with counterfeit 
products. At times, the legitimate authentication features are 
trafficked online so that the person or groups who originally 
obtained the authentication features have no actual knowledge 
of how the authentication feature will be used in the future. 
The Committee is also aware of a recent case in which U.S. 
Attorneys declined to prosecute an individual trafficking in 
legitimate authentication features due to the difficulty in 
proving his intent to bundle them with counterfeit software. 
The Committee believes that in almost all instances, those who 
handle counterfeit authentication features are extremely likely 
to be engaged in fraudulent activity.
    The Committee was primarily aware of this problem in crimes 
involving software counterfeiting, although there have been 
occurrences where it exists with other types of intellectual 
property. The Committee fully intends that this law apply to 
other products not just software.
    The legislation creates a new definition of illicit labels 
as genuine labels that are:

        1) Lbeing used or otherwise distributed without the 
        authorization of the copyright owner, or

        2) Lknowingly falsified to indicate a higher number of 
        licensed users or copies than authorized by the 
        copyright owner unless the certificate or document is 
        used by the copyright owner solely to monitor or track 
        the copyright owner's distribution channel.

    H.R. 3632 also requires the forfeiture and destruction of 
any equipment, device, or material used to manufacture, 
reproduce, or assemble the counterfeit labels or illicit 
labels. The Committee intends this requirement to apply broadly 
to ensure that illegal actors do not resurface months or years 
after conviction using the same equipment another individual 
used previously.
    The Committee consulted with the Justice Department to 
ensure that the legislation does not create additional burdens 
for legitimate businesses. The Committee accepted all of the 
recommendations of the Justice Department, except its 
recommendation to place the civil provisions in Title 17. 
Noting the existence of other civil provisions in Title 18, the 
Committee felt that placement of the civil provisions in the 
legislation in Title 18 instead of Title 17 would avoid the 
potential for confusing the traditional Title 17 civil actions 
regarding online activities with those engaged in the illicit 
trafficking of authentication features.
    The ``grey-marketing'' community alerted the Committee to 
their concerns that early drafts of this legislation might 
penalize the sale of ``grey-market'' goods. The legislation is 
drafted in a manner to avoid any potential impact on the 
``grey-marketing'' community, with the following exception: the 
legislation would prohibit the changing of a label that would 
indicate an increase in the number of authorized users. For 
example, it would be illegal under this act to add a ``0'' to a 
``10-user'' license authentication label in an attempt to make 
the label appear to be for a ``100-user'' license. It is not 
the Committee's intent at this time to expand, limit, or 
otherwise modify existing jurisprudence of Congressional intent 
on grey marketing operations.
    The Committee does not intend that a legitimate, general-
purpose Internet marketplace site, such as eBay, Amazon, 
Froogle, or Yahoo!, through which third parties may list a wide 
variety of items for sale be considered to ``otherwise 
dispose'' of those items within the meaning of section 
2318(b)(2) if the Internet marketplace site does not direct or 
request the offer or sale of the specific item, but rather it 
is initiated by an unaffiliated third party, and the Internet 
marketplace site does not own or take custody of the item. The 
Committee expects that such legitimate sites will have terms of 
service that prohibit the use of their sites to sell illegal 
items and reasonably implement these terms of service.
    Similar legislation was not enacted during the last 
Congress because of a dispute over its application to digital 
authentication features. Some advocacy groups were concerned 
that unintended consequences would arise if digital 
authentication features were covered. The Committee is not 
aware of any digital authentication features that have been 
counterfeited at this time and did not include them in the 
scope of the legislation at this time. The Committee is likely 
to hold additional hearings and possibly introduce legislation 
related to this issue if it is made aware of such activity 
actually occurring. This legislation does not cover goods 
distributed or sold electronically.

                                Hearings

    The Committee's Subcommittee on Courts, the Internet, and 
Intellectual Property held one hearing on H.R. 3632 on February 
12, 2004. Testimony was received from four witnesses 
representing four organizations: Richard C. LaMagna, Senior 
Manager, Worldwide Investigations, Law and Corporate Affairs, 
Microsoft Corporation, Emery Simon, Counsel, Business Software 
Alliance, Brad Buckles, Executive Vice President, Anti-Piracy 
Recording Industry Association of America, David Green, Vice 
President, Technology and New Media.

                        Committee Consideration

    On March 31, 2004, the Subcommittee on Courts, the 
Internet, and Intellectual Property met in open session and 
ordered favorably reported the bill H.R. 3632 with an amendment 
by a voice vote, a quorum being present. On June 23, 2004, the 
Committee met in open session and ordered favorably reported 
the bill H.R. 3632 with an amendment by voice vote, a quorum 
being present.

                         Vote of the Committee

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee notes that there 
were no recorded votes during the Committee consideration of 
H.R. 3632.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee reports that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 3632, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                      Washington, DC, July 2, 2004.
Hon. F. James Sensenbrenner, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 3632, the Anti-
counterfeiting Amendments Act of 2004.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Mark 
Grabowicz, who can be reached at 226-2860.
            Sincerely,
                                       Douglas Holtz-Eakin.

Enclosure

cc:
        Honorable John Conyers, Jr.
        Ranking Member
H.R. 3632--Anti-counterfeiting Amendments Act of 2004.
    CBO estimates that implementing H.R. 3632 would have no 
significant cost to the Federal Government. Enacting the bill 
could affect direct spending and revenues, but CBO estimates 
that any such effects would not be significant. H.R. 3632 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act, and would not 
affect the budgets of State, local, or tribal governments.
    H.R. 3632 would establish new Federal crimes against 
trafficking in licensing documents or other authentication 
components for sound recordings, computer programs, audiovisual 
works, and similar products, and would permit copyright owners 
to bring civil actions in Federal court for violations of these 
laws. Thus, the government would be able to pursue cases that 
it otherwise would not be able to prosecute. However, we expect 
that H.R. 3632 would apply to a relatively small number of 
additional offenders, so any increase in costs for law 
enforcement, court proceedings (including new civil actions), 
or prison operations would not be significant. Any such costs 
would be subject to the availability of appropriated funds.
    Because those prosecuted and convicted under H.R. 3632 
could be subject to criminal fines, the Federal Government 
might collect additional fines if the legislation is enacted. 
Collections of such fines are recorded in the budget as 
revenues, which are deposited in the Crime Victims Fund and 
later spent. CBO expects that any additional revenues and 
direct spending would not be significant because of the small 
number of cases involved.
    The CBO staff contact for this estimate is Mark Grabowicz, 
who can be reached at 226-2860. This estimate was approved by 
Peter H. Fontaine, Deputy Assistant Director for Budget 
Analysis.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
3632 is designed to reduce counterfeiting activities by 
penalizing trafficking in illicit labels as defined in the 
bill.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article 1, section 8, clause 8 of the 
Constitution.

               Section-by-Section Analysis and Discussion

    Section 2318 of Title 18 currently prohibits trafficking in 
counterfeit labels for phonorecords and copies of computer 
programs or audiovisual works, as well as trafficking in 
counterfeit documentation or packaging for a computer program. 
The proposed bill would amend Sec. 2318 to prohibit knowingly 
trafficking in genuine authentication components in cases where 
such genuine authentication components are: (i) distributed or 
intended for distribution on a standalone basis; (ii) 
fraudulently bundled with counterfeit copies or copies not 
intended by the copyright owner; or (iii) in the case of a 
computer program, altered or removed in order to falsify the 
number or type of users or the type of computer program. The 
key provisions of the bill are summarized below:
    Sec. 1.--Short Title. The Act may be cited as the ``Anti-
counterfeiting Amendments Act of 2004.''
    Sec. 2.--Amendment to 18 U.S.C. Sec. 2318. Section 2 of 
H.R. 3632 significantly expands 18 U.S.C. Sec. 2318. The scope 
of works covered includes ``illicit labels,'' designed to be 
affixed to works identified in the existing statute. The scope 
of works covered is also expanded to include counterfeit and 
illicit labels designed to be affixed to literary works; 
pictorial, graphic, or sculptural works; works of visual art; 
or counterfeit documentation and packaging for all types of 
works.
    The definition of ``illicit label'' also specifically 
excludes labels that are solely used by the copyright owner for 
the purpose of monitoring or tracking the copyright owner's 
distribution channel and not for the purpose of verifying that 
a copy or phonorecord is noninfringing. This exclusion ensures 
that legitimate ``grey-market'' activities are not covered by 
the legislation, although the Committee is unaware of any 
activity that occurs currently that would implicate such 
activity.
    The bill would authorize forfeiture of equipment, devices, 
or materials used to manufacture, reproduce, or assemble 
counterfeit or illicit labels.
    In addition to existing criminal penalties provided under 
Sec. 2318, the bill would provide civil remedies for violations 
of the Act, including the following:

        1. LCivil damages, including both actual damages and 
        profits, or upon election of the plaintiff, statutory 
        damages. Damages are measured by the retail value of 
        the authorized copyrighted work. In addition, the 
        plaintiff may seek treble damages in the event of 
        repeat violations made within 3 years of the original 
        violation;

        2. LAttorneys' fees and costs;

        3. LInjunctive relief; and

        4. LImpoundment of articles that violate the Act.

    The bill would provide for a 3-year statute of limitations 
from the date upon which the person injured discovers the 
violation.
    Sec. 3.--Savings Clauses. Section 3 of the legislation 
makes clear that its provisions:

        1. LDo not modify in any way Sec. Sec. 512, 1201, or 
        1202 of Title 17 concerning online infringement, 
        copyright protection systems, and integrity of 
        copyright management information.

        2. LDo not apply to the electronic transmissions of a 
        genuine certificate, licensing document, registration 
        card, similar labeling component, or documentation or 
        packaging described in paragraphs (4) and (5) of 18 
        U.S.C. Sec. 2318(b), as amended.

        3. LDo not apply to civil suits under 18 U.S.C. 
        Sec. 2318(f) to the electronic transmission of a 
        counterfeit label or counterfeit packaging defined in 
        paragraphs (1) or (6) of 18 U.S.C. Sec. 2318(b), as 
        amended.

        4. LDo not apply to any fair use under 17 U.S.C. 
        Sec. 107 of a genuine certificate, licensing document, 
        registration card, similar labeling component, or 
        documentation or packaging describer in paragraphs (4) 
        or (5) of 18 U.S.C. Sec. 2318, as amended.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

              CHAPTER 113 OF TITLE 18, UNITED STATES CODE

                      CHAPTER 113--STOLEN PROPERTY

Sec.
2311.  Definitions.
     * * * * * * *
[2318.  Trafficking in counterfeit labels for phonorecords, copies of 
          computer programs or computer program documentation or 
          packaging, and copies of motion pictures or other audio visual 
          works, and trafficking in counterfeit computer program 
          documentation or packaging.]
2318.  Trafficking in counterfeit labels, illicit labels, or counterfeit 
          documentation or packaging.
     * * * * * * *

[Sec. 2318. Trafficking in counterfeit labels for phonorecords, copies 
                    of computer programs or computer program 
                    documentation or packaging, and copies of motion 
                    pictures or other audio visual works, and 
                    trafficking in counterfeit computer program 
                    documentation or packaging

    [(a) Whoever, in any of the circumstances described in 
subsection (c) of this section, knowingly traffics in a 
counterfeit label affixed or designed to be affixed to a 
phonorecord, or a copy of a computer program or documentation 
or packaging for a computer program, or a copy of a motion 
picture or other audiovisual work, and whoever, in any of the 
circumstances described in subsection (c) of this section, 
knowingly traffics in counterfeit documentation or packaging 
for a computer program, shall be fined under this title or 
imprisoned for not more than five years, or both.]

Sec. 2318. Trafficking in counterfeit labels, illicit labels, or 
                    counterfeit documentation or packaging

    (a) Whoever, in any of the circumstances described in 
subsection (c), knowingly traffics in--
            (1) a counterfeit label or illicit label affixed 
        to, enclosing, or accompanying, or designed to be 
        affixed to, enclose, or accompany--
                    (A) a phonorecord;
                    (B) a copy of a computer program;
                    (C) a copy of a motion picture or other 
                audiovisual work;
                    (D) a copy of a literary work;
                    (E) a copy of a pictorial, graphic, or 
                sculptural work;
                    (F) a work of visual art; or
                    (G) documentation or packaging; or
            (2) counterfeit documentation or packaging,
shall be fined under this title or imprisoned for not more than 
5 years, or both.
    (b) As used in this section--
            (1) * * *
            (2) the term ``traffic'' means to transport, 
        transfer or otherwise dispose of, to another, as 
        consideration for anything of value or to make or 
        obtain control of with intent to so transport, transfer 
        or dispose of; [and]
            (3) the terms ``copy'', ``phonorecord'', ``motion 
        picture'', ``computer program'', [and ``audiovisual 
        work'' have] ``audiovisual work'', ``literary work'', 
        ``pictorial, graphic, or sculptural work'', ``sound 
        recording'', ``work of visual art'', and ``copyright 
        owner'' have, respectively, the meanings given those 
        terms in section 101 (relating to definitions) of title 
        17[.];
            (4) the term ``illicit label'' means a genuine 
        certificate, licensing document, registration card, or 
        similar labeling component--
                    (A) that is used by the copyright owner to 
                verify that a phonorecord, a copy of a computer 
                program, a copy of a motion picture or other 
                audiovisual work, a copy of a literary work, a 
                copy of a pictorial, graphic, or sculptural 
                work, a work of visual art, or documentation or 
                packaging is not counterfeit or infringing of 
                any copyright; and
                    (B) that is, without the authorization of 
                the copyright owner--
                            (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 affixed by the 
                        respective copyright owner; or
                            (ii) in connection with a genuine 
                        certificate or licensing document, 
                        knowingly falsified in order to 
                        designate a higher number of licensed 
                        users or copies than authorized by the 
                        copyright owner, unless that 
                        certificate or document is used by the 
                        copyright owner solely for the purpose 
                        of monitoring or tracking the copyright 
                        owner's distribution channel and not 
                        for the purpose of verifying that a 
                        copy or phonorecord is noninfringing;
            (5) the term ``documentation or packaging'' means 
        documentation or packaging, in physical form, for a 
        phonorecord, copy of a computer program, copy of a 
        motion picture or other audiovisual work, copy of a 
        literary work, copy of a pictorial, graphic, or 
        sculptural work, or work of visual art; and
            (6) the term ``counterfeit documentation or 
        packaging'' means documentation or packaging that 
        appears to be genuine, but is not.
    (c) The circumstances referred to in subsection (a) of this 
section are--
            (1) * * *

           *       *       *       *       *       *       *

            [(3) the counterfeit label is affixed to or 
        encloses, or is designed to be affixed to or enclose, a 
        copy of a copyrighted computer program or copyrighted 
        documentation or packaging for a computer program, a 
        copyrighted motion picture or other audiovisual work, 
        or a phonorecord of a copyrighted sound recording; or]
            (3) the counterfeit label or illicit label is 
        affixed to, encloses, or accompanies, or is designed to 
        be affixed to, enclose, or accompany--
                    (A) a phonorecord of a copyrighted sound 
                recording or copyrighted musical work;
                    (B) a copy of a copyrighted computer 
                program;
                    (C) a copy of a copyrighted motion picture 
                or other audiovisual work;
                    (D) a copy of a literary work;
                    (E) a copy of a pictorial, graphic, or 
                sculptural work;
                    (F) a work of visual art; or
                    (G) copyrighted documentation or packaging; 
                or
            (4) the counterfeited documentation or packaging 
        [for a computer program] is copyrighted.
    (d) When any person is convicted of any violation of 
subsection (a), the court in its judgment of conviction shall 
in addition to the penalty therein prescribed, order the 
forfeiture and destruction or other disposition of all 
counterfeit labels or illicit labels and all articles to which 
counterfeit labels or illicit labels have been affixed or which 
were intended to have had such labels affixed, and of any 
equipment, device, or material used to manufacture, reproduce, 
or assemble the counterfeit labels or illicit labels.

           *       *       *       *       *       *       *

    (f) Civil Remedies.--
            (1) In general.--Any copyright owner who is 
        injured, or is threatened with injury, by a violation 
        of subsection (a) may bring a civil action in an 
        appropriate United States district court.
            (2) Discretion of court.--In any action brought 
        under paragraph (1), the court--
                    (A) may grant 1 or more temporary or 
                permanent injunctions on such terms as the 
                court determines to be reasonable to prevent or 
                restrain a violation of subsection (a);
                    (B) at any time while the action is 
                pending, may order the impounding, on such 
                terms as the court determines to be reasonable, 
                of any article that is in the custody or 
                control of the alleged violator and that the 
                court has reasonable cause to believe was 
                involved in a violation of subsection (a); and
                    (C) may award to the injured party--
                            (i) reasonable attorney fees and 
                        costs; and
                            (ii) (I) actual damages and any 
                        additional profits of the violator, as 
                        provided in paragraph (3); or
                            (II) statutory damages, as provided 
                        in paragraph (4).
            (3) Actual damages and profits.--
                    (A) In general.--The injured party is 
                entitled to recover--
                            (i) the actual damages suffered by 
                        the injured party as a result of a 
                        violation of subsection (a), as 
                        provided in subparagraph (B) of this 
                        paragraph; and
                            (ii) any profits of the violator 
                        that are attributable to a violation of 
                        subsection (a) and are not taken into 
                        account in computing the actual 
                        damages.
                    (B) Calculation of damages.--The court 
                shall calculate actual damages by multiplying--
                            (i) the value of the phonorecords, 
                        copies, or works of visual art which 
                        are, or are intended to be, affixed 
                        with, enclosed in, or accompanied by 
                        any counterfeit labels, illicit labels, 
                        or counterfeit documentation or 
                        packaging, by
                            (ii) the number of phonorecords, 
                        copies, or works of visual art which 
                        are, or are intended to be, affixed 
                        with, enclosed in, or accompanied by 
                        any counterfeit labels, illicit labels, 
                        or counterfeit documentation or 
                        packaging.
                    (C) Definition.--For purposes of this 
                paragraph, the ``value'' of a phonorecord, 
                copy, or work of visual art is--
                            (i) in the case of a copyrighted 
                        sound recording or copyrighted musical 
                        work, the retail value of an authorized 
                        phonorecord of that sound recording or 
                        musical work;
                            (ii) in the case of a copyrighted 
                        computer program, the retail value of 
                        an authorized copy of that computer 
                        program;
                            (iii) in the case of a copyrighted 
                        motion picture or other audiovisual 
                        work, the retail value of an authorized 
                        copy of that motion picture or 
                        audiovisual work;
                            (iv) in the case of a copyrighted 
                        literary work, the retail value of an 
                        authorized copy of that literary work;
                            (v) in the case of a pictorial, 
                        graphic, or sculptural work, the retail 
                        value of an authorized copy of that 
                        work; and
                            (vi) in the case of a work of 
                        visual art, the retail value of that 
                        work.
            (4) Statutory damages.--The injured party may 
        elect, at any time before final judgment is rendered, 
        to recover, instead of actual damages and profits, an 
        award of statutory damages for each violation of 
        subsection (a) in a sum of not less than $2,500 or more 
        than $25,000, as the court considers appropriate.
            (5) Subsequent violation.--The court may increase 
        an award of damages under this subsection by 3 times 
        the amount that would otherwise be awarded, as the 
        court considers appropriate, if the court finds that a 
        person has subsequently violated subsection (a) within 
        3 years after a final judgment was entered against that 
        person for a violation of that subsection.
            (6) Limitation on actions.--A civil action may not 
        be commenced under section unless it is commenced 
        within 3 years after the date on which the claimant 
        discovers the violation of subsection (a)

           *       *       *       *       *       *       *


                           Markup Transcript



                            BUSINESS MEETING

                        WEDNESDAY, JUNE 23, 2004

                  House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:09 a.m., in 
Room 2141, Rayburn House Office Building, Hon. F. James 
Sensenbrenner, Jr. [Chairman of the Committee] presiding.
    [Intervening business.]
    Chairman Sensenbrenner. The next item on the agenda is H.R. 
3632, the ``Anti-counterfeiting Amendments of 2003.'' The Chair 
recognizes the gentleman from Texas, Mr. Smith, the Chairman of 
the Subcommittee on Courts, the Internet, and Intellectual 
Property.
    Mr. Smith. Thank you, Mr. Chairman. Mr. Chairman, the 
Subcommittee on Courts, the Internet, and Intellectual Property 
reports favorably the bill H.R. 3632 with a single amendment in 
the nature of a substitute and moves its favorable 
recommendation to the full House.
    Chairman Sensenbrenner. Without objection, the bill will be 
considered as read and open for amendment at any point.
    [The Amendment in the Nature of a Substitute to H.R. 3632 
follows:]
      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


      
      

  


    Chairman Sensenbrenner. The Subcommittee amendment in the 
nature of a substitute, which the Members have before them, 
will be considered as read and considered as the original text 
for purposes of amendment and open for amendment at any point.
    The Chair recognizes the gentleman from Texas, Mr. Smith, 
to strike the last word.
    Mr. Smith. Mr. Chairman, in that case, I would move to 
strike the last word.
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Smith. Mr. Chairman, counterfeiting, in all of its 
guises, is a mask of deceit. It is the functional equivalent of 
a lie, often intended to dupe an unwitting consumer into buying 
something they do not want. Multiplied by millions of 
transactions, the result to legitimate businesses is lost 
profits, lost jobs and lost tax revenue on a scale that 
compromises the health of otherwise vibrant industries.
    For many years, software publishers have attempted to 
thwart counterfeiting activity by developing physical 
authentication components called COAs that help consumers and 
law enforcement agencies distinguish between genuine software 
and sophisticated counterfeits. Due to the increasing 
sophistication of genuine physical authentication components, 
counterfeiters are now combining pirated CD-ROMs in packaging 
with genuine components obtained through theft or fraud.
    For example, Microsoft has reported thefts of more than 
540,000 genuine certificates of authenticity with an estimated 
value of $50 million. Genuine COAs and other physical 
authentication components are in high demand among 
counterfeiters because they significantly increase the 
marketability and selling price of counterfeit software.
    Even though standalone COAs have no intrinsic value or 
legitimate use other than to authenticate the software 
publisher's genuine software, they sell on the open market for 
upwards of $90 or $100 or even $200 apiece because of their 
value to counterfeit operations.
    One Website recently advertised a Microsoft Office COA for 
$225 with the statement, quote, no software included. Clearly, 
the broker offering the standalone COA knew full well that the 
component would be purchased by a counterfeiter and ultimately 
resold to an unsuspecting consumer in combination with pirated 
software.
    Nevertheless, because Federal law does not prohibit 
trafficking in genuine physical authentication components, 
prosecutors find it impossible to take any legal action against 
these brokers. As a result, this activity has become a highly 
profitable and largely risk-free business for an increasing 
number of brokers, who act with complete disregard for the 
obvious effect of their actions on counterfeit sales and 
consumers.
    This loophole in Federal law has frustrated anti-
counterfeiting enforcement efforts throughout the United 
States. H.R. 3632 will close this loophole and empower Federal 
authorities to prosecute counterfeiting activity on a greater 
scale with better results.
    At the appropriate time, I will offer a manager's amendment 
to ensure that the concerns of gray marketers and online 
service providers are addressed, but I urge my colleagues to 
support the manager's amendment and the underlying bill, and I 
yield back the balance of my time.
    Chairman Sensenbrenner. In the absence of the gentleman 
from California, Mr. Berman, who wishes to give the Democratic 
opening statement, the gentleman from California, Mr. Schiff, 
is recognized for 5 minutes.
    Mr. Schiff. Mr. Chairman, I thank you for the opportunity 
to address the bill, and I want to also raise my support for 
this. The counterfeiting of authentication documents is an 
extraordinarily difficult problem, a very costly one for the 
industry, and I want to thank the gentleman from Texas for his 
work on the issue.
    There is a related issue that I think is also very 
significant, and if the gentleman from Texas would allow me to 
make an inquiry, and that is the problem of the counterfeiting 
of digital authentication features. Is it the gentleman's 
intention to come back in subsequent legislation to address 
that issue? If it is, it is something I would certainly very 
much like to work with him on, and I would be delighted to 
yield to the gentleman.
    Mr. Smith. If the gentleman will yield, the digital 
authentication is a problem, and I acknowledge that. We will, I 
hope, address it in future legislation, but one reason for not 
including it in this legislation, as I think the gentleman 
understands, is because it is controversial, and we are trying 
to get this legislation through and signed into law in this 
session of Congress, and by leaving out the digital component, 
that will enable us to be successful with this bill.
    We need to still work out some wrinkles in how to address 
the digital, and I will be happy to work with the gentleman 
from California in doing so.
    Mr. Schiff. Reclaiming my time, I thank the gentleman. It 
is not my purpose today to offer an amendment on that issue, 
because I know it would complicate the task at hand, and there 
is no desire to slow down or in any way impede the current 
contents of the bill. But I do look forward to working with the 
gentleman and appreciate his interest in continuing to work on 
that issue and with that urge my colleagues to support the 
measure, and I yield back the balance of my time.
    Chairman Sensenbrenner. Without objection, all Members' 
opening statements will appear in the record at this point.
    [The prepared statement of Ms. Jackson Lee follows:]
       Prepared Statement of the Honorable Sheila Jackson Lee, a 
Representative in Congress From the State of Texas, and Ranking Member, 
        Subcommittee on Immigration, Border Security, and Claims
    I thank Chairman Sensenbrenner and Ranking Member Conyers for 
holding today's markup of H.R. 3632, the Anti-counterfeiting Act of 
2003. Fortunately, the Subcommittee on Courts, the Internet and 
Intellectual Property successfully marked this bill up and reported it 
out favorably on March 31, 2004, as its provisions will address some 
serious concerns.
    The trafficking of security components, for example Certificates of 
Authenticity (COAs) is a problem that the current law does not 
adequately address. Logistically, since the security components are 
useless without the actual product, such action serves no legitimate 
business purpose. Furthermore, criminal prosecutors have a hard time 
attaching crimes to the counterfeit sales made by these traffickers.
    To address this problem, H.R. 3632 would amend Section 2318 of 
Title 18 to prohibit trafficking of these products. With this narrowly-
tailored amendment to Section 2318, federal law enforcement and 
copyright owners will have the tools needed to prevent trafficking in 
genuine physical security components.
    The Anticounterfeiting Amendments will help combat the growing 
threat of international counterfeiting crimes by ensuring that U.S. 
laws address all aspects of counterfeiting activities.
    In Texas, a crime ring was implicated that was believed to have 
imported over 100 million counterfeit cigarettes, mislabeling shipping 
documents by indicating that they were importing toys or plastic parts.
    Passage of this important bill with the amendments that will be 
offered to improve its scope will, in the long run, improve the quality 
of our intellectual property and technological developments. Moreover, 
with adequate legal checks put in place to reduce trafficking of 
security products will foster a more competitive environment. For the 
above reasons, Mr. Chairman and Mr. Ranking Member, I support this 
legislation.
    Thank you.

    Chairman Sensenbrenner. Are there amendments?
    The Chair recognizes the gentleman from Texas, Mr. Smith, 
for purposes of offering a manager's amendment.
    Mr. Smith. Mr. Chairman, I have an amendment at the desk.
    Chairman Sensenbrenner. The Clerk will report the 
amendment.
    The Clerk. Amendment to the amendment in the nature of a 
substitute to H.R. 3632----
    Mr. Smith. Mr. Chairman, I ask unanimous consent that the 
amendment be considered as read.
    Chairman Sensenbrenner. Without objection, so ordered.
    [The amendment offered by Mr. Smith follows:]
    
    
    Chairman Sensenbrenner. The gentleman is recognized for 5 
minutes.
    Mr. Smith. Mr. Chairman, the manager's amendment represents 
a compromise between content owners, whose interests are harmed 
by the illicit trafficking in legitimate and counterfeit 
authentication labels and two groups: gray marketers and 
Internet service providers. Gray marketers, who reimport 
noncounterfeited goods back into the United States after they 
have already been exported, had expressed some initial concerns 
that their activities could be penalized under this 
legislation.
    In a bipartisan effort, we worked with gray marketers to 
ensure that their activities are not penalized by this 
legislation so long as they do not modify COAs to show a higher 
number of authorized users.
    Internet and online service providers were concerned that 
this legislation could result in some of their routine, day-to-
day actions as service providers being subject to some 
additional liability. The manager's amendment clarifies that 
they do not face any new liability for their routine 
activities. Several of these groups have also submitted letters 
to the Committee noting that their concerns have been 
addressed.
    Finally, Mr. Chairman, the legislation does not apply to 
electronic transmissions of authentication features. Trying to 
address electronic transmissions of authentication materials in 
the last Congress is what prevented similar legislation from 
being enacted. By narrowing the scope to nonelectronic 
transmissions, it is my expectation that this bill will be 
enacted this Congress with no opposition, and that was the 
subject that Mr. Schiff asked me about a minute ago.
    Mr. Chairman, I urge my colleagues to support the manager's 
amendment as well as the underlying bill and yield back the 
balance of my time.
    Chairman Sensenbrenner. The question is on the manager's 
amendment offered by the gentleman from Texas, Mr. Smith.
    Those in favor will say aye.
    Opposed, no.
    The ayes appear to have it. The ayes have it. The amendment 
is agreed to.
    Are there further amendments?
    If there are no further amendments, without objection, the 
Subcommittee amendment in the nature of a substitute laid down 
as the base text as amended is adopted.
    A reporting quorum is present.
    The question occurs on the motion to report the bill, H.R. 
3632, favorably as amended.
    All in favor will say aye.
    Opposed, no.
    The ayes appear to have it, the ayes have it, and the 
motion to report favorably is agreed to.
    Without objection, the bill will be reported favorably to 
the House in the form of a single amendment in the nature of a 
substitute incorporating the amendments adopted here today.
    Without objection, the Chairman is authorized to move to go 
to conference pursuant to House rules.
    Without objection, the staff is directed to make any 
technical and conforming changes, and all Members will be given 
2 days, as provided by the House rules, in which to submit 
additional, dissenting, supplemental or minority views.

                                  
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