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1851

Copyright Infringement—Fourth Element -- Commercial Advantage or Private Financial Gain

In addition to demonstrating willfulness, the government must prove that the defendant engaged in an act of infringement "for purposes of commercial advantage or private financial gain." 17 U.S.C. §  506(a). Emphasis should be placed on the word "purpose," because it is not necessary to prove that any profit was realized. See United States v. Taxe, 380 F. Supp. 1010, 1018 (C.D.Cal. 1974), aff'd, 540 F.2d 961 (9th Cir. 1976), cert. denied, 429 U.S. 1040 (1977). The drafting committee's purpose in retaining this requirement has been to exclude from criminal liability those individuals who willfully infringe copyrights solely for their own personal use. H.R. Rep. No. 997, 102 Cong., 2d Sess. 5 (1992). Evidence of discrete monetary transactions (i.e., the selling of infringing goods for a particular price) provides the clearest evidence of financial gain, but such direct evidence should not be a prerequisite to prosecution. Such a stringent requirement would ignore the plain wording of the statute, which requires only the showing of commercial or financial purpose.

It is a common misconception that if infringers fail to charge subscribers a monetary fee for infringing copies, they cannot be held to have engaged in criminal copyright infringement. It is the position of the Department that the term "for purposes of commercial advantage or private financial gain" does not require the payment in money for the infringing works, but includes payment by trading anything of value for them. Thus, when "bartering" (i.e., the practice of exchanging infringing works for other infringing works) results in the unauthorized dissemination of substantial amounts of infringing product without recompense to the copyright holders, prosecution appears to be fully consistent with the purposes of the criminal copyright statute.

The following letter, dated May 24, 1994, discusses the position of the Department regarding the element of commercial advantage or private financial gain.

May 24, 1994

Re: Criminal Copyright Infringement: Element of CommercialAdvantage or Private Financial Gain

Dear Mr. Revell:

As you are aware, in order to constitute a criminal violation, copyright infringement must be performed "willfully and for purposes of commercial advantage or private financial gain." 17 U.S.C. § 506(a). Your office recently asked this Section for an interpretation of this element as applied to violations committed through the use of electronic bulletin board systems (BBSs). We accordingly sent to SA Michael Morris, under separate cover, materials bearing on the issue from the Software Publishers Association's prosecution manual and from a preliminary draft of this Section's revised prosecution manual.

In response to your follow-up request of May 23, 1994, this Section has had a brief opportunity to examine whether there must exist a one-to-one relationship between a payment made for infringing goods and each unit of product received in order to meet the requirements of the statute. We conclude, based on a preliminary review of pertinent case law, the legislative history of successive revisions to copyright act, and other published works on the subject, that while such transactions certainly satisfy the statutory requirement of commercial purpose, they are not necessary conditions upon which violations must be predicated. That is, the government need not show such one-to-one correspondence in every instance, nor need it conclusively establish even that profits were realized.[FN3] Rather, the government need only show that acts of infringement were done "for purposes of commercial advantage or private financial gain," 17 U.S.C. § 506(a), and such commercial purpose can be shown, for example, through course of dealing or through expressed or implied intent of the parties.[FN4]

    FN3. In United States v. Cross, 816 F.2d 297 (7th Cir. 1987), the court affirmed the conviction, under 17 U.S.C. § 506(a) and 18 U.S.C. § 2319, of an employee of the defendant corporation, over her assertions that she was a mere employee rather than an owner. The court held that:

    A conviction under 17 U.S.C. § 506(a) does not require that a defendant actually realize either a commercial advantage or private financial gain. It is only necessary that the activity be for the purpose of financial gain or benefit.

    Id. at 301 (emphasis added) (citing United States v. Moore, 604 F.2d 1228, 1235 (9th Cir. 1979)).

    FN4. See United States v. Cross, 816 F.2d 297, 301 (7th Cir. 1987) ("[W]e find that the presence of these seventeen second-generation videocassettes on [subject's] business premises may rationally give rise to the inference that they were maintained for commercial advantage or private financial gain."); United States v. Shabazz, 724 F.2d 1536, 1540 (11th Cir. 1984) ("An employee identified specific tapes made in bulk under appellant's direction as reproduced for local and out of state sale. The appellant sold pirate tapes, solicited wholesale customers, and shipped large quantities of tapes out of state. This evidence is sufficient to show that the tapes produced were made with the intention to make a profit. It is not necessary that he actually made a profit. The only requirement is that he engaged in business 'to hopefully or possibly make a profit.'") (citing United States v. Wise, 550 F.2d 1180, 1195 (9th Cir. 1977); United States v. Moore, 604 F.2d 1228 (9th Cir. 1979)).

Similar reasoning had been invoked by the courts in the Wise and Moore cases, under the predecessor statute to 17 U.S.C. § 506(a), to refute defendants' assertions that they failed to profit from the transactions at issue. See Moore, 604 F.2d at 1235 ("[I]t is irrelevant whether there was an exchange for value as long as there existed the hope of some pecuniary gain. The testimony at trial met this test. The Government witness who received the tape testified that [defendant] had given it to him because he had told [defendant] that he intended to buy the tape but that he had first wanted to check the tape.").

It would, of course, be beneficial for investigators to collect all available evidence tending to show that a bulletin board service under investigation charged subscribers for access to the copyrighted software it contains. Such evidence may, in some limited instances, take the form of a one-for-one transaction of software for cash. It is far more likely, however, in the bulletin board context, that such exchanges take the form of a one-time "subscriber fee" arrangement, whereby the operator of the bulletin board system grants subscribers access to areas of the board that contain copyrighted software, but only after subscribers have paid for or have agreed to pay a monetary fee.

So-called "bartering" schemes can also be indicative of the requisite commercial purpose. In bartering schemes, access to copyrighted software is granted to subscribers only after they themselves have provided to BBS operators an established number of copyrighted programs. Generally, system operators (or "sysops") use software acquired in such a manner to attract new subscribers to their bulletin board system. The system operators may then proceed either to collect subscriber fees from these new subscribers, or use the cumulative contributions of software to develop their own private software collections. In either case, system operators receive either direct financial gain in the form of cash from new subscribers, or indirect financial gain in the form of software contributions that effectively obviate the need for them to expend resources to collect new software releases. Any of these forms of distribution, in our view, tend to show that a subject under investigation engaged in the reproduction or distribution of copyrighted software, and did so "for purposes of commercial advantage or private financial gain" as required by the statute.

While our review has not been comprehensive, it nonetheless tends to show that courts are willing to consider a wide variety of sources of evidence bearing on the issue of commercial purpose, and are generally willing to draw reasonable inferences therefrom. We see no reason why such sources of evidence would not be considered in the context of violations committed through the use of computer bulletin board systems. This reading of this statutory element has been informally and anecdotally confirmed by legal experts for trade associations such as the Motion Picture Association of America, the Software Publisher's Association, and the Business Software Alliance.

Finally, we note in support of this position that a number of cases have been successfully prosecuted as criminal copyright infringements that have relied on a theory of bartering in the bulletin board context. We cite, for example, United States of America v. Michael John Gilbert, No. 5:93-CR-005-C, (N.D. Tx. Jan. 28, 1993) (disposition), a case successfully prosecuted in the Northern District of Texas by Assistant United States Attorney William B. Mateja.

We thank you for your inquiry, and remain available to offer clarification or additional assistance.

Sincerely,

MARY C. SPEARING
CHIEF

[cited in Criminal Resource Manual 1853; USAM 9-71.001]