No Electronic Theft Act Proves a Partial Success by Eric Goldman and Julia Gladstone

‘No Electronic Theft Act’ Proves a Partial Success

By Eric Goldman and Julia Alpert Gladstone

In 1997, the No Electronic Theft Act radically changed the underpinnings of criminal copyright infringement. Before the act, criminal copyright infringement targeted infringers making profits. The act focuses instead on copyright owners’ losses, treating criminal copyright infringement as a type of theft — like shoplifting.

Prior to the act, criminal copyright infringement required willful infringements committed for commercial advantage or private financial gain. In 1993, David LaMacchia, a 21-year-old Massachusetts Institute of Technology student, operated a bulletin board system that allowed users to upload and download infringing software applications and videogames.

LaMacchia operated the bulletin board system for fun, without any profit motive. Because of that, prosecutors couldn’t charge him with criminal copyright infringement. Instead, prosecutors charged LaMacchia with one count of conspiracy to commit wire fraud. In Dowling v. United States, 473 U.S. 207 (1985), the U.S. Supreme Court ruled that intangible intellectual property couldn’t be taken by fraud. The court then dismissed the indictment. U.S. v. LaMacchia, 871 F. Supp. 535 (D. Mass. 1994).

Following LaMacchia, copyright owners sought relief from Congress, which provided it with the No Electronic Theft Act in December 1997. The Act helped copyright owners in four principal ways:

– Supplemented the existing infringement-for-profit standard with a second prohibition: willfully reproducing or distributing, in any 180-day-period, copyrighted works with a total retail value of more than $1,000;

– Expanded the financial gain definition to include receipt (or expectation of receipt) of anything of value, including other copyrighted works;

– Increased criminal infringement punishments; and

– Instructed the U.S. Sentencing Commission to toughen criminal copyright infringement sentencing guidelines.

In the legislative history, Congress uniformly indicated that the act targeted the LaMacchia case specifically and piracy generally, citing industry estimates that software counterfeiting and piracy cost copyright owners $11 billion in 1996. Some legislators tried to target commercial-scale pirates; others targeted pirates who sought notoriety. Under either standard, Congress intended to target warez (pronounced “wares”) traders — enthusiasts who thrive on trading or distributing illegal software, usually with any software copy-protection scheme disabled. Although not characterized as such, in retrospect LaMacchia can be characterized as a warez trader.

Prosecutions Under The Act

Eight publicized prosecutions, comprising five individual prosecutions and three group prosecutions, have ensued.

In August 1999, Jeffrey Levy, a 22-year-old college student, was the first individual convicted under the act. He operated a Web site that allowed third parties to download thousands of software programs, games, songs and movies. Levy pleaded guilty to distributing copyrighted works of at least $5,000 and was sentenced to two years of probation with conditions.

Eric Thornton, a 24-year-old Navy technician, operated a Web site that offered infringing software to attract users to the site. At least one user downloaded 20 software programs with a retail value of $9,638. In December 1999, Thornton pleaded guilty to a misdemeanor violation. He received five years of probation, paid $9,600 restitution, forfeited his computer and had to stay off computers for 12 months except for business or educational purposes. Thornton also posted a notice on his Web site for 18 months describing his arrest and conviction.

In October 2000, 21-year-old Brian Baltutat pleaded guilty to violating the Act. He operated a Web site, visited by 65,000 people, that offered 142 software programs for downloading by third parties. He was sentenced to three years’ probation, 180 days’ home confinement, restitution, 40 hours of community service and restrictions on using the Internet.

In December 2000, 25-year-old Jason Spatafore, a computer technician, pleaded guilty to a single violation of the Act. He posted, and encouraged downloading of, parts of “Star Wars Episode I: The Phantom Menace” on various Web sites. He was sentenced to two years’ probation and fined $250.

In February 2001, nine members of Fastlane — an international software piracy ring — were charged with one count of conspiracy to commit copyright infringement, and eight members were charged with one count of committing copyright infringement. During a 9-month period in 2000, allegedly more than 697 gigabytes of software were uploaded to Fastlane-operated servers, and 1,900 gigabytes were downloaded with a total retail value of more than $1 million. Three defendants received prison sentences of between five and 30 months. The others received probation of three years.

Pirates with Attitude

Pirates with Attitude was an international software trading group regarded as the oldest and most sophisticated band of software pirates in Internet history. Its flagship site hosted over 30,000 software programs accessed by more than 100 people.

In 2000, 17 defendants were indicted, including 12 Pirates with Attitude members and five Intel employees who exchanged Intel computer hardware for access to software sprograms. The government initially contended that infringed programs had a retail value of more than $10 million, but the court ultimately set the value at $1,424,640.

The trading group’s leader, Robin Rothberg, entered a guilty plea and was sentenced to 18 months in federal prison. Another member, Christian Morley, took his case to a jury. The jury found him guilty of software-piracy conspiracy, and he was sentenced to 2 years in prison. Two other defendants, Jason Slater and Justin Robbins, received jail sentences of 8 and 7 months, respectively. Nine defendants received probation of 5 years, and two received probation of 3 years. Two defendants remained fugitives as of late winter.

In December 2001, pursuant to operations known as Buccaneer, Bandwidth and Digital Piratez, the government launched a major crackdown on warez traders involving more than 100 search warrants, domestically and internationally, and dozens of defendants. The major warez operation DrinkOrDie, which has been characterized as one of the eight to 10 major Internet piracy groups and one of the oldest and best-known warez groups, was a primary target. Of 15 defendants sentenced as of March 1, 10 received prison sentences between 30 and 46 months, one received 5 years’ probation and four received 2 years’ probation.

This February, William Fitzgerald, 53, pleaded guilty to one count of criminal copyright infringement. He operated a Web site offering pirated copies of business software. Fitzgerald stipulated that the downloaded software was worth between $40,000 and $70,000. He was scheduled to be sentenced this month.

Has The Act Succeeded?

These prosecutions indicate that the LaMacchia loophole has been plugged. Prosecutors can now go after defendants doing exactly what LaMacchia did. Pirates with Attitude, Fastlane and DrinkOrDie were highly visible commercial- scale piracy groups acting without a direct profit motive and thus were exactly the type of organization Congress targeted. Levy, Thornton, Baltutat and Fitzgerald all operated pirate Web sites just as LaMacchia did, so they were also the type of defendants in Congress’ crosshairs.

Spatafore’s prosecution is more troubling because he was prosecuted for a single incident of disseminating a single copyrighted work — a standard that if applied generally would expose a large number of Americans to prosecution. Nevertheless, given his willfulness and the copyrighted work at issue (Star Wars I), his prosecution still could be said to be within Congress’ goals.

However, while the prosecutions are consistent with the Act’s objectives, available evidence suggests the Act still hasn’t accomplished its core objective of reducing piracy. While reliable piracy statistics are hard to come by, a 1999 Business Software Alliance (BSA) study showed that warez trading sites increased from 100,000 to 900,000 in the 2 years following the Act. Also, a May 2002 BSA survey showed that more than 80% of all Internet users have downloaded commercial software without paying for it, and 25% of users who download software never pay for it.

Why has the Act not reduced piracy more effectively? Several hypotheses, alone or jointly, could explain this result,

– Weak enforcement. The number of prosecutions — eight in 5 years — might not be enough to deter, and there might not be enough predictability about who gets prosecuted. Also, sentencing remains unpredictable.

– Poor education. Even with significant publicity accompanying each prosecution, the act remains relatively unknown.

– The Act may be too weak. It’s possible that available punishment is too lax or the willfulness requirement makes prosecutions too hard.

– Socialization. As people become accustomed to exchanging copyrighted materials electronically, they become desensitized to copyright law.

– Activity occurring overseas. Overseas piracy is outside the reach of U.S. law, making enforcement actions difficult.

– The Act was not sharply enough tailored. The act does not adequately target the unique characteristics of warez traders’ behavior. This hypothesis warrants more discussion.

The Elusive Warez Traders

As a group, warez traders have some distinctive motivations. They strive, for instance, to have the biggest or most impressive collection of pirated software to show off to their peers. In this respect, warez traders belong to part of a community. Warez traders also derive a thrill from doing something illicit; committing a crime is a big part of the fun.

Many warez traders also have a deep antipathy toward the software industry — an industry they consider unjust — and view themselves as cyber-Robin Hoods, taking from the rich and giving to the poor. Many warez traders no longer expect a person who downloads one of their warez to return the favor.

Based on these characteristics, the Act may be ineffective — or even counterproductive — at deterring warez trading. Because warez traders are motivated by illegal behavior, increased penalties might increase the thrill of warez trading rather than inhibit it. Also, if warez traders view criminal prosecutions as software-industry bully tactics, then such prosecutions could exacerbate their antipathy toward the industry and reinforce their Robin Hood personas.

Nevertheless, some legislators and commentators believe criminal sanctions are the only way to deter warez traders. But the legislative history and literature lacks any empirical or systematic analysis confirming that belief, and it may not be appropriate to assume that criminal penalties motivate warez traders as they would rational actors. Externally imposed obligations may only aggravate them.

The No Electronic Theft Act provides prosecutors with a powerful and occasionally useful tool to attack infringers acting without a profit motive. Prosecutors have been able to use this tool to shut down some large warez- trading operations and a few smaller ones, and in that sense the Act has succeeded.

But the Act is not a total success. It hasn’t used all its potential in reducing piracy, because (among other reasons) the Act did not carefully address the unique characteristics of warez traders. Also, existing criminal laws (such as the Computer Fraud and Abuse Act or state computer crime laws) and civil copyright infringement lawsuits might have provided ways to pursue these infringers without a new law.

Meanwhile, it’s impossible to measure how much socially beneficial activity has been discouraged by the Act, but certain some has been. The Act created some imprecise boundaries of criminal infringement, such as what constitutes willful behavior and how the Act applies to intermediaries and facilitators. As with any imprecise criminallaw, many individuals will steer far clear of the criminal line. Therefore, while prosecutions under the Act have been the type desired by Congress, the Act’s overall efficacy is questionable, and it comes at some social cost.


About the authors: Eric Goldman is an assistant professor at Marquette University Law School. Julia Alpert Gladstone is an assistant professor of legal studies at Bryant College in Rhode Island. This article is derived from a report prepared for the American Bar Association, Business Law Section, Cyberspace Law Committee, Intellectual Property Subcommittee.