[House Report 106-216]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 106-216
======================================================================
COPYRIGHT DAMAGES IMPROVEMENT ACT OF 1999
_______
July 1, 1999.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Coble, from the Committee on the Judiciary, submitted the following
R E P O R T
[To accompany H.R. 1761]
[Including cost estimate of the Congressional Budget Office]
The Committee on the Judiciary, to whom was referred the
bill (H.R. 1761) to amend provisions of title 17, United States
Code, having considered the same, reports favorably thereon
with an amendment and recommends that the bill as amended do
pass.
TABLE OF CONTENTS
Page
The Amendment.............................................. 1
Purpose and Summary........................................ 2
Background and Need for the Legislation.................... 2
Hearings................................................... 4
Committee Consideration.................................... 4
Committee on Government Reform Findings.................... 5
New Budget Authority and Tax Expenditures.................. 5
Congressional Budget Office Cost Estimate.................. 5
Constitutional Authority Statement......................... 6
Section-by-Section Analysis................................ 6
Changes in Existing Law Made by the Bill, as Reported...... 9
The amendment is as follows:
Strike out all after the enacting clause and insert in lieu
thereof the following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Copyright Damages Improvement Act of
1999''.
SEC. 2. STATUTORY DAMAGES ENHANCEMENT.
Section 504(c) of title 17, United States Code, is amended--
(1) in paragraph (1)--
(A) by striking ``$500'' and inserting ``$750'';
and
(B) by striking ``$20,000'' and inserting
``$30,000''; and
(2) in paragraph (2)--
(A) by inserting ``(A)'' after ``(2)'';
(B) by striking ``$100,000'' and inserting
``$300,000'';
(C) by inserting after the second sentence the
following:
``(B) In a case where the copyright owner demonstrates that
the infringement was part of a repeated pattern or practice of
infringement, the court may increase the award of statutory
damages to a sum of not more than $250,000 per work.''; and
(D) by striking ``The court shall remit statutory
damages'' and inserting the following:
``(C) The court shall remit statutory damages''.
SEC. 3. SENTENCING COMMISSION GUIDELINES.
Section 2(g) of the No Electronic Theft (NET) Act (28 U.S.C. 994
note) is amended by striking paragraph (2) and inserting the following:
``(2) In implementing paragraph (1), the Sentencing Commission
shall amend the guideline applicable to criminal infringement of a
copyright or trademark to provide an enhancement based upon the retail
price of the legitimate items that are infringed upon and the quantity
of the infringing items. To the extent the conduct involves a violation
of section 2319A of title 18, United States Code, the enhancement shall
be based upon the retail price of the infringing items and the quantity
of the infringing items.
``(3) Paragraph (1) shall be implemented not later than 3 months
after the later of--
``(A) the first day occurring after May 20, 1999, or
``(B) the first day after the date of the enactment of this
paragraph,
on which sufficient members of the Sentencing Commission have been
confirmed to constitute a quorum.
``(4) The Commission shall promulgate the guidelines or amendments
provided for under this section in accordance with the procedures set
forth in section 21(a) of the Sentencing Act of 1987, as though the
authority under that Act had not expired.''.
Purpose and Summary
The purpose of H.R. 1761 is to provide more stringent
deterrents to copyright infringement and stronger enforcement
of the laws enacted to protect intellectual property rights.
H.R. 1761 accomplishes this by increasing the statutory
penalties in the Copyright Act for copyright infringement,
creating a new statutory penalty for situations where
infringement is part of a ``repeated pattern or practice'' of
infringement, and clarifying Congress' intent that the United
States Sentencing Commission ensure that the sentencing
guideline for intellectual property offenses provide for
consideration of the retail price of the legitimate infringed-
upon item and the quantity of infringing items in order to make
the guideline sufficiently stringent to deter such crime.
Background and Need for the Legislation
Section 106 of the Copyright Act (Title 17 of the U.S.
Code) gives the owner of a copyright the `` . . . exclusive
rights . . . to reproduce . . . [and] distribute copies of . .
. the copyrighted work. . . . '' An individual who violates any
of these exclusive rights is an infringer, and may be subject
to civil and criminal penalties set forth in Chapter 5 of the
Act and section 2319 of Title 18.
Notwithstanding these penalties, copyright piracy of
intellectual property flourishes, assisted in large part by
today's world of advanced technologies. For example, industry
groups estimate that counterfeiting and piracy of computer
software cost the affected copyright holders more than $11
billion last year (others believe the figure is closer to $20
billion). In some countries, software piracy rates are as high
as 97% of all sales. The U.S. rate is far lower (25%), but the
dollar losses ($2.9 billion) are the highest worldwide. The
effect of this volume of theft is substantial: lost U.S. jobs,
lost wages, lower tax revenue, and higher prices for honest
purchasers of copyrighted software.
Unfortunately, the potential for this problem to worsen is
great. By the turn of the century the Internet is projected to
have more than 200 million users, and the development of new
technology will create additional incentive for copyright
thieves to steal protected works. The advent of digital video
discs, for example, will enable individuals to store far more
material than on conventional discs and, at the same time,
produce perfect secondhand copies. As long as the relevant
technology evolves in this way, more piracy will ensue. Many
computer users are either ignorant that copyright laws apply to
Internet activity, or they simply believe that they will not be
caught or prosecuted for their conduct. Also, many infringers
do not consider the current copyright infringement penalties a
real threat and continue infringing, even after a copyright
owner puts them on notice that their actions constitute
infringement and that they should stop the activity or face
legal action. In light of this disturbing trend, it is manifest
that Congress respond appropriately with updated penalties to
dissuade such conduct. H.R. 1761 increases copyright penalties
to have a significant deterrent effect on copyright
infringement.
Notwithstanding the statutory penalties for copyright
infringement, enforcement of those penalties has been minimal.
During the first session of the 105th Congress, H.R. 2265, the
``No Electronic Theft Act'' (NET Act) was enacted into law.\1\
The NET Act reversed the practical consequences of United
States v. LaMacchia, 871 F. Supp. 535 (D. Mass. 1994), by
criminalizing computer theft of copyrighted works, whether or
not the defendant derives a direct financial benefit from the
act(s) of misappropriation. However, since the enactment of the
NET Act in December 1997, there have been no prosecutions
brought by the Department of Justice under the Act. This is
important because in order to be successful in the battle
against Internet piracy not only must Congress enact
legislation giving legal recourse to copyright owners but those
laws must be implemented by the appropriate law enforcement
agencies.
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\1\ Pub. L. No. 105-47 (December 16, 1997.)
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In May 1999, during hearings on enforcement of the NET Act,
representatives of the Department of Justice and the copyright
industries testified that the current sentencing guideline--
because it is based solely on the value of the infringing
items--significantly underrepresents the degree of economic
harm inflicted by copyright and trademark crimes.
Sentences for the offenses of criminal copyright
infringement and trademark counterfeiting are governed by a
sentencing guideline designated as Sec. 2B5.3 of the United
States Sentencing Commission Guidelines Manual. This guideline
sets a Base Offense Level of 6, the same as for fraud or theft
offenses involving a loss between $1,000 and $2,000. The
guideline also establishes, as the sole aggravating ``Specific
Offense Characteristic,'' that if ``the retail value of the
infringing items exceeded $2,000,'' then the base level is to
be increased by the corresponding number of levels from the
monetary loss table in the sentencing guideline for fraud
offenses.
The witnesses from the Department of Justice and the
copyright industries testified that the sentences imposed under
this guideline are too low to deter individuals from trademark
counterfeiting and copyright piracy; indeed, according to the
Sentencing Commission, approximately 45 percent of intellectual
property offenders receive a sentence of probation without any
requirement of confinement. Department of Justice officials
reported that these low sentences operate as a disincentive for
the federal government to commit resources to investigating and
prosecuting intellectual property cases, and that few
prosecutions and low sentences for those cases that are
prosecuted have contributed to the perception of intellectual
property crime as a high profit, low risk venture.
In a further attempt to resolve this problem, H.R. 1761
clarifies how Congress intends for the Sentencing Commission to
implement the NET Act to provide sufficiently stringent
sentencing guidelines to deter intellectual property crime. It
is vital that the United States recognizes intellectual
property rights and provides strong protection and enforcement
against violations of those rights. Federal law enforcement
must be armed with effective tools with which to combat this
problem. By doing that, the United States will protect its
valuable intellectual property and encourage other countries to
enact and enforce strong copyright protection laws.
Hearings
The Committee's Subcommittee on Courts and Intellectual
Property held a hearing on H.R. 1761 on May 12, 1999. Testimony
was received from Kevin V. DiGregory, Deputy Assistant Attorney
General, Computer Crimes Division, U.S. Department of Justice;
Timothy B. McGrath, Interim Staff Director, U.S. Sentencing
Commission; Batur Oktay, Corporate Counsel, Adobe Systems,
Inc., on behalf of the Business Software Alliance (BSA); Tim
Starback, Emigre, Inc., on behalf of the Software and
Information Industry Association (SIIA); and Tod Cohen, Vice
President and Counsel, New Technology, Motion Picture
Association of America (MPAA).
Committee Consideration
On May 20, 1999, the Subcommittee on Courts and
Intellectual Property met in open session and ordered favorably
reported the bill H.R. 1761, as amended, by a voice vote, a
quorum being present. On May 26, 1999, the Committee met in
open session and ordered favorably reported the bill H.R. 1761
with an amendment in the nature of a substitute by voice vote,
a quorum being present.
Committee on Government Reform Findings
No findings or recommendations of the Committee on
Government Reform were received as referred to in clause
3(c)(4) of Rule XIII of the Rules of the House of
Representatives.
New Budget Authority and Tax Expenditures
Clause 3(c)(2) of House Rule XIII is inapplicable because
this legislation does not provide new budget 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. 1761, the following estimate and
comparison prepared by the Director of the Congressional Budget
Office under section 403 of the Congressional Budget Act of
1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 7, 1999.
Hon. Henry J. Hyde,
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. 1761, the
Copyright Damages Improvement Act of 1999.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Mark Hadley,
who can be reached at 226-2860.
Sincerely,
Dan L. Crippen, Director.
H.R. 1761--Copyright Damages Improvement Act of 1999.
CBO estimates that enacting this bill would have no
significant impact on the federal budget. H.R. 1761 would not
affect direct spending or receipts; therefore, pay-as-you-go
procedures would not apply. The bill 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.
Under current law, a copyright owner may choose to recover
statutory damages for infringement rather than actual damages
and lost profits. H.R. 1761 would increase statutory damages
and establish new damages for cases in which the copyright
owner demonstrates that the infringement was part of a repeated
pattern or practice of infringement. Damages for copyright
infringement are paid by one private party to another and thus
do not affect the federal budget.
Under the No Electronic Theft Act (Public Law 105-147),
when the United States Sentencing Commission establishes
sentencing guidelines for cases of copyright infringement, the
commission must consider the retail value and the quantity of
the items. H.R. 1761 would clarify that in most cases the
commission must consider the retail value of the legitimate
items rather than the value of the infringing items. If the
commission elects to enhance prison sentences for copyright
infringement, federal costs would rise, subject to the
availability of appropriations, to accommodate more prisoners.
CBO expects that any increase in discretionary spending over
the next five years is likely to be very small.
The CBO staff contact is Mark Hadley, who can be reached at
226-2860. This estimate was approved by Paul N. Van de Water,
Assistant Director for Budget Analysis.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of the Rule XIII of the Rules of
the House of Representatives, the Committee finds the authority
for this legislation in Article I, section 8, clause 8 of the
Constitution.
Section-by-Section Analysis
Sec. 1. Short Title.
This section states that H.R. 1761 may be cited as the
``Copyright Damages Improvement Act of 1999''.
Sec. 2. Statutory Damages Enhancement.
Section 2 makes a number of changes to existing statutory
damage awards in section 504 of title 17, United States Code.
The general purpose of the amendments is to strengthen the
deterrent effect of statutory damages on copyright
infringement. Copyrighted works are some of the United States'
most valuable products. In a world of increasing global
utilization and distribution of intellectual property, the
United States must take the lead in establishing a legal regime
that provides sufficient protection for copyrighted works and
encourages other countries to follow suit. Current statutory
damage levels were last adjusted in 1988 and do not take into
account inflation in the intervening years, increased
utilization of certain types of intellectual property, or
current trends in global distribution and electronic commerce.
Courts and juries must be able to render awards that deter
others from infringing intellectual property rights. It is
important that the cost of infringement substantially exceed
the costs of compliance, so that persons who use or distribute
intellectual property have a strong incentive to abide by the
copyright laws.
The section makes a number of changes to section 504 of
title 17, United States Code. First, section 504(c)(1) is
amended to adjust the minimum statutory damage amount for
``non-willful'' infringement from $500 to $750. This change
adjusts the minimum amount upward to reflect inflation over the
past eleven years and to otherwise preserve the deterrent
effect of the statutory damage penalties.
Second, section 504(c)(1) is amended to adjust the maximum
statutory damage amount for ``non-willful'' infringement from
$20,000 to $30,000. This change as well adjusts the maximum
amount upward to reflect inflation over the past eleven years
and to otherwise preserve the deterrent effect of the statutory
damage penalties.
Third, section 504(c)(2) is amended by redesignating the
first two sentences as subparagraph ``(A)'' and by increasing
the maximum damage amount for willful infringement from
$100,000 to $300,000. This substantial increase reflects not
only intervening inflation but also the determination that
increased global utilization and distribution of intellectual
property and electronic commerce warrant enhanced deterrence in
order to prevent copyright infringement. This higher damage
amount is fully consistent with other intellectual property
precedents. For example, maximum copyright statutory damages
for certain violations of the ``satellite compulsory license''
are $250,000,\2\ and the maximum penalty for willful
infringement of a trademark is $1 million.\3\ It should be
noted that the minimum damage amount for a person or entity
that shows that it was an ``innocent infringer'' has not been
changed. Thus, in a case where the infringer sustains the
burden of proving, and the court finds that such infringer was
not aware and had no reason to believe that his or her acts
constituted an infringement of copyright, the court in its
discretion may continue to reduce the award of statutory
damages to a sum of not less than $200.
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\2\ 17 U.S.C. Sec. 119(a)(5)(B).
\3\ 15 U.S.C. Sec. 1117(c)(2).
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Fourth, a new subparagraph (B) is added to section
504(c)(2) establishing a maximum statutory damage amount of
$250,000 for situations where the infringement was part of a
``repeated pattern or practice'' of infringement. This
provision conforms the statutory damage categories available
for infringement of all rights protected by the Copyright Act
to the ``pattern or practice'' infringement damages of up to
$250,000 for violations of the public performance right in the
context of the section 119 ``satellite compulsory license.''
In creating a new category of statutory damages for
``repeated pattern or practice'' infringement, the Committee is
acting to address situations in which the infringing activity
constitutes a course of conduct, not an isolated occurrence. A
repeated pattern or practice of infringement is inherently more
harmful to the rights of copyright holders and to the interests
the copyright laws are designed to protect. Such a pattern or
practice should therefore subject the infringer to a higher
range of statutory damages than in the case of a single act of
infringement. In some instances, persons who are determined to
infringe are insufficiently deterred by a first brush with the
copyright laws to cease their infringing activity. In other
cases, persons engage in infringing activity over a period of
time without being detected by the copyright owner. It is
intended that these higher damage awards be made available in
these and other circumstances where an infringer's activities
arise to a ``pattern or practice,'' in order to bring greater
deterrence to bear and to promote respect for the law and for
the rights of creators and copyright owners.
Finally, a technical and conforming amendment is made to
section 504(c)(2) by establishing a new subparagraph (C).
Sec. 3. Sentencing Commission Guidelines.
Section 3 amends section 2(g)(2) of the ``No Electronic
Theft Act'' (NET Act), Pub. L. No. 105-147 (December 16, 1997).
Section 2(g)(1) is a Directive to the Sentencing Commission.
The Directive instructs the Commission to ensure that the
applicable guideline range for intellectual property crimes be
sufficiently stringent to deter such crimes. Section (2)(g)(2)
instructs the Commission that in implementing paragraph (g)(1),
the Commission must ensure that the guidelines provide for
consideration of the retail value and quantity of the items
with respect to which the crime against intellectual property
was committed. Section 3 of H.R. 1761 amends paragraph (g)(2)
to state: ``In implementing paragraph (1), the Sentencing
Commission shall amend the guideline applicable to criminal
infringement of a copyright or trademark to provide an
enhancement based upon the retail price of the legitimate items
that are infringed upon and the quantity of the infringing
items. To the extent the conduct involves a violation of
section 2319A of title 18, United States Code, the enhancement
shall be based upon the retail price of the infringing items.''
H.R. 1761 makes no changes in paragraph (g)(1) of the NET
Act Directive. The Committee's clear intent is that sentences
for intellectual property crimes should be increased
significantly from their present level. The amendment to
paragraph (g)(2) reinforces the Committee's intent that the
current guideline, with its reliance only on the value of the
infringing item, should be replaced with a guideline based on
the retail price of the infringed upon (legitimate) items and
the quantity of the infringing items in cases arising under 18
U.S.C. 2318, 2319, and 2320.\4\ The Committee believes that the
retail price of the legitimate items that are infringed upon
(multiplied by the quantity of the infringing items) is a more
accurate measure of the economic harm caused by these offenses
than the measure used by the current guideline.
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\4\ In Sec. 2319A cases, the enhancement must be based on the
retail value of the infringing item because there is no commercially-
available, genuine counterpart for the types of unauthorized recordings
of live musical performances which this section prohibits. If the
criminal conduct did not occur for commercial purpose or private
financial gain, the ``retail price'' should be determined from the
price of comparable items.
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There may be cases in which multiplying the retail price of
the legitimate item by the quantity of infringing items may
overstate the economic harm. For example, a defendant selling a
counterfeit watch on a street corner for a small fraction of
its normal selling price may not warrant a sentence based
purely on multiplying the number of sales by the retail price
of the legitimate watch. This Directive is not intended to
preclude the Commission from developing a guideline that
permits reasonable adjustments to the monetary calculation in
this type of case, or that provides other appropriate
adjustments, aggravating or mitigating, to sufficiently deter
copyright and trademark offenses and to meet the other purposes
of sentencing as set forth in section 3553(a) of title 18,
United States Code.\5\ This does not change the fact that the
Commission must abide by the Directive, and adopt a guideline
that, overall, has the effect of increasing the sentences for
violations of intellectual property crimes, whether involving
copyrights or trademarks.
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\5\ The Committee amended H.R. 1761 to take a broader approach than
the version of the bill reported by the Subcommittee on Courts and
Intellectual Property, which directed the Commission to use ``the
retail price of the infringed-upon goods and quantity of the items as
the exclusive basis for determining the total retail value of those
items.'' (Emphasis added).
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Section 3 of H.R. 1761 also grants the Commission emergency
amendment authority necessary to amend guideline Sec. 2B5.3,
regardless of established amendment cycles. Section 3 also
imposes a deadline on the Commission to implement paragraph
(2)(g) of ``not later than 3 months after the later of (A) the
first day occurring after May 20, 1999, or (B) the first day
after the date of the enactment of this paragraph, on which
sufficient members of the Sentencing Commission have been
confirmed to constitute a quorum.'' The Committee believes that
expeditious action is necessary given the magnitude of the
growing problem of crimes against intellectual property.
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):
SECTION 504 OF TITLE 17, UNITED STATES CODE
Sec. 504. Remedies for infringement: Damages and profits
(a) * * *
* * * * * * *
(c) Statutory Damages.--
(1) Except as provided by clause (2) of this
subsection, the copyright owner may elect, at any time
before final judgment is rendered, to recover, instead
of actual damages and profits, an award of statutory
damages for all infringements involved in the action,
with respect to any one work, for which any one
infringer is liable individually, or for which any two
or more infringers are liable jointly and severally, in
a sum of not less than [$500] $750 or more than
[$20,000] $30,000 as the court considers just. For the
purposes of this subsection, all the parts of a
compilation or derivative work constitute one work.
(2)(A) In a case where the copyright owner sustains
the burden of proving, and the court finds, that
infringement was committed willfully, the court in its
discretion may increase the award of statutory damages
to a sum of not more than [$100,000] $300,000. In a
case where the infringer sustains the burden of
proving, and the court finds, that such infringer was
not aware and had no reason to believe that his or her
acts constituted an infringement of copyright, the
court in its discretion may reduce the award of
statutory damages to a sum of not less than $200. (B)
In a case where the copyright owner demonstrates that
the infringement was part of a repeated pattern or
practice of infringement, the court may increase the
award of statutory damages to a sum of not more than
$250,000 per work. [The court shall remit statutory
damages] (C) The court shall remit statutory damages in
any case where an infringer believed and had reasonable
grounds for believing that his or her use of the
copyrighted work was a fair use under section 107, if
the infringer was: (i) an employee or agent of a
nonprofit educational institution, library, or archives
acting within the scope of his or her employment who,
or such institution, library, or archives itself, which
infringed by reproducing the work in copies or
phonorecords; or (ii) a public broadcasting entity
which or a person who, as a regular part of the
nonprofit activities of a public broadcasting entity
(as defined in subsection (g) of section 118) infringed
by performing a published nondramatic literary work or
by reproducing a transmission program embodying a
performance of such a work.
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SECTION 2 OF THE NO ELECTRONIC THEFT ACT
SEC. 2. CRIMINAL INFRINGEMENT OF COPYRIGHTS.
(a) * * *
* * * * * * *
(g) Directive to Sentencing Commission.--(1) * * *
[(2) In implementing paragraph (1), the Sentencing
Commission shall ensure that the guidelines provide for
consideration of the retail value and quantity of the items
with respect to which the crime against intellectual property
was committed.]
(2) In implementing paragraph (1), the Sentencing
Commission shall amend the guideline applicable to criminal
infringement of a copyright or trademark to provide an
enhancement based upon the retail price of the legitimate items
that are infringed upon and the quantity of the infringing
items. To the extent the conduct involves a violation of
section 2319A of title 18, United States Code, the enhancement
shall be based upon the retail price of the infringing items
and the quantity of the infringing items.
(3) Paragraph (1) shall be implemented not later than 3
months after the later of--
(A) the first day occurring after May 20, 1999, or
(B) the first day after the date of the enactment
of this paragraph,
on which sufficient members of the Sentencing Commission have
been confirmed to constitute a quorum.
(4) The Commission shall promulgate the guidelines or
amendments provided for under this section in accordance with
the procedures set forth in section 21(a) of the Sentencing Act
of 1987, as though the authority under that Act had not
expired.