STATEMENT OF SHARI STEELE STAFF ATTORNEY, ELECTRONIC FRONTIER FOUNDATION ON THE PROPOSED AMENDMENTS TO GUIDELINE SECTION 2B5.3 BEFORE THE UNITED STATES SENTENCING COMMISSION MARCH 12, 1998 PUBLIC HEARING I'd like to thank the Commission for the opportunity to appear here today on behalf of the Electronic Frontier Foundation to comment on sentencing guideline Section 2B5.3, the governing provision for criminal infringement of copyright or trademark, and the various proposals to revise it. EFF is a national non-profit civil liberties organization working to safeguard rights and promote responsibility in the rapidly developing online world. Since 1990, we have been working to protect free expression, individual privacy, and open access to information in cyberspace. Last year, Congress enacted the No Electronic Theft, or "NET," Act, which for the first time extended criminal penalties to willful copyright infringement undertaken without commercial purpose. Under the Copyright Act as amended by the NET Act, criminal penalties for copyright infringement may be triggered in one of two ways. The first is contained in section 506(a)(1) of the Copyright Act, which broadened the definition of "financial gain" to include bartering. The second trigger for criminal punishment is entirely new. Governed by section 506(a)(2) of the Copyright Act, this provision holds that any unauthorized copying of software--even the production of a single copy--that exceeds a retail value of $1,000 is a criminal act, regardless of the absence of commercial or trade purpose. There are fundamental differences between noncommercial infringement that may fall within section (a)(2) and the commercial or trade piracy anticipated in section (a)(1). Commercial or trade piracy tends to be a more organized, sophisticated activity involving large underground networks, high levels of activity, and large amounts of illicit data. Noncommercial infringement, on the other hand, takes no more than a single individual making a single unauthorized copy. Commercial or trade piracy involves a second step that magnifies the harm of the first infringement and tends to facilitate or encourage more piracy. The harm from noncommercial infringement tends to be limited to the underlying violation only. All commercial or trade piracy is criminal. Noncommercial infringement straddles the boundary between civil liability and criminal wrong, depending entirely on the price tag of the software copied. Whereas commercial and trade piracy dominate one end of the severity scale, noncommercial infringement sits on the other. Noncommercial infringement under section 506(a)(2) should be treated more leniently than commercial or trade piracy under section 506(a)(1). Yet, under the currently proposed guidelines, an offender who has committed the much less serious offense could potentially receive the same sentence as the software pirate. For example, consider the individual who copies two high-end applications retailing for $1500 in order to install them on his home computer so that he can bring some of his work home with him. He shares the software with no one else, uses it only in connection with work, and makes no further copies. Now consider a commercial offender, a software bootlegger who produces a CD-ROM containing an illegal copy of one of the newest and most popular games that retails for $50. The bootlegger markets and sells 30 copies of this CD to people all over the world. The $1500 noncommercial infringement and the $1500 commercial piracy could be treated exactly alike. EFF believes that a new specific offense characteristic in Guideline 3 should be adopted to reflect the varying levels of culpability in the offenses that are now reached under the provisions of the NET Act. The effect of this specific offense characteristic would be to grant a one-level decrease in offense level for any infringement not committed for purposes of commercial advantage or private financial gain. In its directive to the Sentencing Commission under the NET Act, Congress instructed that the applicable sentencing guideline should do two things: first, ensure that penalties were sufficiently stringent to deter, and second, take into account the ãretail value and quantityä of the infringed upon items. In spite of this, the DoJ argues for the replacement of the "retail value of the infringing item" standard with a "loss to the copyright or trademark [owner]" standard, justifying this change on the grounds that "when copyrighted materials are infringed upon by electronic means, there is no 'infringing item', as would be the case with counterfeited goods." Furthermore, the DoJ proposes language that would specifically permit a court to consider lost profits, value of infringing items, and injury to the copyright ownerâs reputation, in addition to the value of infringed items. We disagree with the DoJ. Even in the realm of electronic infringement, the illegitimate reproduction of a protected work results in the production of an illegitimate copy, which is an "infringing item." Futhermore, none of the new three factors specified by the DoJ does anything to fulfill the congressional directive. The DoJâs broad notion of "loss to copyright or trademark owner" incorporates factors not contemplated by the statute and introduces a vagueness that hinders the effectiveness of the guideline itself. We urge the Commission to adopt a narrower standard that looks to the retail value of the infringed item. The DoJ proposes an Application Note suggesting the consideration of an upward departure in circumstances where "the calculable loss to the victim understates the true harm caused by the offense." EFF believes that the Commission should substitute the language "retail value of the infringed-upon items" for "calculable loss to the victim" and "severity of the offense" for "true harm caused by the offense." Furthermore, we regard the DoJâs suggestion to insert departure commentary as somewhat unfinished. In addition to an "upward departure" comment, we propose corresponding guidance that would advise the consideration of a downward departure under specific circumstances. Just as retail value may understate the severity of the offense in certain situations, it may overstate it in others. One example would be a situation in which the infringing act clearly did not result in the loss of a sale to the copyright owner, thus reducing the utility of "retail value" as a measure of offense severity. For example, a father might give his old computer to his college-bound daughter with software preloaded on it while he retains the original software diskettes for himself. When he loads that software onto his new computer, he has technically violated the criminal provisions of the Copyright Act. But his daughter might not ever access the preloaded software and certainly would not have purchased it on her own. The software producer did not lose a sale as a result of this transaction, and a downward departure would probably be appropriate. Another special situation that might justify consideration of a downward departure would be where the retail price for a particular software package is so high that the infringer is boosted into an offense level clearly out of proportion to the underlying offense. Finally, EFF would like to comment very briefly on the various amendment options to guideline 3 being considered in connection with the proposed revision to the fraud loss table. First, we support a cross-reference to the alternative monetary table rather than to any revised fraud loss table. Referencing the new fraud loss table, which has the "more-than-minimal planning" enhancement built-in, would have the effect of indirectly incorporating the MMP enhancement into guideline 3 as well. This would be a mistake. The MMP enhancement was a fraud-specific provision that never was a part of the copyright infringement guideline, and it is not at all clear why such an enhancement would be appropriate now. For this reason, we urge the Commission to reject Options 3, 3A, and 4. Second, we support a $5,000 threshold sum for any table that is adopted. The next lower level is $2,000, which falls within the misdemeanor range of the criminal copyright section. We do not believe that any upward adjustment is appropriate at that level of wrongdoing. Furthermore, we feel that the tables with an opening threshold of $2,000 include upward adjustments that are too high for their corresponding dollar values at amounts under $1,200,000. Therefore, we urge the Commission to reject Option 2. Third and finally, we are opposed to Option 1Aâs offense-specific +1 adjustment at levels above $2,000 that would have the effect of lowering the tableâs $5,000 threshold amount to $2,000. Again, $2,000 only represents a misdemeanor under the statute, and we are of the opinion that an upward adjustment÷whether a result of a loss table or a specific-offense-characteristic provision÷would not be warranted at this level. Consequently, we strongly urge the Commission to adopt Option 1 as the appropriate loss table amendment to guideline 3. By amending sentencing guideline 2B5.3 in these ways, we believe that the Commission will have crafted a sentencing solution to the software copyright infringement problem that is far more effective and fair than the DoJ proposal. I would like once again to thank the Commission for the opportunity to be here today on behalf of the Electronic Frontier Foundation. I hope that our testimony will prove useful to you, and I invite you to contact me if I can provide you with any additional information. Thank you.