The Honorable Debra Wong Yang

U.S. Attorney for the Central District of California
and Chair of the Attorney General's Advisory Committee on Cyber/Intellectual Property Subcommittee
September 28, 2005

STATEMENT OF DEBRA WONG YANG
UNITED STATES ATTORNEY
CENTRAL DISTRICT OF CALIFORNIA
DEPARTMENT OF JUSTICE
BEFORE THE
COMMITTEE ON THE JUDICIARY

THE IMPACT OF THE SUPREME COURT'S DECISION IN MGM v. GROKSTER

SEPTEMBER 28, 2005

Chairman Specter, Ranking Member Leahy, and Members of the Committee, thank you
for this opportunity to discuss the impact of the Supreme Court's decision in MGM v. Grokster,1and, more broadly, to share with you the Justice Department's efforts in protecting intellectual property and prosecuting those who steal or illegally distribute our intellectual resources. The timing of this hearing is particularly appropriate. Although the Department, as I discuss below, has over the past several years invested significant time and resources toward protecting this Nation's intellectual property, Attorney General Alberto Gonzales has renewed the Department's commitment to its Task Force on Intellectual Property. He also recently
created an advisory subcommittee consisting of United States Attorneys who will work closely with the Task Force, the Office of the Deputy Attorney General, the Criminal Division, and various other components to implement the Task Force's comprehensive recommendations and increase our effectiveness in prosecuting cyber crime and intellectual property offenses. I am honored that he has asked me to chair this Attorney General's Advisory subcommittee and I am also grateful for this chance to address this Committee and open up what I hope will be a productive dialogue with Congress about how best to combat the misuse of our intellectual property capital.
We have placed special value on intellectual property since our Nation's birth. The
Constitution itself expressly grants Congress the power to "promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries."2 The First Congress wasted no time implementing this
3Act of May 31, 1790, ch. 15, § 1, 1 Stat. 1241 (1790).
4464 U.S. 417 (1984).
5Id. at 442.
6125 S. Ct. at 2780.
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Constitutional directive, and enacted the first federal law creating copyright protection in 1790.3 Over the ensuing two centuries, Congress has time and again revised intellectual property law
with a careful eye toward maintaining a proper balance between providing the incentives to create (through the mechanism of a statutory monopoly for ideas) and ensuring the ability of the public to enjoy and use the fruits of that creativity (by limiting the monopoly's duration and crafting appropriate exceptions).
The Grokster Decision
In fashioning the balance between private incentives and public use, Congress has
traditionally extended copyright, trademark, and patent protection by statute, and relied upon private parties to police one another by allowing aggrieved parties to sue one another civilly for damages or other equitable relief. Grokster is one such case. In Grokster, the Court was called upon to determine when a person could be held secondarily liable for a third person's acts in infringing a copyright. The Court encountered the issue in Sony Corp. of America v. Universal
City Studios, Inc.4 Under Sony's Staple-Article Rule, a manufacturer or distributor is not
secondarily liable for the design or distribution of a product that is capable of substantial
noninfringing use.5 In Grokster, the Court clarified that the possibility of such non-infringing use is not by itself sufficient to defeat secondary liability when the device maker intends to facilitate copyright violations: A person is secondarily liable for the infringement of others if he distributes a device with the object of promoting its use to infringe, as shown through a "purposeful, culpable" "expression or other affirmative steps taken to foster infringement."6
Of course, Grokster involved civil liability. Accordingly, it is not directly relevant to and
does not directly affect the Department's prosecutorial efforts. But Grokster is helpful in
understanding the issues that we regularly confront as criminal enforcers of intellectual property
law. Grokster highlights one of the perpetual challenges of criminal intellectual property
enforcement - namely, keeping up with the new and innovative ways in which technology is used
to violate these laws. Grokster emphasizes the importance that a party's intent can play in
assessing liability, which is entirely consistent with the invention of intellectual property law as a
means of balancing competing incentives.
7Act of Jan. 6, 1897, 29 Stat. 481 (1897).
8Pub. L. No. 97-180, 96 Stat. 98 (1982).
9Electronic Espionage Act, Pub. L. No. 104-294, 110 Stat. 3488 (1996).
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Criminal Enforcement of Intellectual Property Laws
Congress has resorted to criminal sanctions as an additional means of protecting
intellectual property. This innovation has been relatively recent. It was not until 1897, more
than a hundred years after the first copyright statute, that Congress made it a misdemeanor to
willfully infringe a copyright by publicly performing a dramatic or musical work for profit.7 It
was not for nearly another century that Congress, in 1982, created the first felony offense for
willful infringement of a copyright by distributing or reproducing certain types of works (movies,
audio-visual works, and sound recordings) for a profit.8 The theft of trade secrets did not become
criminal until 1996,9 and, to this day, patent infringement is not a crime but remains subject to
civil liability.
Congress' increasing reliance on criminal sanctions has coincided with the onset of the
Information Age. Intellectual property is fundamental to our current economy. Every year, we
export hundreds of billions of dollars of motion pictures, music, software, new technologies, and
innovations in nearly every field of endeavor. Piracy and theft of that intellectual property has a
substantial harmful effect on nearly every industry, from electronics to entertainment to industrial
logistics. Moreover, the piracy of our intellectual property is often intimately related to the
misuse of trademarks. Consumers rely on those trademarks, especially brand names, as a means
of assuring themselves of the quality and safety of the goods attached to them. As a result,
misuse of trademarks can endanger public health and safety as well as the economy.
In light of these important concerns, the Department has taken its mandate to enforce
these carefully tailored criminal laws very seriously. As with other forms of contraband, the
Department has attempted to combat illegal trafficking in intellectual property in several ways.
First, we have focused on halting the "supply" of unauthorized intellectual property by deterring
the initial theft of the property and its modes of distribution. Second, we have attempted to
diminish the "demand" for such product through educational and other outreach programs.
Lastly, we have developed a specialized cadre of prosecutors who work hard to keep abreast of
the latest technological developments, educate federal agents and the public, and prosecute cases
that penalize offenders and, we hope, have a publicly visible deterrent effect. I will share with
you some of the specifics of our efforts, and how Congress has been a necessary and welcome
ally in these endeavors.
10Pub. L. No. 109-9, Title I, § 102(a), 119 Stat. 210 (2005) (creating 18 U.S.C. § 2319B).
11See Family Entertainment and Copyright Act of 2005, § 103 (amending 17 U.S.C. § 506
and 18 U.S.C. § 2319).
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Stopping the Supply of Illicit Intellectual Property: Theft & Distribution
Attacking the supply of the illicit market in intellectual property involves a two-fold
focus: stopping the initial theft of the property and dismantling the distribution chain. With
respect to motion picture piracy, for example, we have identified three ways in which movies are
initially taken prior to their release for sale in DVD format. First, employees of a postproduction
facility hired by the studio will violate the terms of their employment and steal a copy
of the movie. Second, a person with an "advance copy" of a movie will either copy or allow the
movie to be copied. Persons tapped by the Academy of Motion Picture Arts and Sciences to be
"screeners" - that is, to receive a copy of a movie for purposes of screening and voting - fall into
this category. Lastly, moviegoers will bring a video camera and other equipment into a movie
theater and surreptitiously record a movie as it is being exhibited at a premier or other advance
showing.
The Department has aimed its prosecution efforts at precisely these supply sources, and
my office has largely adopted a "zero tolerance" policy. The damage done by these criminals is
often impossible to calculate, as it has a ripple effect that undermines consumer sales and,
beyond that, the health of the various creators and the industry that supports them.
For example, in February 2004, the Department prosecuted several individuals who stole
copies of movies including The Passion of the Christ and Kill Bill, Vol. 1, pre-theatrical release,
from a post-production house responsible for putting the finishing touches on the films. The
Department has also prosecuted and obtained convictions against many different individuals who
coopted movies from screeners, including The Incredibles, Friday Night Lights, and Finding
Neverland. Perhaps the most notorious of these screener-distributors was Russell Sprague, who
pled guilty to copyright infringement in 2004, admitting to distributing over 100 screener titles
that he had obtained from an Academy member who had received the screeners legitimately due
to his Academy membership, which has since been revoked.
Very recently, this past June, our Office - which is home to Hollywood - obtained guilty
verdicts after a two week trial against Johnny Ray Gasca, a notorious "camcorder." Subsequent
to the filing of charges against Gasca, Congress stiffened the penalties for camcorders and
created a separate new felony crime to address precisely this type of activity.10 Moreover, until
recently, a person who uploaded a film onto the Internet was treated much the same as a person
who simply distributed a copy. This did not accurately reflect the greater degree of harm that a
so-called "uploader" causes, and Congress stepped in earlier this year to make the act of
uploading itself a felony, at least when the item uploaded is a motion picture not yet available for
public purchase.11
1217 U.S.C. §§ 1201-1204.
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Just last month, Department prosecutors in San Jose, California became the first in the
Nation to use several provisions of this new law, known as the Family Entertainment and
Copyright Act of 2005, to charge a Missouri man with felony crimes for camcording films in
movie theaters and distributing the films on computer networks. This is yet another example of
Department prosecutors in the field making quick and efficient use of the tools given to them by
Congress to continue their fight against piracy more effectively.
Once a movie, song, software program, or game is stolen, thieves usually opt for one of
two ways of distributing the pirated goods. The first, and most widespread, form of distribution
is over the Internet. Online piracy involves several steps - the person who "uploads" his or her
copy of the movie, program, or other work to a server, the person who removes any copyprotection
devices embedded in that copy, and the person who facilitates its distribution.
The person who removes any copy-protection device, often called a "cracker," faces
criminal liability under the Digital Millennium Copyright Act ("DMCA") for circumventing that
device.12 The Department has been careful to exercise its prosecutorial discretion in such a way
to charge those DMCA cases against crackers who are part of distribution chains. For example,
in early 2003, a Vacaville, California man was sentenced to two years in federal prison for his
part in creating more than 4,500 bootlegged video tapes by means of a movie videocassette
reproduction lab, with a vast array of equipment hooked up to manufacture counterfeit movie
videocassettes and labels. The bootlegger was also charged and convicted under the DMCA for
using equipment in the reproduction lab which bypassed the copyright protections built into the
videocassettes.
In another example of charges brought under the DMCA, in the fall of 2003, my office
obtained the first ever conviction by jury in a DMCA case, related to the circumventing of
DirecTV security measures to reprogram DirecTV access cards, also known as "smart-card
hacking." A total of 17 defendants were charged in Operation Decrypt, an undercover FBI
investigation that targeted high-level computer programmers and hardware manufacturers who
distributed software and devices used to steal satellite services from DirecTV and DISH network.
Distribution of copyrighted works over the Internet often takes one of two forms -
centralized and de-centralized. The most common form of centralized distribution we have
encountered is the so-called "warez group." A warez group is a loose confederation of
individuals who maintain a massive database, often containing terabytes of data comprised of
illegally pirated movies, software, music, and games. Members join the group by contributing
pirated works, and then are granted privileges to download other pirated works from the group's
central database. The Department has aggressively infiltrated and taken down several of these
warez groups.
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Among our more prominent recent prosecutions of warez groups is "Operation Site
Down." In June 2005, the Department and law enforcement from 10 other countries executed
over 90 searches worldwide targeting many of the leading criminal warez groups, including
RisCISO, Myth, TDA, LND, Goodfellaz, and Hoodlum. The takedown was orchestrated by the
Computer Crime and Intellectual Property Section ("CCIPS") at Main Justice, which coordinated
the unprecedented international coordination in this global enforcement effort, with assistance
from the U.S. Attorney's Offices in various cities around the Nation. The investigation was
headed up by FBI Field Offices and the U.S. Attorney's Offices in Charlotte, Chicago, and San
Francisco. We estimate, conservatively, that more than $50 million in intellectual property was
recovered.
De-centralized distribution over the Internet involves "peer-to-peer" ("P2P") networks
similar to those involved in the Grokster decision. Unlike more centralized networks that house
all of their pirated intellectual property in a single location or in a small handful of locations, P2P
networks can operate by using space on members' computers; members may obtain pirated items
by accessing one another's computers rather than any centralized database. We are aiming our
efforts at the organizers of these groups reproducing and distributing copyrighted works.
Distribution of intellectual property not only takes place on the Internet, it also takes
place in what we sometimes call the "real world." We have seen that this second type of
distribution network obtains pirated copies of movies, music, games, and software, then
reproduces hard copies of them, for sale at retail stores and swap meets, and on street corners all
around the United States. This type of crime often involves both copyright and trademark
infringement, at least where the pirated goods are contained in packaging that uses the logos and
brand names of software companies, movie studios, game producers, or music distributors. The
Department has aggressively prosecuted this type of distribution network as well.
Our recent efforts in both of these areas include:
* Operation D-Elite. In May 2005, FBI and Immigration and Customs
Enforcement ("ICE") agents executed search warrants at 10 locations across the
United States targeting leading members of an international P2P network known
as the Elite Torrents (due to their use of the program BitTorrent). CCIPS is
leading this ongoing investigation and prosecution, the first of its kind to target
the misuse of the P2P software platform BitTorrent.
* Operational Digital Gridlock. In August 2005, the FBI executed six search
warrants in three different States aimed at dismantling another misused P2P
network. Two of the defendants pled guilty, the first convictions for piracy using
a P2P network. The United States Attorney's Office in the District of Columbia
and CCIPS have handled this prosecution.
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* Operation FastLink. In April 2004, the Department, in conjunction with the
authorities in Belgium, Denmark, France, Germany, Hungary, Israel, the
Netherlands, Singapore, Sweden, and Great Britain and Northern Ireland,
executed 120 search warrants simultaneously against a criminal operation that
manufactured pirated copies of movies, software, games, and music. Thus far, we
have obtained 15 felony convictions and are continuing to press forward against
other possible targets. This investigation was orchestrated and led by CCIPS and
used the network of U.S. Attorney's Offices around the Nation.
* Operation Digital Marauder. Last year, U.S. Attorney's Offices in California
and Washington State concluded an undercover operation for more than a year
and executed several search warrants aimed at an organization that was engaged in
mass production and subsequent distribution of pirated and counterfeit software in
Los Angeles, San Francisco, Vancouver, and Texas. A total of 12 individuals
were charged with copyright and trademark violations in one of the largest
counterfeit software cases ever charged.
As is evidenced from these cases, the theft and distribution of intellectual property almost
always has an interstate - and often an international - dimension. In October 2004, USTR and
the Departments of Commerce, Homeland Security, and Justice announced the Administration
initiative called the Strategic Targeting Organized Piracy ("STOP") to combat trade in pirated
and counterfeit goods. Other participants include the Department of State and the Department of
Health and Human Service's Food and Drug Administration. This White House-driven,
interagency initiative targets cross-border trade in physical/tangible goods and has five general
components:
* Stopping infringing and counterfeit goods at the U.S. border by improving
identification and seizure capabilities;
* Dismantling criminal enterprises that steal intellectual property;
* Keeping counterfeit and infringing goods out of the global supply chain;
* Empowering U.S. businesses to secure and enforce their intellectual property
rights at home and abroad; and
* Reaching out to U.S. trading partners and building international coalitions to
block trade in infringing and counterfeit goods.
As part of its contributions to the STOP initiative, the Department has continued to target
international, large-scale criminal organizations that steal and trade in pirated and counterfeit
goods. One example was the global enforcement action knows as Operation Site Down, which I
referenced earlier. In addition, in April and June of this year, the Department accompanied other
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STOP agencies on foreign trips to Hong Kong, Korea, Singapore, France, Belgium, Germany,
and the United Kingdom to heighten awareness of IP enforcement concerns and build effective
coalitions with like-minded trading partners to block trade in pirated and counterfeit goods.
Also in the international arena, the Department has enhanced and improved its delivery of
intellectual property training programs for foreign prosecutors and investigators by developing
key relationships with foreign officials directly responsible for intellectual property enforcement.
For example, the Department has worked closely with Mexican authorities, particularly
intellectual property prosecutors and customs officials, to enhance intellectual property
enforcement efforts in the hopes of stemming the flow of pirated goods between the two
neighboring nations. Similar efforts are underway in Panama and are planned in several Eastern
European and Southeast Asian countries known for producing pirated and counterfeit goods.
The Department has also taken an active role in seeking greater criminal enforcement of
intellectual property violations in China. U.S. and Chinese law enforcement officials had
extensive discussions on criminal enforcement of intellectual property rights and areas for
potential cooperation during the U.S.-China Joint Liaison Group meeting held in February 2005.
The Joint Liaison Group has provided a productive forum for U.S.- China law enforcement
cooperation in a number of areas of criminal enforcement, and we are hopeful that we will be
able to make progress on intellectual property protection in China through this specialized law
enforcement forum.
Diminishing the Demand for Pirated Goods
In the digital age, pirated movies, music, games and software are tempting to those more
interested in obtaining entertainment than obeying the law. Usually, pirated intellectual property
is available for free and, in the digital age, is often identical in quality to the original. Persons
inclined to pay for such intellectual property may decide to take the expedient route instead and
download a pirated copy or buy a copy on a street corner for a small fraction of the retail cost of
the authentic version.
The Department has taken an active role in educating the public, and especially the
younger consumers who are often associated with accepting the fruits of piracy, about the costs
of piracy to the copyright holder and to the economy. Last fall, the Department, working in
conjunction with the Motion Picture Association of America and others, hosted the first
"Activate Your Mind" conference in Washington, DC. High school students from the
surrounding area were invited to Main Justice to hear from songwriters, a convicted felon, and
others about why they should not engage in piracy; the day-long event concluded with the
students preparing public service announcements denouncing music piracy. This spring, we
hosted a similar event for high school students in the Los Angeles area, and focused the
presentation on movie and television piracy.
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Specialized Prosecutors, Community Outreach
Since 1991, the Department has recognized that the most effective tool for combating
intellectual piracy is a well-trained staff of prosecutors. Toward that end, the Department created
CCIPS, a centralized unit of 35 attorneys who work from Main Justice to coordinate and support
cybercrime and intellectual property investigations handled by line prosecutors in the field.
CCIPS also prosecutes its own cases, and specializes in multi-district, international prosecutions.
In 1994, the Department created what is now called the "CHIP" program, short for Computer
Hacking and Intellectual Property. Each of the 94 United States Attorney's Offices has at least
one prosecutor who receives training and is a point of contact for any cases involving cyber or
intellectual property crime. Now, 18 offices have CHIP units - that is, a group of prosecutors
who specialize in these types of crimes. In recent years, our focus has shifted more than ever
toward intellectual property crimes. These CHIP prosecutors receive regular training, develop
important expertise, and focus their efforts on intellectual property and cybercrime prosecutions
to form a strong network throughout the country to fight the increasing problem of intellectual
property theft in the digital age.
These prosecutors carry their training forward. In Los Angeles, for example, prosecutors
in my office hosted a training session on intellectual property law for more than 65 federal agents
in February 2005. These prosecutors also engage in outreach aimed at the most likely victims of
intellectual property theft, educating them about how to prevent such theft, what sorts of conduct
qualifies as criminal, and what sort of evidence to preserve for purposes of criminal
investigation.
In addition, last year, then-Attorney General Ashcroft commissioned the Intellectual
Property Task Force. The Task Force spent six months conducting a comprehensive review of
how the Department protects intellectual property rights. The Task Force consulted prosecutors
and agents in the field, met with representatives from the victim industries most affected by
piracy, and assessed what has been accomplished, what needs to be accomplished, and how to
meet those needs in the future. The Task Force issued a written report last October, detailing its
findings and making dozens of recommendations. Attorney General Gonzales, within a few
weeks after taking office, re-commissioned the Task Force to implement all of the
recommendations contained in the report. Some of those accomplishments include:
* Creating five new Computer Hacking and Intellectual Property ("CHIP") Units in
the U.S. Attorney's Offices in Nashville, Orlando, Pittsburgh, Sacramento, and
Washington D.C., bringing the total number of specialized prosecutorial units to
18.
* Providing foreign and state-side training programs on intellectual property
enforcement for government officials from Brazil, Brunei, Cambodia, Chile,
Colombia, Indonesia, Korea, Philippines, Malaysia, Mexico, Myanmar,
Singapore, Thailand, and Vietnam.
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* Executing agreements to implement obligations of US/EU Mutual Legal
Assistance and Extradition Agreements that ensure cooperation regarding
intellectual property crimes with Belgium, Finland, Spain, Sweden, the United
Kingdom, France, the Netherlands, Luxembourg, Lithuania, Denmark, Ireland,
Portugal, and Austria; and completing or nearly completing negotiations with
Estonia, Germany, Greece, Hungary, Italy, Cyprus, and Slovenia.
* Working with Congress to achieve the following legislative accomplishments:
* legislation recognizing passive sharing of copyright works, as enacted in
the Family Entertainment and Copyright Act, S. 167, on April 27, 2005;
* legislation recognizing the premium value of copyrighted works before
they are released to the public, as enacted in the Family Entertainment and
Copyright Act, S. 167, on April 27, 2005; and
* legislation allowing law enforcement officials to seize material and
equipment used to make counterfeit products and labels, as enacted in the
Anti-Counterfeiting Amendments of 2004, H.R. 3632, on December 23,
2004.
Concluding Remarks
As you can see, the Department takes the protection of our Nation's intellectual property
very seriously. The Task Force, and the subcommittee which I have recently been asked to
coordinate, will continue to grapple with the issues of how best to address both the current and
emerging issues in this area. Among others, we are examining whether there are any gaps in the
arsenal of criminal enforcement tools, whether the Department's prosecutorial and policy
resources are distributed efficiently, and what more we can do to educate the public and potential
victims to stave off the problem in the first place. I look forward to working with you on these
issues in the coming months, and to sharing with you the results of our efforts as we move
forward to protect the intellectual property assets that the Constitution, more than 200 years ago,
recognized as a powerful asset of our Nation's heritage.