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© 1997 Shelley M. Welch, All Rights Reserved
It is recommended that Global Telecomm (GT) begin its Asian expansion by forming a joint venture with Sony Corp. to provide downloadable movies and music videos for sale and for rent to consumers in Japan.
Customers of this service could shop for selections by browsing a vast catalog on a series of web pages, download the desired files, and copy them on a DVD disc. The selections could then be viewed by playing the disc on a DVD player connected to a TV. Customers accessing the Internet with WebTV would be spared the process of copying the files to DVD if WebTV evolves such that storage capacity is provided for downloads and playback software. Of course, movies and videos could be viewed on the personal computer used for downloading, but the true videophile most likely prefers to view the product from a comfortable seat in front of a large screen with thunderous surround sound. The downloadable files could be encoded to self destruct after, say, three days. Customers who rent files may enjoy the product as frequently as they like within the time frame set before self-destruction.
Currently this proposal is not feasible due to the limitations of transmission speed and software storage capacity, but GT can position itself as the leader in DVD services if it readies itself to begin service when the state of technology allows.
Digital video on demand (VOD), marketed in the manner here proposed, is superior to old-fashioned in-store movie sales and rental for several reasons. Customers can shop at home, face no pressure to return rentals, never experience the effects of tape deterioration, and never have to worry that a desired selection may be unavailable. This service is also better than standard pay-per-view because customers can watch whatever they want whenever they want due to the constant availability of the entire catalog of product.
Other VOD services are less desirable because they require the purchase of single purpose, dedicated hardware. The hardware products involved in this VOD service -- a good PC with modem or a WebTV unit, a DVD writer/player with either connecting cable or a second DVD player, a TV -- all serve multiple functions. No money is wasted if the consumer ceases to use, or only minimally uses, the DVD service. The user, unless he or she is a fanatic, most likely purchased the products for their primary functions: Internet communications, software archiving, the viewing of recorded discs, and TV viewing.
Among the legal issues raised in pursuing this endeavor are product piracy, security of transactions, privacy rights in customer account information, protection of intellectual property rights for newly-developed application software, and licencing of existing applications for use in operations. This paper focuses on the problem of piracy because it is the issue of greatest magnitude in a VOD service, and because it is of equal magnitude to other businesses associated with software production and distribution. Furthermore, knowledge about the legal and technological means of fighting piracy is useful to every entity using the Internet as a marketing tool. The techniques and remedies to deter piracy are effective in safeguarding all forms of intellectual property posted. Marketing on the Net may involve a broad combination of postings -- logos, slogans, prose, photography, and music samples, to name but a few examples. Even apparently trivial postings could represent large value to a company. For instance, it may not matter to a small, locally-operated business owner if a trademarked logo is used in connection with a similar product in a faraway country, but such use could be devastating to a multinational corporation that may eventually seek to do business in the country in which the mark is being used. The lengths to which an entity will go to prevent the misappropriation of its property is a function of the degree to which misappropriation affects the business.
Japan, population approximately 125,450,000 at the end of 1996, is a 145,850-square-mile archipelago off the east coast of Asia. The capital city is Tokyo, with a population estimated to be eight million.
The monetary unit is the yen, which traded at ¥110 = $1 U.S. as of June, 1996. Japan has the second largest economy in the world, second to the U.S., with an estimated GDP of five trillion dollars. Its 1994 per capita GDP was estimated to be $20,200. Economic growth slowed during the 1990's following rapid growth during the preceding decades. The GDP grew only 1.1% in 1992, and the years 1993-1995 each saw 1% growth. Stronger growth has been recorded in both the fourth quarter of 1995 and the first quarter of 1996.
The 1996 birth rate was about ten per 1,000 people, not far behind the U.S. rate of fifteen births per 1,000 people. The infant mortality rate per 1,000 live births in 1996 was four, in the U.S. it was seven.. Life expectancy for those born in 1996 is 77 years for males, 83 years for females. Currently about 15% of Japan's population is aged 60 or older. The literacy rate in 1994 was reported to be 100%. Education is free and compulsory for children aged six to fifteen.
Japan's infrastructure is fully developed for transportation and telecommunications. It consumed 840 billion kWh of electricity in 1993 (far below U.S. consumption: 3.2 trillion kWh in 1992, 3.3 trillion kWh in 1996). The ratio of telephones, radios, and televisions per person are, respectively, 1:2.1, 1:1.1, and 1:1.2. As of March, 1995, 27.6% of households owned DBS units, 73.7% had VCRs, 55.9% had CD players, 57.7% had stereos, and 15.6% owned personal computers.(2)
Japan's chief industries are automobiles, electrical and electronic equipment, machinery, and chemicals.(3) Six banking and securities firms were among the top ten companies in Japan according to income for fiscal year 1990.(4) The other companies in the top ten for that year were Toyota Motor (1), Nippon Telephone and Telegraph (2), Matsushita Electric Industrial (3), and Hitachi (7).(5)
Beginning in the late 1980s, many Japanese companies opted to move production overseas. They established new factories in countries with lower costs, such as China, Thailand, and Indonesia.(6) As a result, industrial land scarcity has decreased, and the current record levels of unemployment have greatly increased the number of highly skilled workers available at competitive salaries.(7) The promotion of free trade is government policy, and has been since Japan joined the Organization for Economic Cooperation and Development (OECD) in 1964.(8) Incentives for foreign investment include tax concessions, grants, equipment lease programs, loans, insurance, and home financing programs.(9) Due to the nation's current economic situation, the government of Japan is expected to increase its incentives to attract foreign investors.(10)
In addition to the OECD, Japan is a member country of the United Nations (UN), and the World Trade Organization (WTO).(11) However, despite the governmental position of openness to foreign investors, investment has been difficult for outsiders. Close business relationships and supplier loyalty cause many Japanese businesspeople to deal mainly with other Japanese.(12)
Because of the availability of and demand for consumer electronics products and services, Japanese households are very likely to possess the hardware and Internet resources to support a VOD service when it becomes available. They most probably will be the first with that capacity, since entertainment-related technological innovations are usually distributed in Japan first. Japan is the world's second largest market for information technologies, a category encompassing consumer electronics and industrial products.(13)
Despite Japan's economic troubles and personal computer price increases of more than $1,000 per unit, the personal computer market rose 39.1% during 1996.(14) Over eight million machines were shipped to Japanese consumers that year.(15) By the year 2010 the market for consumer and industrial electronics is predicted to surpass the trillion-dollar mark, and all Japanese homes, businesses, government offices, and schools are scheduled to be online in accordance with the government's "Fiber to the Home" project.(16)
DVD hardware was first introduced in Japan on November 1, 1996.(17) The market is growing rapidly; by the end of 1996 there were six brands of DVD players available.(18) WebTV Networks Inc., in a joint venture with Fujitsu Ltd., plans to launch a TV-based Internet service in Japan.(19)
The demand for motion picture and musical product in Japan is quite high. In 1991, for example, 700 million video tapes and discs were sold and rented.(20) Japan is currently the second-largest music market in the world.(21) Sony produces American and Japanese movies and music, and the product of both countries is in great demand.(22) Sony recording artist Mariah Carey was the Recording Industry Association of Japan (RIAJ) artist of the year for 1996. Carey's "Daydream" was foreign album of the year, and her Japanese record sales for 1995 totalled 197,599 singles and 1.6 million albums.(23) Sony artist Celine Dion's single, "To Love You More," was the top-selling foreign single with 1.1 million copies sold.(24)
Sony Corporation, headquartered in Tokyo, was founded on May 7, 1946, as Tokyo Tsushin Kogyo (Tokyo Telecommunications Engineering Corporation).(26) The name Sony, a combination of "sonny" and the Latin word "sonus," was adopted in 1958 to represent a company comprising "a very small group of young people who have the energy and passion toward unlimited creation."(27) Sony is one of the world's leading electronics manufacturers, and is among the world's leading music, motion picture, and television production companies. In addition to its electronics and entertainment divisions, Sony operates an up-and-coming life insurance company.(28)
Sony products are marketed through subsidiaries worldwide. The company actively contributes to the communities in which it conducts business, and has a global environmental policy.(29) One of its avenues for community outreach is the Sony Foundation of Science Education, which sponsors a Japan-U.S. exchange program for high school teachers.(30)
Sony's net income for fiscal year 1996, ending March 31, 1996, was $511,811,000. Total assets were $47,601,179,000, and shareholder equity totaled $11,029,934,000 with 374,067,706 shares outstanding.(31) Sales and operating revenue totaled $43,326,085,000, with 30% from Japan, 27.4% from the U.S., 23% from Europe, and 19.6% from other areas. Sales and operating revenue of the electronics segment totaled $33,303,340,000, which was 76.9% of all such revenue.
Combined revenue from sales and operations was up 15.1% from fiscal year 1995. Sales in Japan rose 24.9% due to the overall increase in sales of electronics products, the success of the PlayStation video game system, and the expansion of the life insurance segment. U.S. sales increased by 9.4%, largely due to strong sales of computer-related equipment. Sales in Europe increased 16.4% from elevated sales of electronics products and favorable performance by the entertainment segment. Sales in other areas rose 8.6%, fostered by expansion in Asia. All three industry segments experienced increased sales. Sales of electronics rose 15.6%, entertainment sales were up 7.7%, and insurance and financing revenues climbed 61.7%. Consolidated sales and operating revenue for FY 1997 are projected to increase by 20%.
Sony is publicly held. Its shares are listed on 17 stock exchanges worldwide, including Tokyo, New York, and London. At the end of FY 1996 Sony had 988 consolidated subsidiaries and 151,000 employees worldwide. Of its self-identified major subsidiaries as of July 23, 1996, 42 are in Japan, seven are in the U.S., and 39 are in other countries such as Singapore (3), Brazil (3), and The Netherlands (3). Sony owns real property in countries including Japan, the U.S., Wales, France, Spain, Mexico, Indonesia, and Singapore.(32) An April, 1996 restructuring involved the regrouping of operations into 10 companies, consolidation of the marketing divisions, and the establishment of an Executive Board for purposes of corporate strategizing.
The Insurance and Financing division currently consists of Sony Life, a life insurance agency operating in Japan.(33)
Sony's Electronics division has as its major products VCRs, laserdisc players, HDTV equipment, stereos and stereo components, personal and professional audio equipment, televisions, cable/satellite receivers, monitors, semiconductors, telecommunications equipment, computers and peripherals, and factory automation systems.
The Entertainment division is comprised of the Music Group and the Pictures Group. The Music Group consists mainly of various record labels spawning hit artists such as Mariah Carey, Michael Jackson, Celine Dion, Barbara Streisand, Wynton Marsalis, Julio Iglesias, Sade, Placido Domingo, Yo-Yo Ma, and John Williams. The Pictures group includes the motion picture production company Columbia Pictures, the video distribution company Columbia TriStar Home Video, movie theater chains, various Hollywood studio facilities, and Sony Television Entertainment. About 30 films are released per year. Sony's library contains over 3,400 motion pictures, including 12 Oscar winners for best picture. Recent hits produced or distributed by Sony include Jerry Maguire, The People vs. Larry Flint, The Cable Guy, and Riverdance. Sony produced or distributed 30 TV programs during the 1996/1997 television season including Seinfeld, Party of Five, Wheel of Fortune, Jeopardy, Days of Our Lives, and Ricki Lake.
Sony is by no means adverse to joint ventures, and some rather successful ones have emerged in the entertainment field. Sony Music Entertainment (Japan) Inc. is the result of a 1968 50-50 venture with CBS to manufacture, sell, and promote musical product in Japan, originally called CBS/Sony Group Inc.(34) CBS' share was purchased by Sony in January, 1988.(35) The Columbia House Company, a direct marketer of music and video product, was established in 1991 as a 50-50 venture with a Time Warner Inc. subsidiary.(36) Sony Theatres and Earvin "Magic" Johnson have opened several "Magic Johnson Theatres" complexes across the U.S. Sony/ATV Music Publishing, a joint venture with Michael Jackson, controls the works of such artists as The Beatles, Elvis Presley, and Willie Nelson. Sony, Fuji Television Network Inc., News Corp. (Rupert Murdoch), and Softbank Corp. (a Japanese company) plan to launch a direct broadcast satellite service called JSkyB in 1998.(37)
Software piracy is rampant worldwide because copying and distributing files is fast and easy. A sizeable amount of piracy occurs with digital files distributed via the Internet or on CDs. Anyone with $1,000 or so can purchase the hardware needed to upload and download software to and from locations worldwide, and to preserve files of identical quality to store-bought copies on small, transportable storage devices.
The result for software producers and distributers is lost revenue from foregone sales. Losses of U.S. entertainment and information software industries are estimated to be $14.6 billion for 1995.(38) Of that amount, $2.3 million in losses was suffered by the film industry and $1.3 billion by the music industry.(39) However, these figures do not truly reflect the amount of forgone revenue because a substantial amount of piracy is done by people who would never buy the software at retail prices. The perception that software is grossly overpriced accounts for the guiltless attitudes of the throngs that use illicit software but would never purchase legal copies. At least a third of the estimated $41.6 million per day in illicit online software trading is done to support software collections that have no value to the collector except for bragging rights, since the software is not used.(40) Among the collectors that use illicitly obtained software, there are those that eventually purchase all products that they intend to use with any frequency.(41)
Even though the actual dollar amount lost from piracy is debatable, the steady rise of piracy leads to the inference that losses are increasing as more and more would-be legitimate software purchasers rely on pirated product.
Some countries are hotbeds for software piracy. According to the Business Software Alliance and the Software Publishers Association, 99% of software titles in Vietnam are estimated to be pirated, as are 97% in El Salvador, 96% in China, 96% in Oman, and 94% in Russia.(42) Japan and the U.S. have lower piracy rates, at 26% and 55%, respectively.(43) China's and Russia's high piracy rates pose rather serious problems because the nations are so populous.(44)
Anti-piracy efforts have varying success rates. Piracy in Vietnam and China was down 1% in 1995 from the previous year. U.S. piracy decreased by 5% during that period, and piracy in Japan was down by 11%.(45) Worldwide piracy losses, however, rose 9%.(46)
Anti-piracy establishments are quick to lay blame for the piracy problem. Some say that Internet service providers (ISPs) and bulletin board service operators (BBS ops) should monitor for illicit activity and discontinue service to offending users. Others contend that the software and hardware industries should prevent forbidden uses of their products, and others sanction tougher legal penalties for offenders. Placing the responsibility for piracy prevention on ISPs and BBS ops raises significant legal implications, particularly regarding contributory offenses when piracy is not expediently and consistently detected and halted. Considering this, the arguments can be classified into the two categories of technological prevention and legal remedial action. Both approaches have merit, but each has proven inadequate to diminish piracy.
In order to prevent illicit copying and distribution of software, two technological approaches have been used. Anti-copy code prevents copying by enabling software to operate only with a particular piece of hardware, and software is tagged so that source companies can detect product that has passed through illegal channels and determine if alterations have been made.
Examples of anti-copy methods are evident in the emerging DVD technology. A standard system of encryption, the Content Scrambling System, is used with DVD software, and the DVD players are the only hardware components capable of decryption.(47) Copying to a different medium, say DVD to video tape or DVD to CD-ROM, would only produce an encrypted copy incapable of decryption by the playback hardware.(48) Recordable DVDs are, thus far, unavailable. Means to prevent the copying of purchased discs when recordable DVDs are marketed are under development. For example, movie titles on DVD will be encrypted differently for markets in different parts of the world so that a disc will not play on a machine purchased outside of the distribution region for that disc.(49)
A number companies have developed systems of tagging software product to detect illicit copies. One scheme involves hiding copyright notices and serial numbers in the code, creating a watermark "signature" that can be perceived with certain processing. Another involves imbedding usage and billing information so that payment is required before the software is usable.(50)
The most obvious problem with relying on encryption to prevent copying is the fact that all code is crackable. All a person has to do to use encrypted software with hardware lacking the decryption code (the dongle) is find a way to emulate the dongle in the memory of the hardware or remove the code requiring dongle verification from the software.(51) How difficult a task is this?
The dongle works by giving correct answers (strings of characters) to queries (requests for character strings) made by the software.(52) The more characters required by each query, the greater the possibility of responses, and the longer it would take a cracker to develop a table of correct responses. For example, Rainbow Technologies, producer of dongles used with 55% of all protected software, developed the SentinelSuperPro dongle as "the most secure and flexible protection available," requiring 56 characters per answer.(53) The dongle would take 10125 years to crack by one attempting to construct a table of correct answers, but the dongle in SentinelSuperPro for Autodesk 3D Studio MAX was cracked within 7 days of its retail release by removing the software's need for the dongle.(54)
Even though there are only a handful of crackers in the world who can accomplish such a task, the competition to be the first to publish a workable crack ensures that cracks are distributed quickly after each software release.(55) Moreover, cracks are uploaded to Internet sites for free download, so one need not be a cracker to use and distribute cracks globally.
DVD cracks are already being anticipated by Sony. The company has copy protection built in to its new digital VCR (DVCR). It shuts the machine down upon detection of DVD copy-protection code. However, pirates can simply crack movie files, convert them to an analog format, and then record them on a DVCR. This process loses little in quality.(56)
Software tagging, even if detection and removal of watermarks by a user is made impossible, requires policing to be effective. The existence of a watermark on pirated software has no impact on the illicit user if no one ever discovers the use.
Nor is a requirement of registration and payment before software is usable much more effective. In the first place, registration numbers that work with illegal copies are also distributed by crackers on the Internet. Secondly, as demonstrated, all code is seemingly crackable.
Local and national laws and international agreements comprise the framework of piracy penalties. A general overview of U.S. intellectual property law as applied to software piracy is presented as a starting point for understanding the reach of legal remedies. Following the overview is a brief contrast with Japanese intellectual property law.
Whether one must meet certain citizenship or domiciliary requirements to invoke the protection afforded by the 1976 Copyright Act (the Act; 17 U.S.C. §§101-810, 1001-1010) depends on the publication status of the work in question.
"Publication" is defined in §101 as "the distribution of copies or phonorecords of a work to the public by sale or other transfer of ownership, or by rental, lease, or lending;" as well as "offering to distribute copies or phonorecords to a group of persons for purposes of further distribution, public performance, or public display."
Section 104 lists the requirements for protection of both published and unpublished works. If a protectable work is unpublished, protection is afforded regardless of the author's citizenship or domicile.(57) Published works may be protected if one of following five conditions is met:
(1) "On the date of first publication one or more of the authors is a national or domiciliary of the United States, or is a national, domiciliary, or sovereign authority of a foreign nation that is party to a copyright treaty to which the United States is also a party, or is a stateless person, wherever that person may be domiciled."(58)
(2) First publication occurs in the U.S. or a country that is party to the Universal Copyright Convention (UCC).(59)
(3) First publication is by the United Nations or one of its agencies, or by the Organization of American States.(60)
(4) First publication is in a nation adhering to the Berne Convention (Berne).(61)
(5) Protection is afforded by presidential proclamation because the nation of origin affords like protection to U.S. works.(62)
Because of these statutory restrictions, whether and where software was first published becomes a critical factor to a non-U.S. national or domiciliary seeking redress under U.S. copyright laws. Clearly, according to §104(a), an author has standing under the Act to take action against pirates if his software is pirated before distribution is sought or accomplished, regardless of his national affiliation. It is probably safe to assume, though, that nearly all pirated software has been distributed or offered for distribution prior to its misappropriation. So, generally, a non-U.S. national or domiciliary must first publish software either in the U.S. or in a party nation to the UCC or Berne Convention to be protected by U.S. copyright law. Japan is a party to both the UCC and Berne.(63)
A separate inquiry in determining the applicability of the Act is whether the work is protectable. The Act provides protection for
"original works of authorship fixed in any tangible medium of expression, now known or later developed, from which they can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device."(64)
So, specifically, software is protectable under U.S. copyright law if it is (1) original, (2) a work of authorship, and (3) fixed in a tangible medium from which the product can be perceived, reproduced, or communicated directly or indirectly.
"Originality" is undefined by the Act, but the Supreme Court in Feist Publications, Inc. v. Rural Telephone Service Company, Inc., 499 U.S. 340 (1990), held that originality requires independent creation and some level of creativity.(65) These standards are not difficult to satisfy. Independent creation merely means that a work was not copied from another, and the level of creativity required is minimal.(66) Novelty is not required.(67)
Specific types of works considered to be "works of authorship" are enumerated in the Act at §102(a)(1)-(8). Literary works, musical works, motion pictures, and sound recordings are some of the works specifically listed.(68) Software is not listed, but the list is not exhaustive of protectable works.(69) Rather than treat it as a separate type of protectable work, software is protected under §102 categories. For example, an album recorded on CD is protected as a musical work. A computer program, defined in §101 as "a set of statements or instructions to be used directly or indirectly in a computer in order to bring about a certain result," is considered a protectable literary work because of the "statements or instructions" written as code.(70)
A work is "fixed" as required "when its embodiment in a copy or phonorecord, by or under the authority of the author, is sufficiently permanent or stable to permit it to be perceived, reproduced, or otherwise communicated for a period of more than transitory duration."(71) Since piracy inherently involves the reproduction of an author's work, all software must be fixed on some sort of storage device, the copy or phonorecord, to be piratable.(72)
To summarize, software is protectable under the Act so long as it was created independently of a preexisting work, some degree of creative input was exercised in its creation, and it has been embodied in a communicable format.
Piracy always transgresses at least one of the exclusive rights granted copyright owners by the Act. By virtue of §106, copyright owners have the exclusive right to do and authorize others to do the following:
"(1) to reproduce the copyrighted work in copies or phonorecords;
(2) to prepare derivative works based upon the copyrighted work;
(3) to distribute copies or phonorecords of the copyrighted work to the public by sale or other transfer of ownership, or by rental, lease, or lending;
(4) in the case of literary, musical, dramatic, and choreographic works, pantomimes, and motion pictures and other audiovisual works, to perform the copyrighted work publicly;
(5) in the case of literary, musical, dramatic, and choreographic works,
pantomimes, and pictorial, graphic, or sculptural works, including the individual images of a motion picture or other audiovisual work, to display the copyrighted work publicly; and
(6) in the case of sound recordings, to perform the copyrighted work publicly by means of a digital audio transmission."
Anyone who violates one of the exclusive rights is an infringer subject to penalty as prescribed by the Act.(73)
Using the Internet to pirate software violates the first exclusive right. When someone uploads software to an Internet site, the software is reproduced in a copy on a computer's storage device. Downloading reproduces a copy on a storage device of the computer to which the downloading occurs. When illicit copies are physically conveyed, as in the distribution of CD-ROMs or videotapes, the third exclusive right is violated. The exclusive right to distribution also extends to the importation of multiple copies of a single work acquired outside of the U.S., regardless of whether the copies were lawfully made.(74) Importation of unlawfully made single copies is also infringement.(75)
The other exclusive rights may come into play if piracy involves additional activities such as altering the software in some way (right 2), or using the software in whole or in part to market the pirated goods by performing or displaying it (rights 4,5,6).
Any of the exclusive rights may be transferred, so that several people may own different rights in a single work.(76) The owner of any exclusive right under a copyright may, if the registration requirements imposed by §411 have been met, bring actions for infringement of the rights owned.(77) Available remedies are injunction, impounding and disposition of infringing articles, recovery of actual damages and profits, payment of statutory damages in the amount of $500 to $20,000, and recovery of court costs and attorney's fees.(78)
A person who willfully infringes a copyright for commercial purposes or private financial gain is subject to Federal criminal sanctions.(79) In addition to civil atonement, a criminal infringer
"(1) shall be imprisoned not more than 5 years, or fined in the amount set forth in this title, or both, if the offense consists of the reproduction or distribution, during any 180-day period, of at least 10 copies or phonorecords, of 1 or more copyrighted works, with a retail value of more than $2,500;
(2) shall be imprisoned not more than 10 years, or fined in the amount set forth in this title, or both, if the offense is a second or subsequent offense under paragraph (1); and
(3) shall be imprisoned not more than 1 year, or fined in the amount set forth in this title, or both, in any other case."(80)
Upon conviction for criminal infringement, infringing copies or phonorecords and equipment used in the manufacture of infringing copies or phonorecords are ordered forfeited and destroyed.(81)
Whether a software pirate has commercial purposes or the intent for financial gain as required for criminal infringement can be a tricky issue in many cases. Arguably, when a pirate merely trades software for software, making an illicit copy of software already possessed to receive an illicit copy of an unowned title results in financial gain since the "traded" software never actually leaves a trader's possession. The pirate loses nothing, but gains more software. But claims of intent to gain financially are unconvincing when a pirate does not actually profit from his transactions. Libraries of software are monetarily worthless if they are unused or unsold.
Prosecuters have tried to avoid the intent issue by attacking pirates under other criminal statutes. In United States v. LaMacchia, 871 F.Supp. 535 (D. Mass. 1994), David LaMacchia was charged under the wire fraud statute for engaging in piracy over a BBS. Allegedly, $1 million in software had been illicitly downloaded, but no imputations of personal benefit were made.(82) Prosecution for wire fraud requires a showing of fraud, but not intent to profit.(83) Because LaMacchia made no active misrepresentations on the BBS, the government relied on his nondisclosure to the software companies as the basis for fraud.(84) The court followed the reasoning in United States v. Dowling, 739 F.2d 1445 (9th Cir. 1984), rev'd 473 U.S. 207 (1985), by holding that nondisclosures can form the basis to defraud only if an independent duty of disclosure has been breached.(85) The court found that no duty existed for LaMacchia, so his nondisclosure did not constitute fraud.(86) Furthermore, LaMacchia's conduct alone could not be considered fraud because, since proof of intent was lacking, his conduct was not criminal under §506 of the Copyright Act.(87) The case was dismissed.(88)
Anyone who, with fraudulent intent, places a copyright notice known to be false on an article, publicly distributes or imports for distribution an article bearing false copyright notice and that notice is known to be false, or removes or alters a copyright notice will be fined up to $2,500.(89) Anyone who knowingly makes a false representation of material fact on a copyright registration application or in a written statement filed in connection with an application will also be fined up to $2,500.(90) As with the prosecution of criminal infringers, intent of pirates may be difficult to prove for crimes of fraud.
There are no limitations in the U.S. Patent Act (35 U.S.C. §§1-376) regarding the nationality of those seeking patents.(91) Anyone whose invention or discovery meets the statutory requirements may apply for a patent and, if granted, enjoy the benefits of patent protection.(92)
Three types of patents are available: utility, design, and plant.(93) Design and plant patents are only available for ornamental designs and plants, respectively.(94) A utility patent may be issued for a new and useful process, machine, manufacture, or composition of matter that is non-obvious to a person of ordinary skill at the time of invention.(95) Software is not per se patentable under any of the utility categories, but may patentable as a machine depending on its function and embodiment in a object.(96)
Abstract ideas are not patentable, but practical applications or uses of ideas are.(97) Therefore, software that consists of "non-functional descriptive material" recorded on a computer-readable device, such as a music CD or a database on CD-ROM, is not patentable.(98) Such software is deemed to be non-functional despite the fact that it requires a computer to carry out certain commands to make the software operational, because the computer merely reads the data presented and does not rely on it as part of a computing process.(99) Software that creates a functional interrelationship with the computer on which it is used, such as a computer application program, is patentable, but only when it is stored in a computer-readable device.(100) Because software is merely a set of instructions, it is not considered a process by the Patent and Trademark Office (PTO).(101) When software exists in the physical structure of a storage device, though, it is considered a machine.(102)
In short, novel and non-obvious functional software that is stored in a computer-readable device is patentable.
Section 154 stipulates that patent owners have the right to exclude others from making, using, or selling their inventions in the U.S. One who, without authorization, makes, uses, sells, or offers to sell a patented invention in the U.S. or induces another to do so is an infringer.(103) Pirates of patented software are infringers because, in fixing the software on a hard drive, CD-ROM, floppies, or other device, the patented machine is made without authorization. Anyone who sells pirated copies is an infringer, as is anyone who uses pirated patented software. Because selling or offering to sell in the U.S., or importing into the U.S., a component of a patented machine is infringement, foreign pirates may bring themselves within the reach of U.S. patent law by transferring files over the Internet to recipients in the U.S.(104) Under §271(f)(1) anyone in the U.S. who transfers software files that are part of a patented machine to one outside of the U.S. or makes such files available for download to one outside of the U.S. is an infringer. The statute reads:
"Whoever without authority supplies or causes to be supplied in or from the United States all or a substantial portion of the components of a patented invention, where such components are uncombined in whole or in part, in such manner as to actively induce the combination of such components outside of the United States in a manner that would infringe the patent if such combination occurred within the United States, shall be liable as an infringer."(105)
A patent owner may seek injunctions, damages, and payment of attorney fees as remedies for infringement.(106) Anyone who uses the name or an imitation of the name of a patent owner, the word "patent" or another similar word, or the words "patent pending" or similar words to deceive the public may be subject to a $500 fine.(107) Anyone can initiate such action, and the fine proceeds are divided equally between the litigant and the U.S. Government.(108)
U.S. Trademark law (15 U.S.C. §§1051-1127 codified as the Lanham Act (§§1-46)) protects a merchant, manufacturer, or service provider using a particular mark to demarcate the particular goods or services offered, and to protect consumers' interests in identifying the source of goods and services.(109) Protectable marks are either inherently distinctive or descriptive of the product offered and have acquired secondary meaning to consumers.(110)
Common law trademark ownership is acquired through usage of a mark.(111) Federal registration of a mark that complies with the requirements of the Lanham Act is granted upon showing of use, or intent to use with subsequent proof of actual use.(112)
A distinctive mark used on packaging to identify a software product is registerable. Marks that are only perceptible during the use of software also may be registered. According to a rule issued by the PTO, submission of the image of a computer screen projecting a trademark is evidence of usage.(113) Therefore, a distinctive mark displayable to an end-user of a software product is registerable under the Lanham Act.
Trademark registration provides owners the right to prevent others from using the same or similar marks in ways that create a likelihood of confusion, mistake, or deception.(114) One who distributes pirated software is likely an infringer because a recipient or user of the software may be confused, mistaken, or deceived as to the copy's source and validation. Even if the recipient of software knows the product to be pirated, the possible confusion of third parties who subsequently see or use the software is sufficient to show infringing use according to Sega Enterprises v. Maphia, 857 F. Supp. 679 (1994).
In Sega, the defendants were part of a BBS network for the illicit download of Sega games.(115) In granting Sega's motion for preliminary injunction, the court stated that "[p]laintiffs need not show that users of the bulletin boards are likely to be confused. Once a product is put into commerce, confusion, mistake, or deception occurring at some future time is sufficient to establish liability for trademark infringement."(116)
Under Lanham Act §32(1)(a), unauthorized use of a registered mark or an imitation of the mark in an advertisement for distribution of goods or services in a manner that creates a likelihood of confusion, mistake, or deception is infringement.(117) So, according to Playboy Enterprises, Inc. v. Frena, 839 F. Supp. 1552 (1993), use of a registered mark to label pirated software files for download is infringement.
In PEI, Frena operated a BBS on which PEI's photographs were available for download.(118) Two of PEI's registered trademarks were displayed to Frena's customers as file descriptors.(119) The court decided that this use of the marks was likely to confuse customers as to PEI's endorsement of Frena's BBS.(120)
Trademark owners whose rights have been infringed may seek injunction and recovery of damages, and attorney fees.(121) Treble damages are usually awarded when a mark known to be counterfeit is intentionally used.(122) Use of registered marks need not be accompanied by notice of registration, but failure to provide notice bars a trademark owner from recovering profits and damages in an infringement suit.(123) In cases arising from the use of a mark in advertisements, damages will only be assessed if the infringer had knowledge that the use was intended to cause confusion, mistake, or deception.(124)
The Lanham Act provision addressing unfair competition, §43, is useful to companies which are victims of piracy because violation does not require the misappropriation of a trademark.
"Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person...shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act."(125)
Thus, even if pirated software contains no trademarks, none are used in its packaging, and none are used in labeling files for download, a pirate nonetheless may be liable under an unfair competition claim if unprotected marks that identify the software as a product of a particular company are present. Also, if a pirate removes reference to the company that produced the software and replaces it with words or other marks that imply or explicitly indicate origin other than the software's true origin, liability is likely to attach.(126) Victims of §43 violations may seek injunctive relief, damages, and attorney fees.(127)
Software is protectable under Japanese copyright law as an exception to the general rule excluding utilitarian works.(128) Copyright infringement occurs when pirated copies are distributed, imported with the intent to distribute, or used if the pirated copies were acquired in bad faith.(129) Infringement is adjudged by the "identity test," in which the author's work and the allegedly infringing work are compared to determine if an identity exists between the works.(130) If identity (the works need not be "identical") is found, then the author's work is presumed to have been copied and the copyright infringed.(131) Remedies include damages, injunction, and the destruction of infringing goods.(132)
Software is registerable with the Japanese Patent Office (JPO) as either a process or a product depending on whether the software is described as a process or is functional and stored on a computer-readable device.(133) As in U.S. Patent law, software merely consisting of recordings (albums on CD, movies on laserdisc) are not novel enough to be registerable.(134) Contrary to the U.S. law that recognizes the first inventor, the JPO issues patents on a first-to-file basis.(135) A compulsory licensing system ensures that patented inventions may be exploited by others if the patent owner does not do so.(136)
The scope of available trademark and unfair competition protection closely parallels that available in the U.S.(137) One notable difference, though, is that trademark registration is based on a first-to-file system instead of first-to-use.(138)
Perhaps the most obvious pitfall in relying on legal remedies to combat piracy is that a large amount of policing is necessary so that pirates can be detected. Statutes forbidding piracy are useless until a pirate is identified, and the difficulty in identifying pirates varies with the knowledge and cleverness of each pirate. According to an undercover detective working for software developer Novell:
"If there's a person out there who has a decent level of technological awareness of the ways he can be located, it's quite true to say he could successfully hide himself, or use a system where it would be impossible to track him. It's technically possible for them to bounce their messages all around the world and have us running around like blue-arsed flies."(139)
Congress recently sought to diminish the need to sniff out pirates by proposing legislation, the National Information Infrastructure Copyright Protection Act, to prohibit the manufacture and sale of equipment used to circumvent copy protection technology.(140) Holding manufacturers and merchants liable for contributory infringement seemed to be a tough enough stance to please statute-hungry factions, but the act was vehemently opposed by a coalition of telecommunication services, consumer electronics manufacturers, and others.(141) Congress ultimately deadlocked on the proposal and postponed further debate pending the release of DVD recorders in the U.S.(142) If the bill is eventually passed it will surely be challenged as in direct contravention of an existing Supreme Court ruling.
It was held in Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 442 (1984), that, in order to balance the need of copyright owners for protection of the right and the right of others to engage in unrelated activity, the sale of equipment used for copyright infringement does not constitute contributory infringement if the equipment is "capable of substantial noninfringing uses."
Another problem is hauling pirates into court. Because piracy is a global phenomenon, an identifiable pirate is quite likely to be found in a country other than the one in which the party seeking redress is located. Cross-border jurisdictional issues can be hairy. There is no guarantee that a piracy victim will be able to use the legal system of his home country for redress. Even if an injured party is willing to travel to the pirate's country for justice, there is the risk that the nation's legal structure is inadequate to provide the desired relief.
From a purely legal standpoint, new criminal provisions specifically prohibiting piracy that impose harsh penalties may serve to deter pirates and would-be pirates. But, then again, maybe they wouldn't. After all, the death penalty doesn't seem to deter murderers.
Because law and technology have each proven to be ineffective in countering piracy, perhaps the melding of the two approaches would be constructive.
Since the U.S. government is so convinced that uncrackable encryption is possible, perhaps governmental efforts should be directed toward developing an uncrackable anti-copy code and require it to be used in software products as a prerequisite to legal remedy.
Another possibility is that the organizations touting ISP and BBS responsibility should be taken more seriously. Self-policing could be a widespread occurrence if there were incentives for ISPs and BBSs to do so.
Electronics consumers constantly crave faster, more powerful gadgets, but with the benefits of improved technology comes the burden of keeping people from using it in ways harmful to others.
Every watershed in consumer products provides a leap forward in facilitating piracy. With the VCR, movies on videotape are easily duplicated. Better copies are made from laserdiscs. Floppy discs can store copies of software. Recordable CD-ROMs store more software for a longer time.
Now comes DVD. The software industry and other proponents for improved protection of intellectual property rights quiver with fear, and for good reason. Piracy is on the upswing, and no solution has proven effective.
Now is the time for piracy opponents to stop the finger pointing and join forces in common cause. Otherwise, progressive shop-at-home services like Internet VOD may never materialize. For now this may not be a big deal to many people, but, very recently, neither was the idea of the Internet as an inexpensive means of global communication.
1. Unless otherwise indicated, statistical information in this section is from The World Almanac and Book of Facts 1997 at 787-788 (1996) [hereinafter World Almanac]; and the pages of Embassy of the United States of America Commercial Service Japan, Welcome to the U.S. Embassy Commercial Service Japan Home Page (last modified April 10, 1997) <http://www.csjapan.doc.gov> [hereinafter Embassy].
2. Japan 1996: An International Comparison 102 (1st ed. 1995).
3. World Almanac, supra, note 1.
4. Japan Almanac 1993, at 72 (1992).
8. Price Waterhouse, Doing Business in Japan 16 (1995).
11. Price Waterhouse, supra note 8, at 15.
14. Martyn Williams, Japan PC Shipments Jump 34% in 1996, Newsbytes News Network,
Feb. 13, 1997, available at 1997 WL 9490557.
17. Notebook, Consumer Electronics, Feb. 10, 1997.
18. Notebook, Consumer Electronics, Dec. 23, 1996.
19. WebTV Expands to Japan, Survey Says Consumers Still Dubious, Media Daily, Dec. 18,
20. Japan Almanac, supra note 4, at 238.
21. Steve McClure, The Year in Japan, Billboard, Dec. 28, 1996, at YE-18.
22. See Japan Almanac, supra note 4, at 237 & 239; See also id.
25. Unless otherwise indicated, all information pertaining to Sony was taken from Sony Web (visited March, 1997) <http://www.sony.com>.
26. 2 Japan: An Illustrated Encyclopedia 1445-1446 (Alan Campbell & David S. Noble eds. 1993)[hereinafter Encyclopedia].
28. See David P. Hamilton, "Sony Insurance Unit Beats Sleepy Rivals," The Wall Street Journal, February 28, 1997, at A11.
29. 2 Moody's Industrial Manual 4768 (1996).
30. Encyclopedia, supra note 26, at 1446.
31. Search of Disclosure, Sony Corp, 00010201 (Mar 19, 1997).
32. Moody's Industrial Manual, supra note 29, at 4770.
33. See Hamilton, supra note 28.
34. Moody's Industrial Manual, supra note 29, at 4768.
37. John Lippman, "Sony Reaches Pact with News Corp., Softbank on Satellite TV Plan in Japan," Wall Street Journal, March 13, 1997, at B17.
38. Alice Rawsthorn, "Piracy 'Costs US Industries $14.6bn'," The Financial Times, Feb. 10, 1997, at 6.
40. See David McCandless, "Warez Wars," Wired, April 1997, at 133.
42. "Software Piracy Costs More Than $13 Billion Worldwide," EDP Weekly, Dec. 23, 1996, at 1.
44. China's 1996 population was about 1.2 billion; Russia's was 150 million. World Almanac, supra note 1.
46. Steve Hamm, "The Prints of Thieves," PC Week, Jan. 13, 1997, at A08.
47. Junko Yoshida, "OEMs Can't get Crucial Software Licenses," Electronic Engineering Times, Feb. 17, 1997, at 1.
48. Kevin Hunt, "In the Electronics Industry, It's the Year of the Chameleon Harmonic Convergence," The Hartford Courant, Jan. 30, 1997, at E1.
50. See David Angell & Eli Zelkha, "The Copyright Question," Internet World, Jan. 1997, at 64.
51. McCandless, supra note 40, at 178 & 180.
56. "Quelling Hollywood's Fears, Sony adds Copyguard Protection to Digital VCR," Multimedia Week, Jan. 27 1997.
61. 17 U.S.C. §104(b)(4); Marshall Leaffer, Understanding Copyright Law 386 (2d ed.1995).
63. Thomas R. Radcliffe, "Copyright Protection of Computer Software in Japan," in Protecting Trademarks and Copyrights: Successful Strategies 271, 273-274 (1993).
65. Leaffer, supra note 60, at 41.
69. Section 102(a) reads in part: "Works of authorship include the following categories . . .." (emphasis added)
70. See Apple Computer, Inc. v. Franklin Computer Corp., 714 F.2d 1240 (1983).
72. Section 101 defines "copies" and "phonorecords" as follows:
"Copies" are material objects, other than phonorecords, inwhich a work is fixed by any method now known or later developed, and from which the work can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term "copies" includes the material object, other than a phonorecord, in which the work is first fixed.
"Phonorecords" are material objects in which sounds, other than those accompanying a motion picture or other audiovisual work, are fixed by anymethod now known or later developed, and from which the sounds can be perceived, reproduced, or otherwise communicated, either directly or with the aid of a machine or device. The term "phonorecords" includes the material object in which the sounds are first fixed.
82. LaMacchia, 871 F.Supp. at 536.
91. Donald S. Chisum & Michael A Jacobs, Understanding Intellectual Property Law 2-308 (1995).
93. 35 U.S.C. §§101, 171, 161.
96. Examination Guidelines for Computer-Related Inventions, 61 Fed. Reg. 7478, 7479 (1996).
106. 35 U.S.C. §§281, 283, 284, 285.
109. Chism & Jacobs, supra note 81, at 5-7 - 5-8.
113. Robert C. Dorr & Christopher H. Munch, Protecting Trade Secrets, Patents, Copyrights, and Trademarks 428 (2d ed. 1995).
115. Sega, 857 F. Supp. at 683.
118. PEI, 839 F. Supp. at 1554.
125. 15 U.S.C. §1125(a)(1)(A).
126. See Playboy Enterprises, Inc. v. Frena, 839 F.Supp. 1552, 1562 (1993).
128. Radcliffe, supra note 62, at 274.
133. "Japanese Patent Office Proposes Guidelines for Examination of Software Patents," 8 J. Proprietary Rts. at 19, 19 (1996).
135. Minoru Nakamura, "Intellectual Property: Laws in Japan," in The Law of Commerce in Japan: A Collection of Introductory Essays 57, 57-58 (Haig Oghigian ed., 1993).
136. See Charles F. Hoyng, Practical Considerations in Licensing To and From Japanese Parties, 6 J. Proprietary Rts. at 6, 7 (1996).
139. McCandless, supra note 40, at 176.
140. Mark Traphagen, "Washington Outlook," Ent. & L.J., Winter 1997, at 18, 18.
142. Id.
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