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Warez Trading and Criminal Copyright Infringement, Part 1

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In Part 1 of a two-part series on criminal copyright infringement, Eric Goldman discusses the violation of intellectual property rights known as "warez trading," and explains how the U.S. government is successfully prosecuting warez traders.
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Warez trading has been singled out as a major cause of online piracy. In the late 1990s, an industry group claimed that warez trading caused one third of the world's software piracy losses.1 More recently, the head of the U.S. Department of Justice's Computer Crime and Intellectual Property Section (CCIPS) said, "[W]arez groups pose a growing and significant threat to intellectual property rights holders around the world. It is generally agreed that most of the pirated movies, music, games, and software available on the Internet come from these high-level warez groups."2

However, legal efforts to control warez trading have been going on for a decade. In 1994, David LaMacchia, a student who operated a bulletin board service for the exchange of copyrighted software, was the first person criminally prosecuted for warez trading. At the time, criminal copyright infringement required infringement for commercial advantage or private financial gain. Because LaMacchia did not have a commercial motive, the government prosecuted him for conspiracy to commit wire fraud instead of criminal copyright infringement. However, a U.S. Supreme Court case had already declared that copyrighted works were not capable of being taken by fraud,3 so the judge quickly dismissed the case.4

After three years of trying, copyright owners finally addressed the perceived hole exposed by LaMacchia's prosecution when Congress enacted the No Electronic Theft (NET) Act (the "NET Act")5 in 1997. The NET Act modified criminal copyright law to address LaMacchia's conduct in two principal ways: first, it expanded the definition of "financial gain" to cover bartering implicit in warez trading, and second, it created a new basis of criminal infringement based only on a minimum quantum of infringement (irrespective of motive).

Unquestionably, the NET Act has successfully criminalized most warez trading. Since its passage, nearly 60 warez traders have been convicted under the NET Act, and 20 of those defendants have been sentenced to jail. This article discusses how criminal copyright law applies to warez trading, some enforcement actions under the NET Act, and some policy concerns about criminalizing warez trading.

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