United States: Criminal Violation Of Copyright Law Requires Knowledge And Intent

U.S. v. Liu

The U.S. Court of appeals for the Ninth Circuit has vacated convictions for criminal copyright infringement and trafficking in counterfeit movies, music and software, concluding that district court failed to properly instruct the jury that, under § 506(a) of the Copyright Law, a defendant must know he was breaking the law. Further, the court explained that in order to be liable under 18 U.S.C. §2318(a)(1) and §2319(b)(1), a defendant must have known he was trafficking in counterfeit labels. U.S. v. Liu, Case No. 10-10613 (9th Cir., Oct. 1, 2013) (Nguyen, J.)

Julius Liu founded and was the CEO of a DVD-manufacturing company called Super DVD. Although the business started as a bona fide replication service, at some point the legitimate business was not viable and Liu sought to rent out his factory space. After a private investigator noticed unlicensed copies of software bearing counterfeit labels in Super DVD's warehouse, the government obtained a search warrant and executed a search. The government found thousands of CDs and DVDs, including copies of musical compilation CDs and the film Crouching Tiger, Hidden Dragon that Liu had replicated for a client, R&E Trading. As it turned out, R&E did not have authority to replicate the movie. After a payment dispute, Super DVD sued R&E for misleading it as to R&E's rights to order the replication and, in a jury trial, won a $600 damage award.

A few years later, the government charged Liu with criminal copyright infringement under 17 U.S.C. §506(a)(1)(A) and 18 U.S.C. §2319(b)(1) and with criminal trafficking of counterfeit labels under 18 U.S.C. §2318(a). After a jury trial, Liu was convicted on all counts and sentenced to four years in prison. The district court had instructed the jury that "[a]n act is done 'knowingly' if the defendant is aware of the act and does not act through ignorance, mistake or accident. The government is not required to prove that the defendant knew his act was unlawful. The court also held that the use of the word 'knowingly' requires that the defendant has 'knowledge that the labels were counterfeit.'" Liu appealed, arguing that the district court gave improper jury instructions as to the "willfulness" element of criminal copyright infringement and the "knowledge" element of trafficking in counterfeit labels.

The 9th Circuit agreed, vacating the convictions and remanding. Under §506(a)(1), in order for criminal liability for copyright infringement to be imposed, the defendant must have willfully infringed a copyright "for purposes of commercial advantage or private financial gain." The 9th Circuit explained that "willful" infringement under §506(a) requires a voluntary, intentional violation of a known legal duty and that the jury instruction omitted the specific knowledge component, thereby allowing the jury to convict Liu without finding that he deliberately engaged in copyright infringement. As the court explained, to constitute "willfully" under § 506(a), there must be a "voluntary, intentional violation of a known legal duty." Because the jury instructions defined willfulness in a way that the jury did not need to find that Liu knew his actions were unlawful in order to convict him, the court concluded the error was not harmless.

The court also determined that 18 U.S.C. §2318(a)(1) requires proof that the defendant knew that the trafficked labels were, in fact, counterfeit and that the district court's instruction was ambiguous and deficient in failing to clarify what exactly Liu needed to know when he "knowingly trafficked in counterfeit labels." In essence, the jury instruction was found to have merged the concepts of "knowing" and "willful" without conveying the culpable state of mind required by the term "willfully" as used in the statue.

The Court concluded that the "knowingly" requirement of § 2318(a)(1) meant that the government had to prove that "Liu knew the labels were counterfeit" and the jury instruction on knowledge was not harmless error.

Because Liu's guilt under both statutes depended on the extent of his knowledge, and because he had proffered some evidence that, if credited by the jury, might have resulted in an acquittal under the proper instructions, the 9th Circuit vacated the convictions.

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