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*STATEMENT *
*OF*
*JOHN G. MALCOLM*
*DEPUTY ASSISTANT ATTORNEY GENERAL FOR THE CRIMINAL DIVISION
UNITED STATES DEPARTMENT OF JUSTICE*
*BEFORE THE *
*SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
UNITED STATES HOUSE OF REPRESENTATIVES*
*CONCERNING*
*COPYRIGHT PIRACY AND LINKS TO CRIME AND TERRORISM*
*PRESENTED ON *
*MARCH 13, 2003*
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Mr. Chairman and Members of the Subcommittee:
Thank you for inviting me to testify before you today. This is an
extremely important topic, and I commend you, Mr. Chairman, for holding
this hearing. This hearing and the others recently held by the
Subcommittee are providing the American public with an important look at
the growing threat of intellectual property (IP) crime, which chiefly
includes copyright piracy, trademark counterfeiting, and theft of trade
secrets. Today I am pleased to offer the views of the Department of
Justice on the links among organized crime, terrorism and intellectual
property piracy.
*The Department of Justices Anti-Piracy Program*
The enforcement of this nation?s criminal laws protecting intellectual
property is a priority at the Department of Justice. Since the beginning
of his tenure, Attorney General Ashcroft has worked diligently to ensure
that the prosecutorial resources needed to address intellectual property
crime are in place. Shortly after becoming the Attorney General, he used
additional resources provided by Congress to establish or expand
Computer Hacking and Intellectual Property (or CHIP) Units in ten U.S.
Attorney?s Offices across the nation. These specialized units consist of
dedicated federal prosecutors whose primary focus is on prosecuting high
tech crimes, including IP crimes. Subsequently, the Attorney General
established three additional CHIP units, and used additional funding to
bolster the cyber and IP prosecutive resources in a number of other
jurisdictions. The CHIP units ensure that the Department of Justice has
a ready supply of prosecutors to pursue IP cases. The expertise of the
various CHIP Units helps the Justice Department to keep pace with the
changing face of high-tech crime. Rapid advances in technology bring new
challenges to the investigators and prosecutors who handle these cases,
and the establishment of these specialized units ensures that the
individuals who misuse technology to further their criminal activity
will not find a safe haven in the United States.
The CHIP Units complement the already existing network of Computer and
Telecommunications Coordinators (CTCs) that serve in every United States
Attorney?s Office. The CTCs regularly receive specialized training in
the investigation and prosecution of high-tech crimes, including
intellectual property crimes. Many of the 94 U.S. Attorneys Offices have
two or more CTCs to help meet the growing demand for trained high-tech
prosecutors.
Working hand-in-glove with the CHIP Units and the CTC network is the
Criminal Divisions Computer Crime and Intellectual Property Section,
also known as CCIPS, which I supervise. Created as a Unit in 1991 by
then-Assistant Attorney General Robert Mueller and elevated to a Section
in the Criminal Division in 1996, CCIPS is a highly specialized team of
over thirty-five lawyers who focus exclusively on computer and
intellectual property crime. CCIPS attorneys prosecute cybercrime and
intellectual property cases; advise and train local, state, and federal
prosecutors and investigators in network attacks, computer search and
seizure, and IP law; coordinate international enforcement and outreach
efforts to combat intellectual property and computer crime worldwide;
and comment upon and propose legislation. For example, CCIPS attorneys
worked with Congress, including Members of this Committee, in 1997 to
improve IP enforcement through the legislative amendments made by the
?No Electronic Theft? (NET) Act. Those amendments extended federal
criminal copyright law to unlawful large-scale reproduction and
distribution of copyrighted works even when the thieves do not make a
profit. In 1999, CCIPS prosecutors obtained the first convictions after
trial under the Economic Espionage Act of 1996, a criminal statute that
protects trade secrets. CCIPS also worked with the U.S. Sentencing
Commission in 2001 to amend the sentencing guidelines to provide
substantial sentences for copyright infringement.
With the deeply appreciated support of Congress, we have significantly
increased the size of the Computer Crime and Intellectual Property
Section in the past eighteen months, which is allowing us to devote
additional resources to address piracy both here and abroad.
Intellectual property protection is an important part of my portfolio,
and a core responsibility of CCIPS. Moreover, for the first time, CCIPS
has a Deputy Chief whose sole responsibility is to oversee and manage
the attorneys in the Section dedicated to IP enforcement. At present,
there are ten CCIPS attorneys working full-time on the IP program. The
attorneys of CCIPS are developing a focused and aggressive long-term
plan to combat the growing threat of piracy. They are developing and
implementing the Departments overall anti-piracy strategy, assisting
AUSAs in the prosecution of intellectual property crimes, and reaching
out to international counterparts to ensure a more effective world-wide
response to intellectual property theft. Working in concert, CCIPS, the
CTC Network, and the CHIP Units create a formidable, multi-pronged
approach to prosecuting intellectual property crimes. We are already
beginning to see the positive results of their efforts.
*Significant Prosecutorial Accomplishments:*
In the past few years we have achieved many significant prosecutorial
victories against IP pirates. I would like to take just a few minutes to
highlight some of our most recent accomplishments.
_/Operation Buccaneer:/_
The Computer Crime and Intellectual Property Section, working with the
CHIP Unit for the Eastern District of Virginia and the United States
Customs Service, continues to investigate and prosecute a massive
international copyright piracy conspiracy code-named "Operation
Buccaneer." This undercover investigation culminated in the simultaneous
execution of more than 70 searches worldwide in December 2001, including
searches in Australia, Finland, Sweden, Norway, and the United Kingdom.
It was the largest Internet software piracy investigation and
prosecution ever undertaken, and the first to reach across international
borders to achieve coordinated enforcement action against domestic and
foreign targets. The investigation targeted multiple top-tier, highly
organized and sophisticated international piracy or ?warez? groups that
specialized in ?cracking? the copyright protection on software, movie,
game and music titles and distributing tens of thousands of those titles
over the Internet. I will discuss their organized criminal operations in
more detail shortly.
As a result of Operation Buccaneer, as of today, twenty U.S. defendants
have been convicted of felony copyright offenses, sixteen of those in
the Eastern District of Virginia. Nine defendants have received prison
sentences of between 33 to 46 months, the longest sentences ever imposed
for Internet copyright piracy. Six defendants are awaiting trial in the
United Kingdom, and I can assure you with virtual certainty that more
prosecutions will be brought in the U.S. as this investigation
progresses. In both its scope and outcome, Operation Buccaneer is the
most significant Internet piracy case ever brought, and it has sent a
strong deterrent message which continues to resonate throughout the
copyright piracy community.
_/United States v. Mynaf:/_
On February 13, 2003, a California man, Mohsin Mynaf was sentenced in
the Eastern District of California to 24 months in federal prison for
multiple violations relating to copyright, including Digital Millennium
Copyright Act violations, criminal copyright infringement, and
trafficking in counterfeit labels. Mynaf operated a videocassette
reproduction center which produced counterfeit movie videocassettes,
which he would then sell at various locations throughout California. In
addition to 24 months in federal prison, Mynaf must also pay in excess
of $200,000 in restitution. Three other individuals have also been
convicted of aiding and abetting Mynaf in his illegal activity and are
awaiting sentencing. This case was successfully prosecuted by a CTC in
the U.S. Attorneys Office in Sacramento, California.
_/Operation Decrypt:/_
On February 11, 2003, in the Central District of California, as part of
a year-long investigation known as Operation Decrypt, 17 individuals
were indicted for their roles in developing sophisticated software and
hardware used to steal satellite television signals. One of the
individuals has already pled guilty and admitted to being responsible
for nearly $15 million in losses to the victim companies. An additional
nine defendants have also agreed to plead guilty to various crimes as a
result of their involvement. The defendants in these cases used online
chat rooms to exchange information and techniques on how to defeat the
sophisticated security protections utilized by satellite entertainment
companies. In October of 2002, search warrants were executed in seven
states as part of this operation. Operation Decrypt is being prosecuted
by an attorney with the CHIP Unit for the Central District of
California, located in Los Angeles.
_/United States v. Ke Pei Ma, et. al:/_
On February 26, 2003, in a joint operation between federal and local law
enforcement in New York City, four arrests were made and six people were
charged (two remain fugitives) in conjunction with an investigation of
the illegal distribution of Symantec and Microsoft software. At the time
of the arrests, over $9 million worth of counterfeit software was seized
from distribution centers in the New York area. The defendants are
believed to have distributed thousands of copies of counterfeit software
and received an estimated $15 million over two years in return for the
pirated products. In a single two-month period, the defendants received
nearly $2 million dollars as a result of their illegal activity. This
case was prosecuted by attorneys in the CHIP Unit in the Eastern
District of New York.
_/United States v. Rocci:/_
Beginning on February 25, 2003, the Computer Crime and Intellectual
Property Section, working with the CHIP Unit for the Eastern District of
Virginia, engaged in a ground-breaking and highly-successful public
education effort as part of a conviction originally obtained in December
of 2002. In December, David Rocci of Virginia, pled guilty to conspiring
with others to traffic in illegal circumvention devices in violation of
the Digital Millennium Copyright Act. Rocci was the owner and operator
of the most prominent publicly-accessible web site on the Internet
dedicated to providing information about the ?warez? scene and copyright
infringement, www.iSONEWS.com
. Rocci used his web site
as the exclusive medium to conduct the illegal sale of circumvention
devices known as ?mod chips,? which defeat security protections in the
Microsoft Xbox and allow unlimited play of pirated games on the gaming
console. As a condition of his guilty plea, Rocci transferred his domain
name and website to the United States. Upon taking control of the domain
name late last month, the United States replaced iSONEWS.com
with a new web page
providing information about _U.S. v. Rocci_, as well as a general
anti-piracy message outlining the potential criminal consequences for
engaging in illegal piracy. (A copy of the website is attached to this
testimony.) This case marks the first time that the United States has
assumed control of an active domain name in an intellectual property
case. In the first three days, the new law enforcement site received
over 238,000 hits from Internet users worldwide. As of March 11, the two
week mark, the site received over 550,000 hits. The Department feels a
strong sense of responsibility to educate the public about the need to
respect intellectual property rights and will look for additional
opportunities like this to build upon successful prosecutions of those
who willfully violate those rights.
Mr. Chairman, as you can see, the Department of Justice is actively
pursuing intellectual property criminals engaged in a wide array of
illegal activity, and we are doing so using all of the various statutes
at our disposal. Our efforts are beginning to pay off, and we are having
success in our battle with global piracy. But we are not resting on our
laurels and are aware that there is much work to be done. We remain
committed to this effort and will build on our success by continuing to
prosecute piracy aggressively.
*Organized Criminal Activity and Piracy:*
As a result of cases such as those I have just mentioned, law
enforcement today has a deeper and more sophisticated understanding of
piracy than it has ever had before. Piracy is a continually evolving
crime. Traditionally, piracy operations were small, often run by
individuals or a loose collection of people trying to make a quick buck
in what has been perceived to be a fairly ?risk-free? criminal
enterprise. However, in recent years, that has changed. Piracy is now
big business: a world-wide, multi-billion dollar illicit economy which
robs legitimate industries and creators of income, while driving up
costs for consumers.
It is against this backdrop that criminal organizations are playing a
more prominent - and dangerous - role in piracy around the globe.
Organized criminal activity, in many forms, is clearly a factor in
global piracy today. Today, I will talk about two different, yet equally
troubling, types of organized criminal activity that are emerging
globally: organized on-line piracy groups and traditional organized
crime syndicates operating from Asia or Eastern Europe.
*Organized On-line Piracy Groups:*
One aspect of piracy - practically non-existent as recently as twenty
years ago - is online or Internet piracy. The Internet has changed the
landscape of intellectual property crimes in many ways. Piracy over the
Internet poses significant challenges for law enforcement. It is harder
to detect than traditional means of piracy, and it costs the pirates
virtually nothing to operate, while generating countless perfect digital
copies of music, movies, software and games in just a fraction of the
time it would take to generate the copies manually. Even when we
successfully remove the source of digital piracy, any copies previously
distributed remain on the Internet and can spawn a whole new generation
of pirated products with little more than a few strokes on a keyboard.
As mentioned, until recently, on-line piracy was believed to be
high-return, low-risk endeavor by many in the piracy community. Now,
however, through a number of high-profile enforcement actions, the
Department is making it clear to members of the online piracy community
that their activities may have dire consequences for them. In addition
to Operation Buccaneer, attorneys from the Department, along with the
Federal Bureau of Investigation, have effectively prosecuted online
pirates in other cases, such as the ?Pirates with Attitude? and
?Fastlane? prosecutions in Illinois, and two ongoing prosecutions,
?Operation Bandwidth? in Nevada and ?Operation Digital Piratez? in New
Hampshire. We are committed to continuing to disrupt the online piracy
community. The word is out: the Department of Justice will pursue online
pirates and will put them in jail.
The Department has learned a great deal about the online piracy
community. First and foremost, it is dominated by a handful of highly
structured, security conscious groups which exist solely to engage in
piracy online. These organized criminal groups are frequently referred
to as ?warez? groups. While warez groups are a relatively new
phenomenon, they are responsible for placing a massive number of pirated
movies, music, games and software into circulation each year, and
represent a significant and growing threat to intellectual property
rights around the globe.
The leading international warez groups compete against each other to
attain a reputation as the fastest, highest quality, free providers of
pirated computer software, including utility and application software,
PC and console games, and movies. These groups specialize in being the
first to release new pirated software to the warez community for
unauthorized reproduction and distribution. The groups prosecuted as
part of Operation Buccaneer were among the most notorious organized
online piracy groups in the warez scene.
These criminal organizations are extremely security conscious, utilizing
state-of-the-art technology to attempt to shield their illegal activity
from victim companies and from law enforcement. They are also highly
organized, structured to maximize their manpower and technological
know-how to fully and efficiently support their illegal activity.
Like legitimate companies, ?top-tier? warez groups have clear
hierarchies and divisions of labor. Rank and position within warez
groups are based on a variety of factors, including special skills,
length and quality of service to the group, and reputation within the
warez scene. A typical group - which can consist of people all over the
world who may know each other only through their screen names - will
consist of one or possibly two leaders, two or three high level
individuals known as ?Council,? twelve to fifteen Staff members, and a
general Membership comprising anywhere from twenty to eighty
individuals. The Leader has ultimate authority over all aspects of the
group and its activities. Council members are primarily responsible for
the group?s day-to-day operations, including preparation of new
releases, recruitment, and security issues. Staff members are typically
the most active individuals in preparing a group?s new releases for
distribution, or in maintaining the group?s ?File Transfer Protocol?
(FTP) sites from which the pirated software is distributed. Finally, the
general Members contribute to the group in a variety of ways, including
acting as occasional suppliers of new software, hosting the groups FTP
servers, or providing hardware (e.g., laptops, hard drives, routers,
other computer equipment) to other group members for use in their warez
activities. The more work someone does for the group, the higher up the
organization that person will move, and the greater the access that
person will have to pirated products.
While there are countless similarities, two factors distinguish warez
groups from traditional organized crime syndicates. First, warez groups
conduct their illegal operations in the cyber world as opposed to the
physical world. Second, and perhaps most startling, warez groups
typically do not engage in piracy for monetary gain. In fact, in some
quarters of the warez scene, pirates who engage in ?for profit?
operations are held in contempt and criticized.
Despite the fact that warez groups typically do not profit directly, it
would be a grave mistake to dismiss their conduct as harmless or
unimportant. On the contrary, warez 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. Further, they are the source for much of the pirated
products which filter their way down to less sophisticated, but more
widely used, distribution mechanisms such as peer-to-peer networks. For
example, a warez group dedicated to music piracy will obtain
unauthorized advance copies of songs and albums and distribute those
advance copies to the warez scene. Within days, or frequently within
just a few hours, the warez music release filters down to public
?Internet Relay Chat? (IRC) channels and peer-to-peer networks - often
weeks before its commercial release date. The availability of MP3 files
on the Internet in advance of legitimate CD?s being made publicly
available results in a direct injury to the artists and to the recording
industry.
While the pirates who steal and distribute copyrighted works do not
profit monetarily, the consequences to the victim company are just as
dire as if they did. For many victim companies, particularly smaller
companies whose livelihood depends upon the success of only one or two
products, irreversible damage occurs the moment the pirated digital copy
hits the Internet.
Any consideration of organized crime and IP must include top-level warez
release groups. While we recognize that our efforts must address all
aspects of online and hard-good piracy, including the pursuit of those
involved in the lower tiers of the Internet distribution chain, the
Department will continue to devote significant resources to pursuing
warez groups.
*Traditional Organized Crime and Intellectual Property.*
Another emerging concern is the fact that traditional organized crime
syndicates appear to be playing a dominant role in the production and
distribution of certain types of hard goods piracy, such as optical
disks. This problem seems particularly prevalent in Asia and parts of
the former Soviet Union. Unlike warez groups, the goal of these
organized crime groups is to make as much money as they can.
The continued emergence of organized crime poses substantial challenges
for law enforcement. Highly organized criminal syndicates frequently
have significant resources to devote to their illegal operations, thus
increasing the scope and sophistication of their criminal activity.
Further, by nature, these syndicates control international distribution
channels which allow them to move massive quantities of pirated goods,
as well as other illicit goods, throughout the world.
As one might expect, these groups do not hesitate to threaten or injure
those who attempt to interfere with their illegal operations. Industry
representatives in Asia report that they have been threatened and their
property has been vandalized by members of these syndicates when their
anti-piracy efforts strike too near the illegal operation. Government
officials have also been threatened. These criminal syndicates are a
formidable foe, but one that must be dealt with to truly attack the
problem of intellectual property theft.
Throughout Asia, organized crime groups operate assembly lines and
factories that generate literally millions of pirated optical discs.
These groups pirate a full range of products ranging from music to
software to movies to video games. Anything that can be reproduced onto
an optical disk and sold around the globe is available. There is also
anecdotal evidence that syndicates are moving their production
operations onto boats sitting in international waters to avoid law
enforcement.
Recently, an attorney from the Computer Crime and Intellectual Property
Section visited Kuala Lumpur, Malaysia to conduct law enforcement
training for Malaysian prosecutors and agents. According to Malaysian
officials with whom he spoke, many, if not most, of the optical disk
production facilities in Malaysia are owned and operated by organized
crime syndicates, specifically very wealthy and powerful criminal gangs
or ?triads? from Taiwan which control a significant number of facilities
not just in Malaysia but across Asia generally.
The reach of organized crime appears to extend beyond the production of
optical disks into the distribution chain. While in Malaysia, that same
CCIPS attorney visited an open air market, similar to ones found in
large cities around the world, which offered a myriad of pirated
products. While touring the market, our attorney learned that many
vendors offer their goods on tables covered in brightly colored cloths
which indicate that vendors affiliation with a specific criminal
syndicate. One vendor may use a red cloth to show his affiliation with
one criminal gang, while his neighbor offers his wares on a blue cloth
signifying his affiliation with another criminal gang.
Of course, this problem is not limited to Malaysia, but occurs in other
parts of the world such as in parts of the former Soviet Union.
Additionally, many organized piracy groups from Asia use South America,
most notably Paraguay, as a transshipment point for pirated products.
Industry groups have reported that organized crime from Taiwan and other
parts of the world control much of the distribution of optical disks
into Latin America through Ciudad del Este.
It is also true that the pirated goods produced by organized crime
syndicates enter into and are distributed throughout the United States.
There is ample evidence, for example, that Taiwanese triad members
import into the United States massive amounts of counterfeit software
and other counterfeit products, such as ?remarked? computer chips. The
reach of these organized crime operations is undeniably global in scope.
Of course, developing more and better intelligence about these organized
crime groups and their operations is just the first step in what will be
a long and potentially difficult process of targeting this type of
activity. Because most of these syndicates operate outside the United
States, we must rely on foreign governments for much of the enforcement
efforts in this area. The importance of international cooperation cannot
be overstated. If a government lacks the will or the expertise to
enforce IP laws, organized crime will continue to proliferate with
impunity. Even in countries that have the will and expertise to fight
back, a lack of investigative resources, inadequate laws, a judicial
system that will not impose serious sentences, or corruption can grind
IP enforcement to a halt.
The Department of Justice is committed to being a constructive part of
the United States government?s international IP outreach efforts. In
particular, we are focusing our resources on those foreign nations which
face surmountable difficulties in the investigation and prosecution of
IP crimes. We are pleased to be working with other United States
agencies, such as the Patent and Trademark Office, the State Department
and the U.S. Trade Representative, to ensure that foreign nations are
committed to building sound and lasting IP enforcement regimes.
The Justice Department will continue to work closely with investigative
agencies, especially the Federal Bureau of Investigations and the United
States Customs Service, to develop additional intelligence sources and
information in order to enhance our ability to respond to the growing
threat of organized crime from Asia and other parts of the world. This
is a serious and emerging threat that victimizes American rights
holders, costs companies hundreds of millions of dollars, and damages
our nation?s economy. There is no easy solution. The task at hand
requires a concerted effort on the part of industry, government and law
enforcement. The Department stands ready to do its part.
*Terrorism and Piracy*
Finally, Mr. Chairman, I want to close by briefly discussing terrorism.
Earlier I noted that organized crime syndicates are frequently engaged
in many types of illicit enterprises, including supporting terrorist
activities. On this point, I want to be crystal clear. Stopping
terrorism is the single highest priority of the Department of Justice.
We are constantly examining possible links between traditional crimes
and terrorism, and we will continue to do so. All components of the
Justice Department, including CCIPS, the Counterterrorism Section, and
the Organized Crime and Racketeering Section, will do everything within
their power to make sure that intellectual property piracy does not
become a vehicle for financing or supporting acts of terror.
*Conclusion*
On behalf of the Department of Justice, I want to thank you again for
inviting me to testify today. We thank you for your support over the
years and reaffirm our commitment to continuing to work with Congress to
address the significant problem of piracy. I will be happy to answer any
questions that you might have.
* *More information on: Congressional Testimony *
* *More information on: Protecting Intellectual Property Rights
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Last updated file May 5, 2003
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