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Congress Patches a Loophole With the Anti-Piracy

"NET Act"

by Shelley M. Liberto, Esq.

Copyright © 1998 Shelley M. Liberto. All rights reserved.

Congress recently passed the No Electronic Theft Act ("NET Act") as part of a new government initiative to fight criminal distribution of copyrighted software on the Web. The Act was passed to shore up a loophole in current copyright law which was successfully exploited by MIT student David LaMacchia, who escaped federal prosecution for distributing free copyrighted software on the Web. The NET Act punishes software pirates who willfully copy, distribute, and traffic in protected software on the Web whether or not they enjoy a financial gain.

What LaMacchia Did

David LaMacchia was a 21-year-old student at MIT and an ardent computer hacker. He used MIT's computer network to gain entry to the Internet and set up a bulletin board using pseudonyms and encrypted addresses. He named the bulletin board service "Cynosure." LaMacchia solicited bulletin board correspondents to upload popular software applications such as Excel, WordPerfect, and various computer games such as Sim City 2000. He then transferred the uploaded software to a second encrypted address which he named "Cynosure II." The software could then be downloaded by users who had access to the Cynosure password. The worldwide traffic generated by the offer of free software attracted the notice of university and federal authorities. During the brief six-week life of Cynosure, software copyright holders claim to have lost one million dollars as a result of the free trafficking of their products.

A federal grand jury returned a one-count indictment charging LaMacchia with conspiring with "unknown persons" to violate the wire-fraud statute. The government could not prosecute under the criminal copyright statute, however, because there was no evidence that LaMacchia proceeded under "financial motivation" to profit from his distribution of the free software. The wire-fraud statute, however, under which LaMacchia was actually charged, precluded bringing wire-fraud actions in the context of copyright infringement. The court struggled with its decision to dismiss LaMacchia and invited Congress to create a comprehensive response to the piracy of software on the Internet without commercial gain:

One might at best describe LaMacchia's actions as heedlessly irresponsible, and at worst as nihilistic, self-indulgent, and lacking in any fundamental sense of values. Criminal as well as civil penalties should probably attach to willful, multiple infringements of copyrighted software, even absent a commercial motive on the part of the infringer...But, it is the legislature, not the court, which is to define a crime and/or ordain a punishment.

LaMacchia was thereby successful in squeezing through a loophole in the Copyright Act which motivated Congress to pass the NET Act.

The NET Act Closes the "LaMacchia Loophole"

Congress responded to the anomaly of LaMacchia's freedom by passing the NET Act with relatively little resistance. The Act calls for up to three years' imprisonment and fines for willfully infringing a copyright on the Internet. The defendant must have either done so for purposes of commercial advantage or financial gain, or distributed copyrighted works during any 180-day period with a total retail value of more than $1,000. This second aspect of the NET Act thereby punishes a cyberpirate based on the value of the infringed product regardless of whether the infringer profited from the distribution. The NET Act also extends the statute of limitations from three to five years and requires a "pre-sentence report" which includes a "victim impact statement" submitted by the victim. This allows the court to gauge the amount of any fine that should be levied and the duration of the prison sentence.

Although the NET Act passed Congress with very little opposition, a few concerns were raised. The NET Act could potentially have a "chilling effect" on long-standing practices of freely posting to the Internet for scholarship and research purposes in the scientific, academic, and not-for-profit communities. It may also increase copyright liability for Internet Service Providers whose storage and forwarding facilities might be used by criminal infringers. In each case, however, supporters of the NET Act persuaded Congress by downplaying the possible chilling or over-reaching aspects of the new law. Accordingly, the NET Act continues a new trend in Congress and, among state legislatures, continues to catch up with the rapidly changing technology and innovative spirit resulting from wide popularization of the Internet.


The contents of this article are provided for general information and educational purposes, and are not provided in the course of any attorney-client relationship. Nor do they constitute legal advice. Readers are urged to contact legal counsel regarding any legal issue addressed in this article before initiating any legal action or implementing any decision.


Shelley M. Liberto is an attorney specializing in software- and Internet-related issues. His Web page is located at


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