This essay was written for a Fall 2010 cybercrime course and outlines some of the problems faced as a result of software counterfeiting.
Software Counterfeiting
When the founding fathers created the Constitution, they made an odd inclusion; they included a provision which states that Congress holds the power to “promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries” (via Cornell, 2010). The concept being that to encourage new developments, creators and inventors need exclusive rights to their works (McQuade, 2010). To this extent, the founding fathers have largely been successful, as the United States of America has far more spending and subsequent innovation than countries which do not have systems of protecting works (Schmalleger, 2009).
The United States is not alone in having made provisions for the protection of author’s ideas and original works, countries which do have strong support for such protections such as Singapore are sometimes chosen by businesses for production of goods over cheaper countries to produce such as China and India which do not have strong protections. With high technology items such as software, this becomes all the more important, as theft software counterfeiting results in an estimated 40 billion dollars in lost revenues for software and media companies (Cunningham, Goulka, Matthies, Ridgeway, Treverton, & Wong, 2009, McQuade, 2006, Schmalleger, 2009). The proliferation of the internet has made it all the easier for software pirates to operate; the author has observed software discs purchased in Chinese retail establishments which still contain instruction files from warez groups such as Razor1911, TRiViUM, Fairlight, and RELOADED. Not surprisingly, an estimated 82% of all software installed in China is counterfeit (Schmalleger, 2009).
Existing Laws
Since the value of protecting original works is apparent, the question becomes how best to protect works? Historically the remedy for infringement on the works of another has come in either the form of civil or criminal remedy (McQuade, 2006). To aid in prosecuting via criminal remedy, the United States has a series of laws which were enacted that protect original authors which include: 18 U.S.C. § 2318 pertaining to counterfeit or illicit labels; 18 U.S.C. § 2319 pertaining to criminal copyright infringement; 17 U.S.C. § 506 also pertaining to criminal copyright infringement, and finally 17 U.S.C. § 1201 which is also known as the Digital Millennium Copyright Act (DMCA).
18 U.S.C. § 2318 is very specific in that it pertains to trafficking or affixing a label on a phonorecord; copy of a computer program; copy of a movie; copy of a literary work; copy of a picture, graphic, or sculpture; work of art; or packaging (DOJ, 2010). To constitute a label, some portion of the packaging must have the appearance of genuineness (DOJ, 2010). 18 U.S.C. § 2318 applies to many different types of works beyond software; however, it has proven a valuable means of prosecuting software counterfeiting operations.
17 U.S.C. § 506 stipulates that for infringement to occur an individual must reproduce with the intention to distribute for “commercial advantage or private financial gain” (DOJ, 2010). Furthermore, 17 U.S.C. § 506 contains provisions distribution over a computer network even when financial gain is not intended if the person distributing should have known that the work being distributed was meant for commercial distribution; otherwise, a total value of works worth 1 thousand dollars or more that are distributed during a 180 day period also constitutes a violation of 17 U.S.C. § 506 (DOJ, 2010).
18 U.S.C. § 2319 stipulates punishments for violations of 17 U.S.C. § 506. First offenses usually cannot be sentenced to serve more than five years in prison; however, some provisions exist for up to 10 years in the event of a second offense (DOJ, 2010). 17 U.S.C. 1201, the DMCA, is designed to prevent the circumvention of copy protection systems. Essentially, under 17 U.S.C. 1201, individuals are not permitted to circumvent copy protection systems, nor market or sell software designed to circumvent copy protection systems (DOJ, 2010). The DMCA has been used extensively with rogue cable and satellite decoding.
While the above laws do not present an extensive list of all laws that may be used in prosecuting a software counterfeiter, they do represent some of the more commonly used laws. Other laws that may be used depend upon the peculiarities of an individual counterfeiter’s actions and underlying motives (Samaha, 2008).
Case Studies
To illustrate the peculiarity which can occur in individual cases, two cases chosen from a convenience sample based upon widespread availability of legal records and news articles available from reliable news organizations were chosen. As two individuals is far from an exhaustive sampling of counterfeiters or prosecutions of counterfeiters, these case studies cannot be construed to represent all counterfeit cases; that being said, they do offer interesting insights into software counterfeiting.
Maksym Vysochanskyy (AKA Maksym Kovalchuk)
Maksym Vysochanskyy, also known as Maksym Kovalchuk, a self described “internet marketing entrepreneur, author, Thai and US prisons survivor, proud father, spiritual walker, [and] raw food vegetarian” was dubbed the “$1 Billion Pirate” when he was arrested in a Bangkok ice cream shop in 2003 (Vysochanskyy, 2010). Federal agents from the FBI and United States Postal Service had been intercepting Vysochanskyy’s email for some time in relation to software sales on Ebay and several websites including cdservice.org, bigcds.net, and gold-cds.com (DOJ, 2005). Purportedly, Autodesk, the company that was then behind Autocad, noticed recurring sales for their Autocad product on Ebay at rates a fraction of market value originating from the same seller which prompted them to contact the FBI.
The FBI began investigating and discovered that the products were in fact counterfeits and payments to the seller were being routed through various shells in the United States to a cybercriminal in the Ukraine (DOJ, 2003). It was discovered that Vysochanskyy was using email servers located in California; subsequently, the FBI applied for subpoenas to intercept Vysochanskyy’s emails. Eventually, the FBI purchased several items of software from Vysochanskyy as part of a sting operation; however, as the Ukraine has no extradition treaty with the United States the Department of Justice was powerless to arrest and prosecute Vysochanskyy (DOJ, 2003).
Fortunately an email was intercepted indicating that Vysochanskyy was planning a vacation in Thailand. Thailand does have an extradition treaty with the United States which provided a prime opportunity to arrest and extradite Vysochanskyy to the United States for prosecution. After being arrested by Thai police, Vysochanskyy spent one year in Thai prison while fighting against extradition to the United States; his attempts were unsuccessful and he was extradited to the United States where he was charged with violating 18 U.S.C. § 2319, 18 U.S.C. § 2320, and 18 U.S.C. § 1957 which is related to money laundering activities he engaged in (DOJ, 2005). Vysochanskyy reached a plea agreement where he was subsequently sentenced to 35 months in prison; however, he was released and returned to the Ukraine after 2 years in U.S. prisons (Vysochanskyy, 2010).
Since being released from prison and returning to the Ukraine, Vysochanskyy has set up several ventures including selling a kit kit that advertises making over 12,000 dollars a month by brokering import and export deals between United States and China based companies (Treasure Coach, 2010). Furthermore, he also deals in search engine optimization of websites (Treasure Coach, 2010).
Yaroslav Suris
Vysochanskyy was not the first individual to utilize online auction sites to peddle counterfeit software, in 2002 Yarislov “Yari” Suris of Brooklyn, New York was convicted of violating 17 U.S.C. § 506 and 18 U.S.C. § 2319 (DOJ, 2002). The counterfeiting was purportedly first noticed by the Software & Information Industry Association (SIIA) who noticed software products up for auction at a fraction of retail values on Yahoo auctions and alerted the FBI (Haynes, 2002). Once again the FBI contacted Suris under the prose of being a prospective customer and made a transaction of $1,310 dollars with Suris; however, estimated market worth of the software purchased was in excess of 290 thousand dollars (DOJ, 2002).
Suris also reached a plea agreement wherein he plead guilty to violating 17 U.S.C. § 506 and 18 U.S.C. § 2319 in exchange for 2 months incarceration, fourteen months of home detention, and $290,556 in restitution (DOJ, 2002). Some sources indicate that Suris is now employed in electronics repair; however, others indicate that he is employed as an IT administrator.
Case Study Commonalities and Variations
The cases themselves do not vary considerably except in the amount of counterfeiting and the inclusion of labels on Vysochanskyy’s media which made him eligible for prosecution under 18 U.S.C. § 2318; whereas, Suris shipped disks with no labels or markings whatsoever (DOJ, 2002). This alone does not explain the discrepancy between the plea agreement of Suris with that of Vysochanskyy. It is the author’s opinion that as Vysochanskyy had been suspected of being a ringleader in spam email along with his counterfeiting that prosecutors were less inclined to offer leniency; furthermore, Vysochanskyy was not a US citizen and thereby there existed no feasibility of home detention as Suris was eligible.
Of interest within the case was that the copyright holders in both cases were the ones to alert the FBI, and only because they appeared on popular online auction services. It is the author’s opinion that a great deal more counterfeiting of software goes unnoticed because the transactions occur on non English language websites such as Taobao.
Global Effects of Software Piracy
While the cases involving both Vysochanskyy and Suris both represent sizable potential lost sales for the companies, they merely represent losses from potential sales, which may or may not have ever materialized. The global effects of software counterfeiting are much more pronounced, a 2009 study conducted by RAND found that counterfeit digital media containing video, audio, or software were being used by groups in developing nations as low risk investment to provide seed money for more high risk and lucrative criminal endeavors such as drug trafficking, human trafficking, and terrorism (Cunningham, Goulka, Matthies, Ridgeway, Treverton, & Wong, 2009). The author has observed this symbiotic relationship within Southeast Asia with international Chinese and Russian organized crime. The same organizations which are involved with sex slavery of villagers in China, kidnapping infants for sale in Thailand, and flow of heroine from Myanmar through China to the US are involved in the distribution and sale of counterfeit software.
Implications
The prosecution of Vysochanskyy in particular sets a precedent for the extradition of international counterfeiters who sell products within the United States. This supports the continuing climate of innovation within the US, and provides for superior technology innovation in software products. Furthermore, while not true in every individual case, aggressively prosecuting international counterfeiters aids in the decrease of seed funds for decreasing capacity within international criminal organizations as an aggregate effect. This does not of course preclude continuing evolution of US copyright law to proactively address emerging threats; however, successful prosecutions does indicate that relatively recent additions such as the Digital Theft and Copyright Damages Improvement Act are adequate at addressing current threats.
An area which does require improvement is the ability of the government to detect counterfeit software being sold over the internet. To this effect, increased analysis of spam email and aggregation of auction and content management systems is needed. If there is truly billions in lost revenue per year, the return on investment of effectively and efficiently prosecuting software counterfeiters would justify additional governmental spending.
References
Cornell. (2010). United States Constitution. Retrieved from http://topics.law.cornell.edu/constitution/articlei
Cunningham, K.J., Goulka, J., Matthies, C., Ridgeway, J., Treverton, G.F., & Wong, A. (2009). Film piracy, organized crime, and terrorism. Santa Monica, CA: RAND.
DOJ. (2002). Software pirate sentenced. Retrieved from http://www.justice.gov/criminal/cybercrime/surisSent.htm
DOJ. (2003). International software piracy ringleader arrested with assistance of San Francisco electronic crimes task force agents in Bangkok, Thailand. Retrieved from http://www.justice.gov/criminal/cybercrime/kovalchukArrest.htm
DOJ. (2005). Guilty plea in international software piracy and financial crime prosecution: case involves extradition for intellectual property crimes. Retrieved from http://www.justice.gov/criminal/cybercrime/vysochanskyyPlea.htm
DOJ. (2010). Computer crime & intellectual property section: intellectual property cases. Retrieved from http://www.justice.gov/criminal/cybercrime/ipcases.html#dmca
McQuade, S. C. (2006). Understanding and managing cybercrime. Boston, MA: Pearson Education.
Samaha, J. (2008). Criminal law 6th edition. Belmont, CA: Thomson Learning.
Schmalleger, F. (2009). Criminology today:an integrative introduction. Columbus, OH: Pearson.
Treasure Coach. (2010). Treasure Coach Review. Retrieved from http://treasurecoach-x.blogspot.com/
Vysochanskyy, M. (2010). About Maksym Vysochanskyy. Retrieved from http://maksymblog.com/?page_id=2