(' ál '" g¡ The PRO-IP Act '" :: '" D'" .c"" o'" ~ 1; l\~ ~ "J ~ ~ ~~ ji'" . !I (I(Ç III .11 Another Weapon Against a Failing Economy By Stephen J. Zralek and Dylan Ruga We are a nation in the midst of an unprecedented financial crisis. It is not just our financial enterprises that are shaken but our confidence in our own economic strength. The members of this Congress and the people of this nation are being asked to take extraordinary steps to contain the explosions on Wall Street. We must not, as we try to repair the structure of our financial institutions, neglect the very sources of our economic pow- er. Intellectual property-copyrights, patents, trademarks, and trade secrets-is an ever-growing sector of our economy. We are the envy of the world for the quality and the quantity of our innovative and creative goods and services. Ifwe want to continue to lead the world in producing intellectual property, we need to protect Americans' rights in that property. ~Senator Patrick J. Leahy (D- VT) i Among other things, the PRO-IP Act the biggest bailout in U.S. history, the Emergen- . increases criminal penalties and available civil remedies On Octobercy Economic3, 2008, Stabilizationthe president Act signed of 2008. into Ten law days for counterfeiting and infringement; later, on October 13, 2008, against the backdrop of the worst · relaxes the registration requirements needed in civil financial crisis since the Great Depression, President Bush cases to establish jurisdiction and recover statutory signed the Prioritizing Resources and Organization for Intel- damages and attorneys' fees; lectual Property Act of 2008, better known as the PRO-IP Act.2 · elevates the federal coordinator of IP protection efforts 34 LANDSLIDE. JanuarylFebruary 2009 r to a position reporting directly to the president; seizure and forfeiture provisions of the Act, in general, but · explicitly allows for the seizure of related records and amendments to the bil at least added missing protections for equipment used to carry out infringement or counterfeit- privacy and confidential materiaL.) The bill passed the House ing efforts; and by a vote of 410 to 11, and it passed the Senate unanimously. · provides significant amounts of funding for enforcement When originally proposed, the bil had many opponents, measures at the federal, state, and local levels. not the least of which were the Bush Administration and the Department of Justice. The House version of the bill and the Impetus for the Act version that initially made it out of the Judiciary Commit- In touting the merits of the bil on the floor of the Sen- tee authorized the attorney general to not only pursue civil ate, Senator Leahy, one of the Senate cosponsors, described remedies for copyright infringement, but also to secure civil American intellectual property as the "lifeblood of our econ- damages in the form of restitution to be awarded to the copy- omy."3 Senator Tom Coburn (R-OK) warned about "ilegal right owners. In a letter to the Senate Judiciary Committee, importation of counterfeit goods, such as pharmaceuticals, the Departments of Justice and Commerce warned that the (threatening) the health and safety of U.S. citizens."4 Other bil could result in prosecutors "serving as pro bono lawyers senators cited the need to protect Americans from faulty elec- for private copyright holders regardless of their resources. In trical products and fake auto parts. effect, taxpayer-supported Department lawyers would pursue Senator George Voinovich (R-OH) called those who vio- lawsuits for copyright holders, with monetary recovery going late American intellectual property the "pirates of the twenty- to industry."9 In the Act's final form, however, this contro- first century."5 As he explained, IP theft has expanded beyond versial provision was stricken, and copyright owners alone merely knocking off purses and ilegally downloading digi- have standing to pursue civil infringement actions. tal music. "Today," he stated, "almost every product being As for the provision creating the new IPEC, senators them- made is subject to being counterfeited." He gave an example selves expressed concern that the person in this position would of counterfeit air brakes in tractor-trailers that look so authen- have unchecked powers. 10 The new IPEC wil be appointed by tic that some counterfeit products are returned to the legitimate the president and be on a par with the U.S. Trade Represen- manufacturer seeking a replacement or refund under the war- tative and the director of the federal Offce of National Drug ranty program. "(G)iven the proliferation of counterfeit goods Control Policy (i.e., the U.S. "drug czar") as a member of the into areas such as pharaceuticals and auto pars, it is only a Executive Office of the President. As originally drafted, the matter of time before our nation sees the dire health and safety bil contained no language preventing the IPEC from exer- consequences arising from this problem."6 cising control over criminal investigations and prosecutions. In reviewing the goals of the bil, the Senate connected its The Act signed into law, however, states that the IPEC "may desire to strengthen protection of American intellectual prop- not control or direct any law enforcement agency, including erty with its efforts to repair the economy. Senators discussed the Deparment of Justice, in the exercise of its investigative the U.S. Chamber of Commerce's study showing that IP theft or prosecutorial authority."!! To the extent the "IP Czar" label costs American businesses an estimated $250 bilion each sticks, the IPEC fits the lesser-known definition of "czar": "an year, as well as an estimated 750,000 jobs. They also noted appointed offcial having special powers to regulate or super- that "we are a nation in the midst of an unprecedented finan- vise an activity,"!2 rather than the more common meaning: "a cial crisis."7 "Our bil," Senator Leahy remarked, "is going to person having great power; an autocrat."!3 improve the enforcement of our nation's intellectual proper- ty laws, . bolster our intellectual-property-based economy, Civil Trademark Damages and. protect American jobs."8 The Act contains two significant amendments to civil penal- ty provisions in the Lanham Act; one affects direct infring- Controversial Provisions of the Bil ers, the other affects contributory infringers. With respect to Eventually Amended direct infringers, section 1 04 of the Act doubles the amount The most controversial provisions of the bil in its early form of statutory damages available in counterfeiting cases. Prior included measures that would: (1) authorize prosecutors to to the Act, a court had discretion to award statutory damages pursue civil infringement actions; (2) authorize the seizure ,. in amounts between $500 and $100,000 or up to $1,000,000 of devices used to carr out infringement or counterfeiting if the counterfeiting was wilfuL. Under section 1 04, how- activities without any safeguards to protect privacy and sen- ever, the range now is from $1,000 to $200,000 or up to ! sitive or proprietary information; (3) alter the "one-work" $2,000,000 in cases of wilful counterfeiting. approach to statutory damages for copyright infringement of works in a compilation so that each work in a compilation would have been entitled to separate remedies; and (4) cre- Stephen j. Zralek is a member of Bone McAllester Norton, ate an Intellectual Property Enforcement Coordinator (IPEC), LPPC, in Nashvile, Tennessee. His IP practice focuses on litigation, or what some commentators have called the "IP czar," who copyright and trademark infringement, unfair competition, and could operate without any restrictions that would prohibit his theft of trade secrets. He can be reached at szralek(gbonelaw.com. or her interference in enforcement or prosecution efforts. By Dylan Ruga is an attorney at the Century City, Los Angeles, offce the time the Act was signed into law, each of these issues had of Steptoe & Johnson, LLP. He also specializes in IP litigation. He can been resolved. (Some opponents continue to fight against the be reached at druga(gsteptoe.com. JanuarylFebruary 2009 . LANDSLIDE 35 The apparent goal of section 104 is to deter counterfeit- appropriate protective order to maintain the confidentiality ing by increasing the risks to those who are caught. Generally of any information in the documents, this amendment is a speaking, people who engage in counterfeiting activity (like significant advantage for copyright plaintiffs. those who engage in other crimes) are aware that their con- Documents related to the manufacture, sale, or receipt of ,I , duct is wrongfuL. If we assume that these individuals engage infringing goods are valuable for several reasons. First, they I: in rational decision making, then they wil engage in the allow a copyright plaintiff to determine how many infring- wrongful activity if the potential risk is outweighed by the ing products were made and sold. This information is often anticipated reward. By increasing the risk involved, the Act used to calculate a reasonable settlement. Second, they allow seeks to tip the scale and prevent future counterfeiting activ- a copyright plaintiff to determine from where the defendant ity before it starts. obtained the infringing goods. Copyright plaintiffs generally It is doubtful, however, that section 104 wil have much use this information to pursue the source of the goods as well effect on the counterfeiting industry because counterfeiters, as the distributor. Finally, the category of documents subject in general, are diffcult to catch and rarely are capable of sat- to civil forfeiture arguably is broad enough to include bank isfying a judgment. Indeed, most counterfeiters operate out of account records and other financial information. The ability back alleys or anonymous storefronts on the Internet; they are to determine how much money an infringer has and where it transient and disappear easily when caught.