of the Government Regulations Section of the Criminal Division of the Department of Justice: "This mild sanction necessarily creates militates against the imposition of This led Mr. Murphy to support a proposal making the penalty for a first offense a felony, arguing that many of those now engaged in pirate activity "would be deterred from embarking on their illegal ventures if the penalty were to be increased to a felony stature 7/ We believe that the Subcommittee draft classifying criminal copyright infringement as a felony and imposing graded penalties corresponding to the quantity of illegal reproductions of records and films is a vital modification of existing law. The pirate who deals in large volumes of illegal copies should be subject to greater penalties than the smaller-scale operator. 6/ Testimony of John L. Murphy, Hearing Before the Subcommittee on Courts, Civil Liberties, and the Administration of Justice of the House Judiciary Committee on H.R. 13364, 93d Cong., 2d Sess. at 5 (1974). 1/ Ibid. at p. 8. Penalties linked to the volume of illegal reproductions will increase the deterrent effect on those criminals whose illicit gains are greatest. This concept of graded penalties parallels the general provisions relating to theft in both the Senate and House drafts, which impose greater penalties as the value of the stolen property increases.8/ The Quantity of Films. In discussions with the Subcommittee's Staff with respect to the copyright 8/ The quantity approach, rather than the "value" approach of the general theft provisions, is appropriate in the case of criminal copyright infringement because of the difficulties inherent in determining the value of illegal reproductions. For example, if "property" is defined as the copyright which has been infringed, then the value will almost always be in excess of $100,000, since any record or film worth pirating would have a copyright value worth at least that much. Thus, under this definition, the offense will almost always be a Class C felony. On the other hand, if property is defined as the illegal reproduction, the question arises as to what value (i.e., retail value, wholesale value, thieves' market value) would be the most appropriate measure for each unauthorized reproduction. Significantly, under existing case law, the value of the unauthorized reproductions frequently cannot be aggregated. See, e.g., United States v. Atherton, 561 F.2d 747 (9th Cir. 1977); United States v. Wise, 550 F.2d 1180 (9th Cir.), cert. denied, 434 U.S. 929 (1977). This poses serious obstacles to enforcement efforts in the film industry, since film pirates usually sell single copies to a large number of customers. As a result, if the value of the illegal reproduction were the basis for the grade of the penalty, film pirates would be liable for only a Class A (or even a Class B) misdemeanor. infringement provision, we have proposed that the quantity of films that must be illegally reproduced or distributed to warrant felony treatment be reduced. The current draft, which requires 200 or more infringing copies for a Class D felony, and more than 20 but less than 200 copies for a Class E felony, places too heavy a burden of proof on the government. The House provision could require the government (or industry) to finance the purchase of at least 21 copies of a film before it could establish even a Class E felony, and more than 200 copies before it could establish a Class D felony.2/ At $75 to $100 per copy, these undercover "buys" would be extremely costly, especially given the number of pirates under investigation. To ease the financial burden of proving that a felony has occurred, we have proposed, and the Staff has agreed, that the quantity figures for motion pictures should be reduced to: 9/ These burdensome requirements are applicable even If the government were to raid the site of a large scale operation and discover hundreds of illegal reproductions and duplicating equipment and materials worth hundreds of thousands of dollars. Certainly, an investment in such equipment would only be feasible if used to reproduce copies on a large scale. Nevertheless, the law could be read to require proof that the requisite number of copies were reproduced or distributed. At a minimum, we suggest that the legislative history make it clear that large-scale purchases are not necessary. more than 100 copies of a motion picture more than 10 but less than 100 copies of These changes and other technical changes discussed with the Staff are set forth in Appendix A. Conforming Amendment. We propose that Section 506(a) of Title 17 of the United States Code be amended to read as follows: "(a) Any person who knowingly engages Counterfeiting. We also endorse Section 2546 of Subchapter V (Counterfeiting, Forgery and Related Offenses) which treats the counterfeiting of labels for records and films as a separate offense, classifies it as a Class D felony, and imposes a uniform penalty regardless of the quantity of counterfeit copies. The insidious nature of counterfeiting demands that this offense should be treated as a separate crime. Unlike the copyright infringement provisions, which are aimed at protecting the rights of the copyright owner, the counterfeiting provisions are designed to protect consumers who are defrauded into buying shabby reproductions, thinking they are buying the genuine product. Separate treatment of this offense serves to increase its visibility and highlight Congress' determination to bring an end to the mushrooming growth of counterfeit activity in films and records. There is no need for the grading approach utilized in the copyright infringement provision no lawful purpose exists for the duplication of any quantity of counterfeit labels. Section 2546 also improves existing law by eliminating certain loopholes in the current counterfeiting statute. For example, 18 U.S.C. § 2318 presently requires that the counterfeit labels be "affixed" to recordings or films when shipped in interstate commerce. To avoid federal jurisdiction, counterfeiters have begun to ship across state lines only the unattached counterfeit labels and jackets, leaving the discs, eight-track cartridges or other containers to be shipped separately. The packaged product is then put together in the state where the dissemination or distribution will take place. Such precautions may preclude proof of violation of Section 2318. The language of the provision in Section |