SAN JOSE — The United States Attorney’s Office for the Northern District of California announced that a federal grand jury today indicted three South Bay individuals charging their involvement in a scheme to pirate over 325,000 copies of copyrighted CDs and software. According to the recording industry, this is the largest CD manufacturing seizure in the United States. This indictment follows the arrests of five individuals n. and searches of 13 locations in California and Texas on October 6, 2005, as part of “Operation Remaster.” Operation Remaster is an undercover law enforcement operation in Northern California targeting the large-scale suppliers of pirated copyrighted music, software, and movies. This operation focused on replicators, the companies or individuals who use sophisticated machinery to create hundreds of thousands of copies of copyrighted works that are then distributed around the country.
The operation is a joint investigation led by the Rapid Enforcement Allied Computer Team High Tech Crimes Task Force (REACT) in San Jose, a task force composed of state, local, and federal law enforcement agencies. The Federal Bureau of Investigation, the United States Secret Service, and the Sacramento Valley High Tech Crimes Task Force assisted in this investigation.
The following individuals were charged in two separate indictments with conspiracy to commit criminal copyright infringement and traffic in counterfeit labels; criminal copyright infringement; trafficking in counterfeit labels; and aiding and abetting:
Wen and He were charged in a ten-count indictment. Zhai was charged separately in a seven-count indictment.
U.S. Attorney Kevin V. Ryan stated: “The allegations of massive piracy of music and software reflect the potential loss of millions of dollars to the artists and businesses who legitimately own the copyrights on these works. These individuals are charged with affixing counterfeit labels on CDs to create the appearance of legitimacy, including the FBI Anti-Piracy Warning that stated ‘Unauthorized copying is punishable under federal law.’ We will continue in our work to protect intellectual property rights and prosecute those who pirate music, software, and movies for their own enrichment.”
According to court filings, piracy conspiracies often involve geographically separate businesses that secretly handle different stages of the process of pirating intellectual property. Brokers, replicators, assemblers, packagers, printers, distributors and retailers play distinct roles in the conspiracy. Brokers solicit the orders of copyrighted works, while the replicators have the equipment to manufacture hundreds of thousands of CDs. Printers and packagers are responsible for making the infringed work appear legitimate by assembling the CD case, booklet, and artwork into a completed CD/DVD package that almost exactly resembles the copyrighted work.
The indicted individuals are charged with involvement in the large scale replication of pirated music and software. The replicator is the business or individual who has the manufacturing equipment to duplicate mass quantities of CDs or DVDs. Using expensive and sophisticated equipment, sometimes including silk screening machines to place artwork on the CDs or DVDs, replicators can quickly create tens of thousands of counterfeit CDs or DVDs. For example, a replicator armed with an easily obtainable mold of a CD or DVD — called a “stamper” — can potentially manufacture 50,000 to 80,000 counterfeit CDs or DVDs, effectively flooding the market with copies of the work.
According to the affidavits in support of the criminal complaints, Wen and He have been involved in large-scale replication of pirated music and software, including songs by numerous Latin artists as well as anti-virus software manufactured by Symantec. Similarly, Zhai has been involved in large-scale replication of pirated Latin music. All the counterfeited works at issue are copyrighted in the United States.
According to the indictment, these defendants are charged with possessing over 2,000 stampers in connection with the conspiracy. The Recording Industry Association of America estimates that a conservative value of one infringing music stamper is $25,000. These defendants are charged with using over 2000 stampers, with an estimated potential replicating value of millions of dollars.
Once a pirated work enters the market, it can circulate widely. For example, according to court documents, a counterfeit music CD found at a retail store last month in Chicago, Illinois, came from two of the Northern California individuals arrested as part of this operation.
The defendants were arrested pursuant to criminal complaints charging, among other things, violations of conspiracy to commit criminal copyright infringement and traffic in counterfeit labels (18 U.S.C. § 371); criminal copyright infringement (17 U.S.C. § 506(a)(1)(A), 18 U.S.C. § 2319(b)(1)); trafficking in counterfeit labels (18 U.S.C. §§ 2318(a), 2318(c)(3)); aiding and abetting (18 U.S.C. § 2 ); criminal forfeiture and destruction (17 U.S.C. §§ 506(b) and 509(a)).
Defendants Wen, He and Zhai are scheduled to make their initial appearance on the indictment before Magistrate Judge Howard R. Lloyd at October 27, 2005, at 9:30 a.m. Zhai was released today on $150,000 secured bond. Wen and He were released on October 6, 2005, on $75,000 secured bond.
Law enforcement agents also arrested Jesus Becerra Huerta, of Stockton, California, and Rosa Isela Huerta, of Stockton, California, on warrants issued by the U.S. Attorney’s Office for the Eastern District of California. That U.S. Attorney’s Office is handling the prosecutions of those individuals.
For someone without a similar prior offense, the maximum penalties under 18 U.S.C. §§ 506(a)(1)(A), 2319, 371, and 2 are five years imprisonment, a $250,000 fine, three years supervised release, and a $100 special assessment for each violation. However, any sentence following conviction would be imposed by the court after consideration of the U.S. Sentencing Guidelines and the federal statute governing the imposition of a sentence, 18 U.S.C. § 3553.
An indictment only contains allegations and these defendants, as with all defendants, must be presumed innocent unless and until convicted. The investigation of large-scale replication conspiracies is continuing.
Mark L. Krotoski and Matthew A. Lamberti are the Assistant United States Attorneys from the CHIP Unit in the Northern District of California who are prosecuting the cases. The Recording Industry Association of American and the Motion Picture Association of America have also assisted in this investigation.