USA v. Elcomsoft and Dmitry Sklyarov
Notices of Motion and Motions to Dismiss

31 January 2002

Source: Digital files from ElcomSoft Co. Ltd..

See related case documents: http://www.eff.org/IP/DMCA/US_v_Sklyarov/

See also Elcomsoft's "Motion to Dismiss Indictment for Violation of Due Process"

Two motions provided here:

Notice of Motion and Motion to Dismiss Indictment for Lack of Jurisdiction

Notice of Motion and Motion to Dismiss Count One: Conspiracy

Next court hearing scheduled for March 4, 2002.


[24 pages.]

JOSEPH M. BURTON (SB No. 142105)
STEPHEN H. SUTRO (SB No. 172168)
JON D. RUBIN (SB No. 196944)
JAMES B. DAMRELL (SB No. 201859)
DUANE MORRIS, LLP
100 Spear Street, Suite 1500
San Francisco, CA 94105
Telephone: (415) 371-2200
Facsimile: (415)371-2201

Attorneys for Defendant
ELCOMSOFT COMPANY, LTD.

UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

UNITED STATES OF AMERICA

Plaintiff,

v.

ELCOM LTD., a/k/a ELCOMSOFT CO., LTD. and DMITRY SKLYAROV,

Defendants.

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Case No.: CR 01-20138 RMW

NOTICE OF MOTION AND MOTION TO DISMISS INDICTMENT FOR LACK OF JURISDICTION

Date: March 4, 2002
Time: 9:00 a.m.
Judge: The Honorable Ronald M. Whyte

NOTICE

TO THE UNITED STATES ATTORNEY, PLEASE TAKE NOTICE that at 9:00 a.m. on March 4, 2002 or as soon thereafter as the matter can be heard, in Courtroom 6 of this court, located at 280 South 1st Street, San Jose, California 95113, defendant Elcomsoft Company, Ltd., ("Elcomsoft") will move this court for an order dismissing the criminal complaint brought against it by the United States of America ("United States").

Elcomsoft seeks an order dismissing the indictment against it because of lack of jurisdiction. Said motion is based on the Notice and Memorandum of Points and Authorities in Support of Motion attached hereto, the Declaration of Alexander Katalov filed herewith, the files and records of the case, and such other argument as may be offered at the time of the motion.

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INTRODUCTION

This motion presents an issue of first impression may section 1201 of the Digital Millenium Copyright Act ("DMCA") be applied to a foreign corporation for conduct allegedly within its purview, but which occurred entirely on the Internet in cyberspace.1 We believe that law and logic compels the court to conclude that it may not be so applied. Elcomsoft believes and asserts that because of the unique nature of the Internet, it’s alleged conduct, which only took place on and by means of the Internet occurred outside of the territorial jurisdiction United States. That is, it was extraterritorial in nature. As such, the DMCA can apply to the extraterritorial conduct of a foreign corporation only if (1) Congress expressed an intent that such an application be permitted and (2) application of the DMCA under these circumstances comports with Fifth Amendment due process standards. Neither of these conditions is met in this case. Moreover, limiting the extraterritorial application of the DMCA in this case is consistent with international law. The exercise of jurisdiction under the facts of this case would violate principles of international law and would be "unreasonable." Accordingly, this court should hold that it may not exercise jurisdiction over a foreign corporation for activities that occurred entirely on the Internet allegedly in violation of 17 U.S.C. § 1201 and grant Elcomsoft’s motion to dismiss.

1 The indictment against Elcomsoft is also based on §§ 2 and 371 of title 18 of the United States Code. Section 2 states:
(a) Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.

(b) Whoever willfully causes an act to be done which if directly performed by him or another would be an offense against the United States, is punishable as a principal.

18 U.S.C. § 371 provides:

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both.

However, because prosecution under these statutes is dependant upon the court having jurisdiction under the DMCA, an analysis of the extraterritoriality application of these statutes is not necessary and is not taken. See, e.g., United States v. Felix-Gutierrez, 940 F.2d 1200, 1205 (9th Cir. 1991) (recognizing that "the crime of 'accessory after the fact' gives rise to extraterritorial jurisdiction to the same extent as the underlying offense. That is, if the underlying substantive statute applies extraterritorially, the statute making it unlawful to assist another in avoiding apprehension, trial or punishment also applies extraterritorially when invoked in connection with an extraterritorial violation of the underlying statute."), cert. denied, 508 U.S. 906 (1993). See also Chua Han Now v. United States, 730 F.2d 1308, 1311 (9th Cir. 1984), cert. denied, 470 U.S. 1031 (1985).

Elcomsoft brings this motion pursuant to Rule 12 of the Federal Rules of Criminal Procedure on the ground that the court lacks subject matter jurisdiction. Rule 12 provides Elcomsoft with the authority to bring this motion by providing, inter alia: "Any defense, objection, or request which is capable of determination without the trial of the general issue may be raised before trial by motion." Fed. Rules of Crim. Proc. § 12(b). See also United States v. Ayarza-Garcia, 819 F.2d 1043 (11th Cir. 1987) (stating: "Questions of subject matter jurisdiction may be raised under Rule 12(b)"), cert. denied, Ayarza-Garcia v. United States, 484 U.S. 969 (1987). The burden to prove subject matter jurisdiction rests with the government. Thornhill Publ’g Co., Inc. v. General Tel. & Electronics Corp., 594 F.2d 730, 733 (9th Cir. 1979). The plaintiff must "present affidavits or any other evidence necessary to satisfy its burden." St. Clair v. City of Chico, 880 F.2d at 199, 201 (9th Cir. 1989). The plaintiff’s allegations are not presumed to be truthful. Thornhill Publ’g Co., Inc. v. General Telephone & Electronics Corp., supra, 594 F.2d at 733.

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BACKGROUND

Elcomsoft is a company which is headquartered in Moscow, Russia and develops and sells computer software. The technology at issue in this case is an Elcomsoft program called advanced e-book processor ("AEBPR"). The AEBPR program permits a legitimate purchaser of an electronic book ("e-book") formatted in the Adobe Acrobat e-book reader format to convert that e-book from the Adobe e-book reader format to a format readable by any Adobe Acrobat reader. Declaration of Alexander Katalov in Support of Motion to Dismiss for Lack of Jurisdiction ("Declaration of Katalov"), ¶ 3. The e-book reader format was designed by Adobe to permit the publisher or distributer of an e-book to restrict or limit the exercise of certain copyright rights of an owner of the copyright such as the ability to copy, distribute, print, or have the text of the book read audibly by a computer. The conversion accomplished by the AEBPR program enabled a legitimate purchase of an e-book to exercise his or her rights of fair use under the copyright laws.

Elcomsoft employees developed the AEBPR program in Russia. It was first made available for purchase on or by June 20, 2001 on the Internet. Declaration of Katalov, ¶ 3. The indictment charges Elcomsoft with offering to the public, trafficking, marketing, and selling, the AEBPR program. The indictment also makes clear that each of these forms of conduct occurred on the internet. The indictment states:

[D]efendant Elcomsoft and others made the AEBPR program available for purchase on the Elcomsoft.com website. Individuals wishing to purchase the AEBPR program were permitted to download a partially functional copy of the program from the Elcomsoft.com and then were directed to pay approximately $99 to an online payment service, RegNow, based in Issaquah, Washington. Upon making a payment via RegNow website, Elcomsoft and other persons provided purchasers a registration number permitting full use of AEBPR program. Indictment, para. 3.

The government does not, nor could they in good faith allege that the conduct at issue (i.e. the offering to the public, marketing, or selling) occurred other than over the internet.

ARGUMENT

A. INTERNATIONAL TRANSACTIONS CONDUCTED BY A FOREIGN CORPORATION SOLELY ON THE INTERNET ARE INHERENTLY EXTRATERRITORIAL.

The Internet is a "unique and wholly new medium of worldwide human communication," which was develops to serve as such. American Civil Liberties Union v. Reno, 929 F.Supp. 824, 844 (E.D. Penn. 1996), aff’d. American Civil Liberties Union v. Reno, 217 F.3d 162 (3rd Cir. 2000). "[T]he Internet has an ‘international, geographically- borderless nature,’" which is "accessible to all other Internet users worldwide." American Civil Liberties Union v. Reno, supra, 217 F.3d at 169 (citations omitted), cert. granted, 121 S. Ct. 1997 (2001) (emphasis added). The internet has not physical locus.

As explained by the Supreme Court of the United States:

The Internet is an international network of interconnected computers. . . . The Internet has experienced "extraordinary growth." The number of "host" computers--those that store information and relay communications-- increased from about 300 in 1981 to approximately 9,400,000 by the time of the trial in 1996. Roughly 60% of these hosts are located in the United States. About 40 million people used the Internet at the time of trial, a number that is expected to mushroom to 200 million by 1999.

* * *

Anyone with access to the Internet may take advantage of a wide variety of communication and information retrieval methods. These methods are constantly evolving and difficult to categorize precisely. . . .Taken together, these tools constitute a unique medium--known to its users as "cyberspace"-- located in no particular geographical location but available to anyone, anywhere in the world, with access to the Internet.

Reno v. American Civil Liberties Union, 521 U.S. 844, 849-851 (1997). (emphasis added).

Similarly, the district court described the Internet as "a decentralized, self-maintaining series of redundant links between computers and computer networks, capable of rapidly transmitting communications without direct human involvement or control, and with the automatic ability to re-route communications if one or more individual links were damaged or otherwise unavailable." American Civil Liberties Union v. Reno, 929 F.Supp. 824.

Another significant characteristic of the internet is that information is most often distributed to users by "pull" rather than by "push." That is consumers (of information) choose to come to the resource, rather than having information thrust upon them. Most importantly information distributed in this way is available to users pervasively, simultaneously and instantly.

Once a provider posts its content on the Internet, it cannot prevent that content from entering any community. Unlike the newspaper, broadcast station, or cable system, Internet technology necessarily gives a speaker a potential worldwide audience. Because the Internet is a network of networks . . ., any network connected to the Internet has the capacity to send and receive information to any other network.

American Civil Liberties Union v. Reno, supra, 929 F.Supp. at 844. "Communications over the Internet do not ‘invade’ an individual’s home or appear on one’s computer screen unbidden. Users seldom encounter content ‘by accident.’ . . . Although content on the Internet is just a few clicks of a mouse away from the user, the receipt of information on the Internet requires a series of affirmative steps more deliberate and directed than merely turning a dial." Id. Furthermore,

[t]here is no effective way to determine the identity or the age of a user who is accessing material through e-mail, mail exploders, newsgroups or chat rooms. An e-mail address provides no authoritative information about the addressee, who may use an e-mail "alias" or an anonymous remailer. There is also no universal or reliable listing of e-mail addresses and corresponding names or telephone numbers, and any such listing would be or rapidly become incomplete.

Id. at 845.

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A person selling an item on the Internet cannot direct or prevent that content from entering any community. Instead, it is the purchaser who must take an affirmative step. Furthermore, in the arena of Internet sales, the seller cannot determine the identity of a user. An e-mail address provides no authoritative information about the addressee. There is no universal or reliable listing of e-mail addresses and corresponding names or telephone numbers. Accordingly, in a transaction occurring purely over the Internet, the seller cannot assess the location of the buyer. The buyer could be located anywhere in the world. Even in situations where one may be able to decipher some information about the purchaser from his/her e-mail address, one often cannot be certain where that person is located. For example, the attorneys at the law firm of Duane Morris have e-mail addresses that end with @DuaneMorris.Com (i.e., Joseph Burton’s e-mail address is JMBurton@DuaneMorris.Com). Although the e-mail address indicates the addressee is affiliated with the law firm of Duane Morris, a firm based in the United States, it does not reflect his or her location. Duane Morris maintains an office in London, England, and attorneys practicing out of that office have e-mail addresses with the same ending (e.g., JSCohen@DuaneMorris.Com).

The Internet belongs to no country alone, but to all countries collectively. It is in a jurisdictional sense like the oceans or the air and space. Because it is an omnipresent shared resource, it is, and must be, by nature extraterritorrial. While transactions occurring solely on the Internet may have an impact on nations and/or their citizens, this fact does not and should not automatically imbue the effected country with jurisdiction over the actions of persons transacting on the Internet. Whether jurisdiction over the actions of persons operating exclusively on the Internet can be asserted is, like all questions regarding the application of extraterritorial jurisdiction, a matter of law and policy.

B. CONGRESS DID NOT INTEND THE DMCA TO HAVE EXTRATERRITORIAL EFFECT.

The Constitution does authorize the Congress to enact laws that have extraterritorial effect. However, for a court to conclude that a statute has such an effect, it must apply the two-pronged test first established in United States v. Davis, 905 F.2d 245 (9th Cir. 1990), cert. denied, 498 U.S. 1047 (1991). First, there must be a finding that Congress expressed an intent to give the statute extraterritorial effect. Id. at 248. Second, extraterritorial application must not violate basic principles of due process. Id. at 248-249.

Congress expressed no intent that the DMCA have extraterritorial application in general or, specifically, that it apply to purely Internet transactions in particular. "It is a long-standing principle of American law that legislation of Congress, unless a contrary intent appears, is meant to apply only within the territorial jurisdiction of the United States." EEOC v. Arabian Am. Oil Co., 499 U.S. 244, 248 (1991). There is a presumption against extraterritorial application. Id. Without a clear expression of congressional intent, a court must "conclude that the statutes are "primarily concerned with domestic conditions." Id. Here, there is no expression of Congress’ intent that the statute in question should apply extraterritorially.

In United States v. Davis, supra, 905 F.2d 245, the Ninth Circuit concluded that Congress intended the act in question, the Maritime Drug Law Enforcement Act, to apply extraterritorial. The court rendered this holding because Congress explicitly provided: "This section is intended to reach acts of possession, manufacture, or distribution outside the territorial jurisdiction of the United States." 46 U.S.C. app. § 1903(h). Congress did not include such a statement with respect to section 1201. Accordingly, "against the backdrop of the presumption against extraterritoriality, this court must conclude that the DMCA is "primarily concerned with domestic conditions." EEOC v. Arabian Am. Oil Co., supra, 499 U.S. at 248 (internal quotation omitted).

A conclusion that section 1201 does not apply extraterritorially is also supported by case law. For example, a similar issue as the one presented here, albeit involving a different section of title 17, was considered by the Ninth Circuit in Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088, 1095 (9th Cir. 1994). In that case, the Ninth Circuit refused to "overturn over eighty years of consistent jurisprudence on the extraterritorial reach of the copyright laws [17 U.S.C. § 106] without further guidance from Congress." Id. In rendering this holding, the court recognized:

Congress chose in 1976 to expand one specific "extraterritorial" application of the Act by declaring that the unauthorized importation of copyrighted works constitutes infringement even when the copies lawfully were made abroad. See 17 U.S.C.A. § 602(a) (West Supp.1992). Had Congress been inclined to overturn the preexisting doctrine that infringing acts that take place wholly outside the United States are not actionable under the Copyright Act, it knew how to do so.

Id. at 1096 (emphasis in original) (citing Argentine Republic v. Amerada Hess Shipping Corp., 488 U.S. 428, 440 (1989) for the proposition that "[w]hen it desires to do so, Congress knows how to place the high seas within the jurisdictional reach of a statute. (Internal citation and quotation omitted)"). The same is true with respect to section 1201. Had Congress been inclined to overturn the preexisting doctrine and make section 1201 apply to acts that take place wholly outside the United States, it knew and was required to do so explicitly. Congress, however, did not do that. Accordingly, application of 1201 to a foreign company for extraterritorial activities would be inconsistent with Congress’ intent and would be improper.

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C. PRINCIPLES OF DUE PROCESS PROHIBIT EXTRATERRITORIAL APPLICATION OF THE DMCA IN THIS CASE.

Even if the court were to find that Congress intended for section 1201 to apply extraterritorially, you must nevertheless conclude that the exercise of jurisdiction in this case does not meet constitutional standards. Application of section 1201 extraterritorially is also improper because its application in that manner would violate the norms of due process, including: (1) the rule of lenity; (2) the right of fair warning; and (3) the requirement of a sufficient nexus between the alleged conduct and the United States. "Under the rule of lenity, an ambiguous criminal statute is to be strictly construed against the Government." United States v. Bin Laden, 92 F.Supp.2d 189, 216 (S.D.N.Y.2000). The principle of fair warning requires those subject to the law have a "fair warning . . . in language that the common world will understand, of what the law intends to do if a certain line is passed. To make the warning fair, so far as possible the line should be clear." McBoyle v. United States, 283 U.S. 25, 27 (1931). In this case, regardless of whether the actions of Elcomsoft are deemed to have occurred within or without the United States, Elcomsoft had no warning that section 1201 could be applicable to its actions.

Section 1201 is a relatively new statute whose scope of applicability is unclear. The plain words of section 1201 do not provide any company, particularly one operating from a location outside of the United States, with an understanding and fair warning of the type of activities that it restricts. Indeed, Elcomsoft, as a foreign company operating its business from Russia over the Internet, was unaware that its development and sale of the AEBPR program were subject to the laws of the United States, and more specifically, potentially fell within the type activities prohibited by the DMCA. As such, application of section 1201 to Elcomsoft would violate its due process right to fair warning. United States v. Davis, supra, 905 F.2d 245 (9th Cir. 1990).

As noted above, due process also requires the existence of a "sufficient nexus" between the defendant and the United States such that application of the statute extraterritorially would not be arbitrary or fundamentally unfair. United States v. Davis, supra, 905 F.2d at 248-249. See also Allstate Ins. Co. v. Hague, 449 U.S. 302, 312-313 (1981) (stating: "for a State’s substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair"), reh’g denied, 450 U.S. 971 (1981). To establish a sufficient nexus, the United States must show that the plan for the activity was likely to have effects in the United States. See, e.g., United States v. Kahn, 35 F.3d 426, 429 (9th Cir. 1994). The attempted transaction must be "aimed at causing criminal acts within the United States." Id. (Citation and internal quotation omitted).

For jurisdiction to exist, courts have consistently required a clear intent to cause criminal acts in the United States. For example, in United States v. Gonzalez, 810 F.2d 1538 (11th Cir. 1987), the court addressed an appeal by defendants who were convicted of conspiring to import marijuana into United States, of conspiring to possess marijuana aboard stateless vessel with intent to distribute, of possessing marijuana aboard stateless vessel with intent to distribute, and of possessing marijuana with intent to import it into United States. On appeal, the defendants’ claimed, in part, that the district court improperly applied criminal statutes 21 U.S.C. §§ 955a(a), 955c to their extraterritorial activities. The Court of Appeals rejected this claim.

The court recognized that to apply sections 955a(a) and 955c extraterritorially, the United States must show "that the [ship’s] intended destination was the United States or that the crew members’ purpose was to send [the drugs] into this country." Id. at 1542 (emphasis added). Follow this directive, the court concluded that a sufficient nexus existed between the defendants activities and the United States. Id. To support this conclusion, the Court found that the defendants intent was supported by evidence that their vessel was on course for United States at the time it was sighted by the Coast Guard, and that vessel had previously acted as a "mother ship" for smaller vessel. Id

Elcomsoft’s activities with regard to the AEBPR program are simple and straightforward. Elcomsoft placed an advertisement on its webpage for the AEBPR program from its headquarters in Russia. Decl. of Katalov, ¶ 4. From this location, Elcomsoft also upload the AEBPR program onto the Internet. Decl. of Katalov, ¶ 4. Individuals accessing Elcomsoft’s webpage and, those interested in purchasing the AEBPR program directed payment to RegNow. Decl. of Katalov, ¶ 5. After RegNow received payment, RegNow forwarded to the purchaser a registration number allowing full use of the program. Decl. of Katalov, ¶ 5. After the transaction was completed, RegNow sent the transaction information to Elcomsoft, including payment verification, the registration number given to the purchaser, and the purchaser’s e-mail address. Decl. of Katalov, ¶ 5. Thus, the e-mail address is the extent of the information Elcomsoft knew about the purchaser. Elcomsoft did not know the location of the purchaser, as Elcomsoft did not send by traditional mail a copy of the software to the purchaser. Decl. of Katalov, ¶ 5. As a result, Elcomsoft’s sale of the AEBPR program occur exclusively over the Internet in cyberspace. This business arena is outside of the United States.

The facts of this case do not establish the proper nexus between the United States and Elcomsoft, and, as such, application of section 1201 to the conduct of Elcomsoft would be arbitrary and fundamentally unfair. Elcomsoft did not: (1) offer the AEBPR program for sale with the intent of causing criminal acts within the United States; (2) develop a plan for the sale of the AEBPR program in the United States; (3) direct the sale of the program towards the United States; or (4) advertise the AEBPR program in publication distributed or sold in the United States. Elcomsoft simply offered the AEBPR program for sale on the Internet. Decl. of Katalov, ¶¶ 4, 5.

Elcomsoft, from Russia, uploaded the AEBPR program onto the Internet. Decl. of Katalov, ¶ 4. As such, anyone with access to the Internet could purchase the AEBPR program. Elcomsoft could not prevent the AEBPR program from entering the United States. See American Civil Liberties Union v. Reno, supra, 929 F.Supp. at 844. Thus, the United States cannot be found to be the intended destination for the AEBPR program nor can it be found that Elcomsoft had an intent to send the AEBPR program into this country. Accordingly, there is no sufficient nexus between the United States and Elcomsoft. Therefore, due process requires this court to find that it does not have jurisdiction over Elcomsoft.

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D. INTERNATIONAL LAW PRINCIPLES DO NOT SUPPORT EXTRATERRITORIAL APPLICATION OF THE DMCA.

International law does not create any limitation on the congressional power to enact laws with extraterritorial application. See, e.g., United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979); United States v. Pinto-Mejia, 720 F.2d 248, 259 (2nd Cir. 1983), opinion modified on denial of reh’g, 728 F.2d 142 (2nd Cir. 1983). It does, however, "in the absence of an explicit Congressional directive, courts do not give extraterritorial effect to any statute that violates principles of international law." United States v. Vasquez-Velasco, 15 F.3d 833, 839 (9th Cir. 1994)(citations omitted). Given the unique circumstances of this case, jurisdiction would not be supported under principles of the international law.

The exercise of extraterritorial jurisdiction may be appropriate under one or more of the following principles of international law:

(1) Objective Territorial Principle Jurisdiction based on acts performed outside the United States that produce detrimental effects therein.

(2) Protective Principle Jurisdiction based on acts committed outside the United States that may impinge on the United States’ integrity, security, or political independence.

(3) Territorial Principle Jurisdiction is based on the place where the offense is committed.

(4) National Principle Jurisdiction is based on the nationality or national character of the offender.

(5) Universal Principle Jurisdiction is based on the fact that the crime or crimes allegedly committed are so heinous that any nation with control over the Supreme Court may assert jurisdiction.

(6) Passive Personality Principle Jurisdiction is based on the nationality of the victim.

See, e.g., id. at 840. Further, even when the exercise of jurisdiction comports with one of these principles, international law may still be violated by the exercise of jurisdiction extraterritorially if such an action is "unreasonable." See Restatement (Third) of Foreign Relations Law of the United States § 403, Comment A (stating that "[t]he principle that an exercise of jurisdiction on one of the bases indicated ... is nonetheless unlawful if it is unreasonable . . . has emerged as a principle of international law").

1. Extraterritorial Application Does Not Satisfy International Principles.

It is beyond reasonable dispute that the facts of this case do not fall within protective, national and universal principles of international law, because the alleged activities: (1) do not impinge on the United States’ integrity, security, or political independence; (2) where performed by Russians citizens; and (3) are not the type to be classified as so heinous that any nation with control over the Supreme Court may assert jurisdiction. Thus, the remaining question is whether the alleged activity justifies jurisdiction under the Objective Territorial, Territorial or Passive Personality principles.

a. Objective Territorial Principle

The objective territorial principle provides a justification for the exercise of jurisdiction based on extraterritorial acts only if the acts produce a substantial and detrimental effects in the United States. This applies only to "[a]cts done outside a jurisdiction, but intended to produce and producing detrimental effects within it." Strassheim v. Daily, 221 U.S. 280, 285 (1911). Under similar circumstances, for jurisdiction to lie, the Ninth Circuit has required: (1) the actions be intentional, expressly aimed at the forum and caused or likely to cause harm, the brunt of which was or would have been suffered-and which the defendant knows was likely to be suffered-in the forum state; and (2) the actions were targeted at one whom the defendant knows to be a resident of the forum. See, e.g., Core-Vent Corp. v. Nobel Indus. AB, 11 F.3d 1482, 1486 (9th Cir. 1993); Bancroft & Masters Inc. v. Augusta National Inc., 223 F.3d 1082 (9th Cir. 2000).2 As previously discussed the facts of this case do not permit the United States to meet this burden.

2 A similar, albeit more direct, standard has been expressed by the Fifth Circuit, which simply requires an appropriate nexus be shown between the acts and the United States. See e.g., United States v. Loalza-Vasquez, 735 F.2d 153, 156 (5th Cir.1984); United States v. Gray, 659 F.2d 1296, 1298 (5th Cir.1981); United States v. DeWeese, 632 F.2d 1267, 1271 (5th Cir. 1980), reh'g denied, 641 F.2d 879 (5th Cir. 1981), cert. denied, 454 U.S. 878 (1981).

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Elcomsoft did not intend to cause detrimental effects within the United States. Decl. of Katalov, ¶ 6. Its sale and distribution of the AEBPR program were not targeted at one whom Elcomsoft known to be a resident of the United States. Elcomsoft simply uploaded the AEBPR program onto the Internet. Decl. of Katalov, ¶ 4. Elcomsoft recognizes that this action made the AEBPR program accessible to anyone with Internet capabilities. However, Elcomsoft, by uploading the AEBPR program, targeted no location. As cited above, recognized by the Court of Appeals and the United States in American Civil Liberties Union: "Once a provider posts its content on the Internet, it cannot prevent that content from entering any community." American Civil Liberties Union v. Reno, supra, 929 F.Supp. at 844. For this reason, the court cannot conclude that the acts of Elcomsoft, which were committed on the Internet, were intended by Elcomsoft to produce detrimental effects within the United States, and therefore, the objective territorial principle cannot provides a justification for the exercise of jurisdiction.

b. Territorial Principle

The territorial principle allows for jurisdiction based on the location of the offense. In this case, the territorial principle does not justify the application of section 1201 of the DMCA extraterritorially because the "place" where the alleged offenses were committed is outside of the United States. As noted above, Elcomsoft has been accused of: (1) conspiring to traffic for gain in technology primarily designated to circumvent, and marketed for use in circumventing, technology that protects a right of a copyright owner; (2) trafficking for gain in technology primarily designated to circumvent technology that protects a right of a copyright owner; and (3) trafficking for gain in technology marketed for use in circumventing technology that protects a right of a copyright owner. These accusations are based on alleged activities that occurred outside of the United States. Accordingly, this principle cannot justify the exercise of jurisdiction in this case.

All of the activities taken by Elcomsoft to develop and sell the AEBPR program occurred in Russia or in cyberspace. Elcomsoft designed the AEBPR program in Russia. Elcomsoft uploaded the AEBPR program onto the Internet in Russia. Decl. of Katalov, ¶ 4. Elcomsoft was not responsible for any other part of the transaction. Decl. of Katalov, ¶ 5. As such, even if the activities of Elcomsoft violated section 1201, which Elcomsoft denies, those activities occurred in Russia and over the Internet, not in the United States. See generally Decl. of Katalov. Accordingly, the territorial principle does not allows for jurisdiction in this case.

c. Passive Personality Principle

The passive personality principle allows for jurisdiction based on the nationality of the victim. Here, the nationality of the alleged victim does not justify the application of section 1201 extraterritorially. The passive personality principle, despite its apparent broad nature, is applied narrowly.

The principle has not been generally accepted for ordinary torts or crimes, but it is increasingly accepted as applied to terrorist and other organized attacks on a state’s nationals by reason of their nationality, or to assassination of a state’s diplomatic representatives or other officials.

Restatement (Third) of Foreign Relations Law of the United States § 403, Comment G. Because of the limited application of this principle and the nature Elcomsoft’s activities, the passive personality principle does not provide a justification for the application of jurisdiction.

As noted throughout this memorandum, the United States is accusing Elcomsoft of violating section 1201 of title 17 of the United States Code. By its terms, section 1201 is intended to prevent circumvention of software that protects the rights of a copyright owner. See 17 U.S.C. § 1201. Thus, the potential victim(s) of the alleged section 1201 violation in this case is any publisher of an eBook, utilizing the Adobe eBook reader software, regardless of location. The indictment does not identify a victim or victims in this case and thus there is no indication of their nationality. For these reasons, the notion that the nationality of the victim provides a justification for this court to exercise jurisdiction is without merit.

2. Extraterritorial Application Would Be Unreasonable.

Notwithstanding the analysis and conclusions expressed above, the exercise of jurisdiction in this case would remain improper even if this court were to find that the principles of international law justified the exercise of jurisdiction. As noted above, where the exercise of jurisdiction would comport with one of these principles, international law will still be violated by the exercise of jurisdiction extraterritorially if such action is "unreasonable."

Whether exercise of jurisdiction over a person or activity is unreasonable is determined by evaluating all relevant factors, including, where appropriate:

(a) the link of the activity to the territory of the regulating state, i.e., the extent to which the activity takes place within the territory, or has substantial, direct, and foreseeable effect upon or in the territory;

(b) the connections, such as nationality, residence, or economic activity, between the regulating state and the person principally responsible for the activity to be regulated, or between that state and those whom the regulation is designed to protect;

(c) the character of the activity to be regulated, the importance of regulation to the regulating state, the extent to which other states regulate such activities, and the degree to which the desirability of such regulation is generally accepted;

(d) the existence of justified expectations that might be protected or hurt by the regulation;

(e) the importance of the regulation to the international political, legal, or economic system;

(f) the extent to which the regulation is consistent with the traditions of the international system;

(g) the extent to which another state may have an interest in regulating the activity; and

(h) the likelihood of conflict with regulation by another state.

Restatement (Third) of Foreign Relations Law of the United States § 403(2).3 In this case, application of these factors makes plain that it would be unreasonable, and therefore unlawful for this court to exercise of jurisdiction over Elcomsoft, a foreign corporation, for activities occurring in cyberspace, based on alleged violations of section 1201 to title 17 of the United States Code.

3 One of the considerations to determine if the exercise of jurisdiction is reasonable is whether the character of the activity to be regulated provides a justification for the exercise of jurisdiction. This consideration is addressed throughout this memorandum and is therefore not addressed separately hereunder.

Initially and as discussed above, there is little or no link between the activities of Elcomsoft and the United States. See generally Decl. of Katalov. Elcomsoft develops software in Russia and sells it over the Internet in cyberspace. Decl. of Katalov, ¶ 2. It does not direct the sale of the program towards the United States. See generally Decl. of Katalov.

A ruling that the court may exercise jurisdiction over Elcomsoft would also substantially and adversely effect commerce over the Internet. Again, as noted above, recognized by the courts of the United States, and stipulated by the United States itself: "Anyone with access to the Internet may take advantage of a wide variety of communication and information retrieval methods. These methods are constantly evolving and difficult to categorize precisely." Reno v. American Civil Liberties Union, supra, 521 U.S. at 851.

Once a provider posts its content on the Internet, it cannot prevent that content from entering any community. Unlike the newspaper, broadcast station, or cable system, Internet technology necessarily gives a speaker a potential worldwide audience. Because the Internet is a network of networks . . ., any network connected to the Internet has the capacity to send and receive information to any other network.

American Civil Liberties Union v. Reno, supra, 929 F.Supp. at 884. Thus, because of this amorphic nature of the Internet, a ruling by this court that it may exercise jurisdiction over a foreign corporation for activities that occurred in cyberspace and alleged to be in violation of section 1201 of title 17 of the United States Code would in essence make the law of the United States international law. Foreign companies would be obligated to conform the information posted or merchandise placed for sale on the Internet to comport with the law of the United States, thereby requiring them to constantly monitor the laws of the United States to ensure their businesses are being operated in compliance with United States law. This requirement would cripple use of the Internet outside of the United States.

Furthermore, although the importance of regulating the activities prohibited under section 1201 may be significant to the United States, application of the law is not consistent with the traditions of the international system, as its application to a foreign corporation for activities that occurred in cyberspace would conflict with the laws of Russia. Elcomsoft is a Russian company that conducted its activities consistent with the laws of that county. Russian law permits the development and sale of the AEBPR program. If this court were to find that it has jurisdiction over Elcomsoft pursuant to an alleged violation of section 1201 of title 17 of the United States Code, this court would be subjecting Elcomsoft to a law that conflicts with the regulations of another sovereignty. In sum, the principles of international law do not support the application of section 1201 extraterritorially. The factors enumerated in the Restatement of Foreign Relations Law of the United States lead to a finding that the exercise of jurisdiction over Elcomsoft would be unreasonable.

This court should not ignore the fact that, even if it concludes that the principle of international law justify the exercise of jurisdiction, the exercise of jurisdiction remains improper because Congress has not chosen to extend section 1201 to the circumstances of this case. This point was highlighted in National Transportation Safety Board c. Carnival Cruise Lines, Inc., 723 F.Supp. 1488 (1989). In that case, the court addressed the issue of whether the National Transportation Safety Board had jurisdiction under Independent Safety Board Act to investigate an accident in international waters between two foreign-flag vessels under provisions specifically limiting National Transportation Safety Board’s authority to conduct extraterritorial investigations to those accidents involving a vessel of United States. Id. at 1490.

The court held that the National Transportation Safety Board did not have jurisdiction to conduct such an investigation. Id. at 1494. The court rendered this holding despite finding that,

the conduct of Carnival, and similar cruise lines, has a substantial, direct, and foreseeable effect in the territory of the United States, and it would appear reasonable for Congress to prescribe legislation authorizing the [National Transportation Safety Board] to investigate accidents such as this.

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Id. at 1491. The court reconciled its holding with this finding by stating: "[T]he dispositive question is whether Congress has chosen to exercise that power." Id. Thus, were this court to find that the principle of international law justify the exercise of jurisdiction over a foreign corporation for activities that occurred in cyberspace and alleged to be in violation of section 1201 of title 17 of the United States Code, it must nevertheless find that jurisdiction does not lie because section 1201 does not express Congress’ intent that the statute apply extraterritorially.

CONCLUSION

For the above stated reasons, Elcomsoft respectfully requests that this court dismiss the indictment against it with prejudice.

Dated: January 14, 2001




__________________________________

DUANE MORRIS LLP

By: ______________________________

JOSEPH M. BURTON
Attorneys for Defendant
ELCOMSOFT COMPANY, LTD.

_______________________________________________

United States of America v. Elcom Ltd., a/k/a
Elcomsoft Co., Ltd. and Dmitry Sklyarov

Case No.: CR 01-20138 RMW

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PROOF OF SERVICE

I am a resident of the state of California, I am over the age of 18 years, and I am not a party to this lawsuit. My business address is Duane Morris, LLP, 100 Spear Street, Suite 1500, San Francisco, California 94105. On the date listed below, I served the following document(s):

NOTICE OF MOTION AND MOTION TO DISMISS INDICTMENT FOR LACK OF JURISDICTION

by transmitting via facsimile the document(s) listed above to the fax number(s) set forth below on this date during normal business hours. Our facsimile machine reported the "send" as successful.

by placing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, in the United States mail at San Francisco, California, addressed as set forth below.

I am readily familiar with the firm's practice of collecting and processing correspondence for mailing. According to that practice, items are deposited with the United States mail on that same day with postage thereon fully prepaid. I am aware that, on motion of the party served, service is presumed invalid if postal cancellation date or postage meter date is more than one day after the date of deposit for mailing stated in the affidavit.

John Keker
Keker & Van Nest
710 Sansome Street
San Francisco, CA 94111

by placing the document(s) listed above in a sealed envelope with postage thereon fully prepaid, deposited with Federal Express Corporation on the same date set out below in the ordinary course of business; to the person at the address set forth below, I caused to be served a true copy of the attached document(s).

Scott H. Frewing
Assistant United States Attorney
United States District Court
Northern District of California
280 South First Street
San Jose, CA 95113

by causing personal delivery of the document(s) listed above to the person at the address set forth below.

by personally delivering the document(s) listed above to the person at the address set forth below.

I declare under penalty of perjury under the laws of the State of California that the above is true and correct.

Dated: January ____, 2002

________________________________

Lea A. Chase

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TABLE OF CONTENTS

NOTICE 1

INTRODUCTION 1

BACKGROUND 2

ARGUMENT 3

A. INTERNATIONAL TRANSACTIONS CONDUCTED BY A FOREIGN CORPORATION SOLELY ON THE INTERNET ARE INHERENTLY EXTRATERRITORIAL. 3

B. CONGRESS DID NOT INTEND THE DMCA TO HAVE EXTRATERRITORIAL EFFECT. 6

C. PRINCIPLES OF DUE PROCESS PROHIBIT EXTRATERRITORIAL APPLICATION OF THE DMCA IN THIS CASE. 7

D. INTERNATIONAL LAW PRINCIPLES DO NOT SUPPORT EXTRATERRITORIAL APPLICATION OF THE DMCA. 10

1. Extraterritorial Application Does Not Satisfy International Principles. 11
a. Objective Territorial Principle 11

b. Territorial Principle 12

c. Passive Personality Principle 13

2. Extraterritorial Application Would Be Unreasonable. 14

CONCLUSION 17

_______________________________________________

TABLE OF AUTHORITIES

CASES

Allstate Ins. Co. v. Hague, 449 U.S. 302 (1981), reh'g denied, 450 U.S. 971 (1981) 8

American Civil Liberties Union v. Reno, 217 F.3d 162 (3rd Cir. 2000) 3

American Civil Liberties Union v. Reno, 929 F.Supp. 824 (E.D. Penn. 1996), aff'd 3, 4, 10, 12, 15

Bancroft & Masters Inc. v. Augusta National Inc., 223 F.3d 1082 (9th Cir. 2000) 11

Chua Han Now v. United States, 730 F.2d 1308 (9th Cir. 1984), cert. denied, 470 U.S. 1031 (1985) 1

Core-Vent Corp. v. Nobel Indus. AB, 11 F.3d 1482 (9th Cir. 1993) 11

EEOC v. Arabian Am. Oil Co., 499 U.S. 244 (1991) 6

McBoyle v. United States, 283 U.S. 25 (1931) 7

National Transportation Safety Board c. Carnival Cruise Lines, Inc., 723 F.Supp. 1488 (1989) 16

Reno v. American Civil Liberties Union, 521 U.S. 844 (1997) 4, 12, 15

See, e.g., United States v. Felix-Gutierrez, 940 F.2d 1200 (9th Cir. 1991), cert. denied, 508 U.S. 906 (1993) 1

St. Clair v. City of Chico, 880 F.2d at 199 2

Strassheim v. Daily, 221 U.S. 280 (1911) 11

Subafilms, Ltd. v. MGM-Pathe Communications Co., 24 F.3d 1088 (9th Cir. 1994) 6

Thornhill Publ'g Co., Inc. v. General Tel. & Electronics Corp., 594 F.2d 730 (9th Cir. 1979) 2

United States v. Ayarza-Garcia, 819 F.2d 1043 (11th Cir. 1987), cert. denied, Ayarza-Garcia v. United States, 484 U.S. 969 (1987) 2

United States v. Bin Laden, 92 F.Supp.2d 189 (S.D.N.Y.2000) 7

United States v. Davis, 905 F.2d 245 (9th Cir. 1990), cert. denied, 498 U.S. 1047 (1991) 6, 8

United States v. DeWeese, 632 F.2d 1267 (5th Cir. 1980), reh'g denied, 641 F.2d 879 (5th Cir. 1981), cert. denied, 454 U.S. 878 (1981) 12

United States v. Gonzalez, 810 F.2d 1538 (11th Cir. 1987) 8

United States v. Gray, 659 F.2d 1296 (5th Cir.1981) 12

United States v. Kahn, 35 F.3d 426 (9th Cir. 1994) 8

United States v. Kimbell Foods, Inc., 440 U.S. 715 (1979) 10

United States v. Loalza-Vasquez, 735 F.2d 153 (5th Cir.1984) 12

United States v. Pinto-Mejia, 720 F.2d 248 (2nd Cir. 1983), opinion modified on denial of reh'g, 728 F.2d 142 (2nd Cir. 1983) 10

United States v. Vasquez-Velasco, 15 F.3d 833 (9th Cir. 1994) 10

STATUTES

17 U.S.C. § 106 7

17 U.S.C. § 1201 2, 8, 13

17 U.S.C.A. § 602(a) (West Supp.1992) 7

18 U.S.C. §§ 2, 371 1

21 U.S.C. §§ 955a(a), 955c 9

46 U.S.C. app. § 1903(h) 6

MISCELLANEOUS

Federal Rules of Criminal Procedure, Rule 12(b) 2

Restatement (Third) of Foreign Relations Law of the United States, §§ 403,403(2) 11, 12, 14


[12 pages.]

JOSEPH M. BURTON (SB No. 142105)
STEPHEN H. SUTRO (SB No. 172168)
JON D. RUBIN (SB No. 196944)
JAMES B. DAMRELL (SB No. 201859)
DUANE MORRIS, LLP
100 Spear Street, Suite 1500
San Francisco, CA 94105
Telephone: (415) 371-2200
Facsimile: (415)371-2201

Attorneys for Defendant
ELCOMSOFT CO., LTD.

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UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

UNITED STATES OF AMERICA

Plaintiff,

v.

ELCOM LTD., a/k/a ELCOMSOFT CO., LTD. and DMITRY SKLYAROV,

Defendants.

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Case No.: CR 01-20138 RMW

NOTICE OF MOTION AND MOTION TO DISMISS COUNT ONE: CONSPIRACY

Date: March 4, 2002
Time: 9:00 a.m.
Judge: The Honorable Ronald M. Whyte

NOTICE

TO THE UNITED STATES ATTORNEY, PLEASE TAKE NOTICE that at 9:00 a.m. on Monday, March 4, 2002 or as soon thereafter as the matter can be heard, in Courtroom 6 of this Court, located at 280 South 1st Street, San Jose, California 95113, defendant Elcom, Ltd., a/k/a Elcomsoft Company, Ltd., ("Elcomsoft") will move this Court for an order dismissing Count One of the criminal indictment brought against it by the United States of America ("hereinafter the "Government").

MOTION

Elcomsoft moves pursuant to Federal Rule of Criminal Procedure 12(b) for an order dismissing Count One, Conspiracy in violation of 18 U.S.C. §371, of the indictment on the grounds that it fails to plead a sufficient cause of action. This motion is based on the Notice of Motion, Memorandum of Points and Authorities in Support of Motion, the files and records of the case, and such other argument as may be offered at the time of the motion.

POINTS AND AUTHORITIES IN SUPPORT OF MOTION

I. INTRODUCTION.

There is no conspiracy in this case. For a conspiracy to exist, the law requires that "two or more persons conspire . . . ." 18 U.S.C. § 371. Even if taken as true, the Government’s indictment does not make such an allegation.

This is because the indictment alleges an intracorporate conspiracy. That is the indictment alleges that Elcomsoft, a corporation, "conspired" with its own employee, Dmitry Sklyarov, to violate American law. At the time of this so-called "conspiracy," Sklyarov was acting on behalf of Elcomsoft within the scope of his duties and responsibilities; he was in Moscow developing software for the company to sell on the internet. As such, Sklyarov’s acts were, by law, the acts of Elcomsoft. And because by law Sklyarov’s (and any other employee’s) acts are the acts of a single entity, it cannot be said that "two or more" persons have conspired here. The required "plurality," for a conspiracy does not exist.

This is the conclusion warranted by the plain reading of 18 U.S.C. § 371 and the doctrine of corporate unity, which recognizes that a corporation can not conspire with its own employees. Many courts have observed this doctrine in the civil setting, See section III.B.3.a, and at least two federal appellate courts have applied this analysis in the criminal setting. See United States v. Suntar Roofing, 897 F.2d 469, 476 (10th Cir. 1990) (finding that employee’s "participation could not support a conspiracy conviction" because he was "an employee of Suntar [the corporate defendant]" and arguing that the "participation [of multiple corporate employees] could not support a conspiracy conviction of [their] employer"); United States v. Notarantonio, 758 F.2d 777, 789 (1st Cir. 1985) (finding "the plurality of actors necessary to establish a conspiracy. . . present" because the conspiracy was not wholly intracorporate).

Elcomsoft does not quarrel with the longstanding proposition that a corporation may be convicted of criminal conspiracy based upon the acts of its employees for which the corporation is held to "stand in [their] shoes" under the doctrine of vicariously liability. See, e.g., Gardner v. Equitable Office Bldg. Corp., 273 F. 441, 447 (2d Cir. 1921) ("[D]uring the agency . . . the agent represents, and stands in the shoes of his principal"). But that analysis simply does not apply here.

Under the indictment in this case, Elcomsoft is not merely converted into one of the conspirators. But because the indictment alleges an intracorporate conspiracy only, Elcomsoft becomes identical to and stands in the shoes of all of the conspirators. In other words, there is only one conspirator: Elcomsoft, acting, as it only can, through its employees.

Fortunately for Elcomsoft, the law does not impose criminal liability upon a corporation that conspires with itself. Indeed, as noted earlier, the statutory language unambiguously requires that "two or more persons conspire . . . ." But even if it could be said that some sort of ambiguity was present which arguably allowed such a prosecution (there is not), under the rule of lenity this Court is "required to give effect to the more lenient interpretation. . . even were [the Court] to prefer the more stringent interpretation." United States v. Baxley, 982 F.2d 1265, 1270 (9th Cir. 1992).

Because, as a matter of law no conspiracy has been alleged, Elcomsoft respectfully requests that the Court grant its motion and dismiss Count One of the indictment.

II. BACKGROUND.

The indictment alleges that Elcomsoft is a company headquartered in Moscow, Russia, primarily involved in software development. (Indictment, pg. 1, lines 25-26).

The Government alleges that Dmitry Sklyarov is an employee of Elcomsoft as a software engineer and cryptanalyst. (Indictment, pg. 2, lines 2-3).

The indictment alleges that prior to June 20, 2001, Mr. Sklyarov and "others" wrote the AEBPR. (Indictment, pg. 2, lines 21-22). The indictment alleges that Elcomsoft, Mr. Sklyarov and "other persons" created the AEBPR program to permit users to circumvent copyright protections from ebook files. (Indictment, pg. 3, lines 23-25).

Elcomsoft is alleged to have made the AEBPR program available for purchase on Elcomsoft.com. (Indictment, pg. 3, lines 26-27). Elcomsoft, Mr. Sklyarov and "other persons" are said to have marketed and trafficked the AEBPR program on that website. (Indictment, pg. 3, lines 26-28). Elcomsoft, Mr. Sklyarov and "other persons" then allegedly made the AEBPR program available for download on a computer server in Chicago, Illinois, and for sale for $99. (Indictment, pg. 4, lines 1-3 and 7-11).

III. DISCUSSION.

A. STANDARD OF REVIEW.

A motion to dismiss for failure of the indictment to sufficiently allege a crime is permitted under Federal Rule of Criminal Procedure Rule 12(b). Such a motion can be made at any time during the proceedings. Rule 12(b) provides: "Any defense, objection, or request which is capable of determination without the trial of the general issue may be raised before trial by motion. The following must be raised prior to trial: (1) Defenses and objections based on defects in the institution of the prosecution; or (2) Defenses and objections based on defects in the indictment or information."1

1 A motion challenging the adequacy of an indictment is in effect the equivalent of a civil demurrer. United States v. American Oil Company, 286 F. Supp. 742, 746 (D.N.J. 1968).

The sufficiency of an indictment is determined by three factors: "(1) whether it contains the necessary elements of the crime alleged, (2) whether it informs the defendants of the crime charged with sufficient clarity to allow them to adequately defend against the charges, and (3) whether it is stated with the sufficient clarity to bar subsequent prosecution for the same offense." United States v. Boone, 951 F.2d 1526, 1542 (9th Cir. 1991); United States v. Buckner, 610 F.2d 570, 573 (9th Cir. 1979), cert. denied, 455 U.S. 961 (1980).

To allege conspiracy under 18 U.S.C. 371, an indictment must show the three elements necessary for conspiracy: "the agreement, the unlawful object towards which the agreement is directed, and an overt act in furtherance of the conspiracy." United States v. Giese, 597 F.2d 1170, 1177 (9th Cir. 1979). In analyzing whether an indictment has accomplished these requirements, the allegation should be questioned in a manner "to be construed according to common sense with an appreciation of existing realities." Id. at 1178.

B. A CONSPIRACY COULD NOT EXIST UNDER THE ALLEGED FACTS AS A MATTER OF LAW.

As explained below, no conspiracy exists in this case because the law requires that "two or more persons conspire . . . ." and Elcomsoft cannot conspire with its one named employee (Dmitry Sklyarov). Moreover, even if the indictment properly identified other Elcomsoft employees who are allegedly part of the charged "conspiracy," the law would still preclude prosecution because under the doctrine of corporate unity because the acts of Elcomsoft’s employees are the acts of Elcomsoft itself.

1. 18 U.S.C. § 371 Requires Two or More Conspirators.

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Title 18, section 371 of the United States Code provides in pertinent part:

Section 371. Conspiracy to commit offense or to defraud United States

If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both. . . . (Emphasis added).

Plainly, a conspiracy requires two or more persons, not just a single actor. This is because the danger presented by a conspiracy is the agreement to violate the law something that simply does not exist if there is only one actor:

The threat posed to society by [conspiratorial] combination arises from the creative interaction of two autonomous minds. It is for this reason that the essence of a conspiracy is an agreement. The societal threat is of a different quality when one human simply uses the corporate mechanism to carry out his crime. The danger from agreement does not arise.

United States v. Stevens, 909 F.2d 431, 433 (11th Cir. 1990).

2. The Charged Conspiracy Between Elcomsoft and Dmitry Sklyarov Is Legally Insufficient.

It is clear beyond virtually all doubt that a conspiracy can not exist between a corporation and only one of its employees. Notwithstanding this, from time to time, the Government has attempted to prosecute such "conspiracies." These prosecutions have not met with success. See, e.g., Union Pacific Coal Co. v. United States, 173 F. 737, 744-745 (8th Cir. 1909) (Court precluded the prosecution and held that "the distinction between the commission of an offense and a combination to commit it by a corporation vanishes into thin air; for a corporation can act only by an agent, and every time an agent commits an offense within the scope of his authority under this theory the corporation necessarily combines with him to commit it"); United States v. Carroll, 144 F. Supp. 939, 942 (S.D.N.Y. 1956) (Court dismissed the indictment, noting that the actionability of a conspiracy in that case "would mean that any individual corporate officer, who committed an illegal act within the framework of his corporate duties, also conspired with the corporation to commit that act"); United States v. Stevens, supra, 909 F.2d at 434 (one employee conspiracies do not involve "interaction between multiple autonomous actors" and thus no actionable criminal conspiracy); United States v. Peters, 732 F.2d 1004, 1008, n. 6 (1st Cir. 1984) (a "corporate officer, acting alone on behalf of the corporation, could not be convicted of conspiring with the corporation"); United States v. Sain, 141 F.3d 463 (3rd Cir. 1998) ( "a corporation is a conspirator only pursuant to respondeat superior liability. In United States v. Hughes, 20 F.3d 974 (9th Cir. 1994) the Ninth Circuit determined that a corporation could be a member of a conspiracy involving only its own employees, but it recognized that in such a case a conspiratorial agreement must first exist between at least two employees before the company may legally be charged and convicted as a co-conspirator.

The indictment in this case alleges a conspiracy between Elcomsoft and only one of its employees, Dmitry Sklyarov. This is legally insufficient. While the indictment does refer to "other persons," these "others" are no where identified in the indictment. While the government is permitted to allege the existence of other unindicted or unnamed conspirators, indictments in such circumstances have always alleged identified co-conspirators sufficient enough to legally constitute a conspiracy. That is the charging of unnamed co-conspirators has always occurred where the named conspirators are sufficient to constitute a legal conspiracy. Here, the named co-conspirators are not sufficient in and of themselves to constitute a conspiracy and thus any reliance by the government on the "other" language can not save Count One.

3. Even If the Government Properly Alleged a Conspiracy Between Elcomsoft and Multiple Employees, the Indictment Would be Legally Insufficient.

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Federal courts have adopted a "single entity" bar to corporate conspiracy in a variety of civil settings. See, e.g., Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 769 (1984) (antitrust); Travis v. Gary Community Mental Health Ctr., 921 F.2d 108, 109-111 (7th Cir. 1990), cert. denied 502 U.S. 812 (1991) (civil rights); Odishelidze v. Aetna Life & Cas. Co., 853 F.2d 21, 23 (1st Cir. 1988) (RICO); Atkinson v. Anadarko Bank & Trust, 808 F.2d 438, 441 (5th Cir. 1987) (RICO); Buschi v. Kirven, 775 F.2d 1240, 1251-53 (4th Cir. 1985) (civil rights); Doherty v. American Motors Corp., 728 F.2d 334, 339-40 (6th Cir. 1984) (civil rights); Girard v. 94th Street & Fifth Ave. Corp., 530 F.2d 66, 70-72 (2d Cir. 1976), cert. denied 425 U.S. 974 (1976) (civil rights); Chapman v. Rudd Paint & Varnish Co., 409 F.2d 635, 643 n.9 (9th Cir. 1969) (antitrust).

In the criminal context, the Tenth Circuit has expressed the view that an agreement that involved employees of only a single corporation could not give rise to an actionable criminal conspiracy. Suntar Roofing, supra, 897 F.2d 469 (10th Cir. 1990). In Suntar Roofing, a conspiracy was charged between a corporation and its president. Three unindicted individuals were the defendants’ alleged coconspirators. In analyzing the possible involvement of one unindicted coconspirators, the court held that "his participation could not support a conspiracy conviction" because he was "an employee of [the employer] Suntar" and the "participation [of multiple employees] could not support a conspiracy conviction of [the] employer." Id. at 476.2

2 Indeed, the district court in Suntar had instructed the jury that neither the corporation nor its president could be convicted of a conspiracy between each other and that the law required the involvement of another natural person; the Tenth Circuit stated that this instruction accurately summarized the law of conspiracy. Id. at 474.

Similarly, although not addressing the issue directly, in Notarantonio, supra, 758 F.2d 777 (1st Cir. 1985), the First Circuit upheld a conspiracy conviction only because one conspirator (a cousin) was not employed with the corporation. The court held that only for this reason was "the plurality of actors necessary to establish a conspiracy . . . present." Id. at 789. This language makes plain that the court would have overturned the conspiracy conviction if the sole conspirators were employees of the company.

Admittedly, some other courts, including the Ninth Circuit, have reached a different conclusion in the criminal context, relying principally on United States v. Hartley, supra, 678 F.2d 961 (11th Cir. 1982), a decision that not surprisingly has since been abrogated by the Eleventh Circuit. United States v. Goldin Industries, 219 F.3d 1268, 1270 (11th Cir. 2000). Cf. United States v. Ames Sintering Co., 927 F.2d 232, 236 n.2 (6th Cir. 1990) (following Hartley); United States v. Peters, 732 F.2d 1004, 1008 (1st Cir. 1984) (same). Indeed, the suspect reasoning of Hartley is apparent.

The Hartley court apparently based its decision on cases involving civil rights conspiracies that had upheld liability notwithstanding their intracorporate nature. Hartley, supra, 678 F.2d at 970-71 (citing Novotny v. Great Am. Fed. Sav. & Loan Ass'n, rev’d 584 F.2d 1235 (3rd Cir. 1978), 584 F.2d 1235 (3rd Cir. 1978) and two district court 42 U.S.C. § 1985 cases). The Hartley court disregarded the fact that the vast majority of civil rights cases had reached the opposite result expressly rejecting conspiracies that were intracorporate. Id. at 971 n.14. Other cases relied upon by the Hartley court offered paltry support for the court’s holding.3 In fact, the Supreme Court has embraced the view criticized by Hartley. See, e.g., Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767-71 (1984). Plainly, more and more courts are viewing the Hartley court’s reasoning with skepticism.

3 The Court cited and relied upon (1) Justice Harlan's policy-related concurrence in United States v. Wise, 370 U.S. 405, 417 (1962); (2) the Court's decision in United States v. Consolidated Coal Co., 424 F. Supp. 577, 579-81 (S.D. Ohio 1976) which was based in part upon Justice Harlan's concurrence in Wise, and where the court conceded that at least one district court had held otherwise; and (3) dicta in Dussouy v. Gulf Coast Investment Corp., 660 F.2d 594 (5th Cir. 1981), a case decided under Louisiana antitrust law. See Hartley, supra, 678 F.2d at 970-72. None of these cases were controlling.

In light of Hartley’s weaknesses, the Government likely will rely upon the Ninth Circuit’s decision in Hughes, supra, 20 F.3d 974, 979, to justify its charged intracorporate conspiracy. Elcomsoft is aware of the Ninth Circuit’s opinion in United States v. Hughes, 20 F.3d 974 (9th Cir. 1994) (cert. denied 513 U.S. 987 (1994). However, that case involved and the indictment alleged a conspiracy between the corporation and two other identified persons. As discussed earlier, no such allegation is made here. Moreover, the Hughes opinion is not well reasoned. In reaching its decision that the corporation could be charged with criminal conspiracy involving only its employees, the Hughes court relied primarily on the Hartley case, did not consider the legal doctrine of "corporate unity," and jumped to conclusions that simply were not true. For example, the Hughes court claimed that the intracorporate conspiracy doctrine had never been applied to criminal cases. Hughes Aircraft, 20 F.3d at 979. Suntar Roofing and Notarantonio (cases decided before Hughes) disprove this conclusion. The Court in Hughes, however, cited cases that relied upon Hartley (e.g., Peters, supra, 732 F.2d at 1008 and Ames Sintering, supra, 927 F.2d at 236 ), cases that were not decided under federal law (Dussouy, supra, 660 F.2d at 603 [decided under Louisiana antitrust law]), or cases that just plain did not stand for the proposition cited. Stevens, supra, 909 F.2d 431, 434 (11th Cir. 1990) (reversing the intracorporate conspiracy conviction and distinguishing Hartley).4 Accordingly, the Hughes decision is weak precedent at best.

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4 The misguided nature of the Hughes opinion is apparent based on its cavalier statement that its holding was consistent with "[e]very other circuit to address the issue." Hughes, 20 F.3d at 979. That is not true. See, e.g. Suntar Roofing, supra, 897 F.2d at 476; Notarantonio, supra, 758 F.2d at 789.

The bottom line is that there can be no corporate conspiracy charge when an agreement between a corporation’s employees is all that is charged. First, as set forth above, "two or more persons" must conspire under 18 U.S.C. section 371. Under basic agency principles, Elcomsoft is identical to and stands in the shoes of each of the alleged conspirators, so plurality is not present.

Moreover, 18 U.S.C. section 371 permits "each" participant to a conspiracy to be convicted. By its terms, of course, a person who is not a party to a conspiracy may be convicted. Accordingly, because Elcomsoft is not "each" of the two or more persons, Elcomsoft cannot be prosecuted under the statute.

Accordingly, 18 U.S.C. 371 does not impose vicarious corporate liability for intracorporate agreements between the corporation’s employees. It is fundamental to our system of justice that before a criminal defendant can be convicted, "it must be shown that his case is plainly within the statute." Fasulo v. United States, 272 U.S. 620, 629 (1926). The Government has not and cannot do so in this case.

C. THE INDICTMENT IS OTHERWISE FLAWED.

Separate and apart from the fundamental deficiencies set forth above, the Government has failed to allege that the participants to the conspiracy had knowledge of the conspiracy involved. Knowledge is an essential element to a finding of conspiracy. See United States v. Krasovich, (9th Cir. 1987) 819 F.2d 253, 255; United States v. Melchor-Lopez, (9th Cir. 1980) 627 F.2d 886, 891. This is particularly true in the employee/employer context. To find an employee liable for conspiracy in assisting their employer in a criminal enterprise, the Government must show they had knowledge of the illegality of the tasks asked of them by their employer. Baker v. United States, (9th Cir.) 393 F.2d 604, 609, cert. denied, 476 U.S. 1186 (1986) Knowledge of the existence of a conspiracy beyond the normal scope of duties is required to find an employee guilty of co-conspiracy. Baker at 609.

The Government has not indicated in its indictment whether Sklyarov or any other conspirator had knowledge that their actions in the scope of their employment were illegal or contributing to an illegal enterprise. There is no allegation of that sort, nor is there any basis to allege such knowledge on their part. For that reason as well, the indictment is deficient and the conspiracy count should be dismissed.

IV. CONCLUSION.

For all of the foregoing reasons Elcomsoft respectfully requests that the Court dismiss Count One of the indictment against it.

Dated: January 14, 2001

______________________________________

DUANE MORRIS, LLP

By: ___________________________________

JOSEPH M. BURTON
Attorneys for Defendant
ELCOMSOFT CO., LTD.

[Proof of service same as above omitted.]

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