United States of America, Plaintiff-appellant, v. John M. Brown, Defendant-appellee, 925 F.2d 1301 (10th Cir. 1991)

The United States appeals from a dismissal by the district court of an indictment charging the defendant, John M. Brown, with three counts of violations of the National Stolen Property Act, 18 U.S.C. §§ 2314 and 2315.¹  The indictment was dismissed on the ground that the allegedly stolen property, a computer program in source code form, did not come within the ambit of 18 U.S.C. §§ 2314 and 2315 as goods, wares or merchandise. We affirm.

* At the hearing on the motion to dismiss the indictment, government counsel stated that defendant Brown worked as a computer programmer for The Software Link, Inc. (hereinafter TSL), a computer software company located in Georgia (II R. 31). One asset of TSL was a computer program known as PC-MOS/386.²  Later in New Mexico, Brown was the subject of an FBI investigation which culminated in the issuance and execution of a search warrant for his apartment. During the search of Brown's residence, the FBI discovered five three-ring notebooks and a hard disk³  which contained portions of the source code⁴  for the PC-MOS/386 program. II R. at 47.

A grand jury returned a three count indictment on November 16, 1989, charging Brown in one count with violating 18 U.S.C. § 2314 and in two counts with violating 18 U.S.C. § 2315.⁵  At a pretrial motion hearing, the district judge granted a motion to dismiss made by the defendant.⁶  The judge based his decision primarily on Dowling v. United States, 473 U.S. 207, 216, 226, 105 S. Ct. 3127, 3132, 3137, 87 L. Ed. 2d 152 (1985), which held that Sec. 2314 does not apply to crimes which involve mere copyright infringement and emphasized the fact that cases under Sec. 2314 have always involved "physical 'goods, wares [or] merchandise' " that have themselves been "stolen, converted or taken by fraud."

II

The procedural handling of the case below is questioned. In the pretrial stage of the proceedings, Brown filed a motion to dismiss. The motion alleged that upon his termination from TSL, the company shipped his materials from Georgia to his home in New Mexico; that these included his backup tapes, owned by him; that when packaged, the source code, PC-MOS/386, was on the tapes; that material from the government provided to defendant indicates the source code is copyright material belonging to TSL. The motion concluded that the source code was "intellectual property" and that the infringement the government alleges implicates complex copyright interests, and that this intellectual property cannot constitute goods, wares or merchandise under the National Stolen Property Act. For reasons that might appear at a full hearing, defendant asked that his motion to dismiss be granted.

In ruling on the motion the trial judge did not consider solely the face of the indictment in determining its sufficiency, but instead conducted an evidentiary hearing. The court suggested having a factual predicate established to show what happened physically in this case; neither the government nor the defendant objected to that procedure. II R. 39-40.⁷  Three witnesses were allowed to testify at this hearing and one exhibit was introduced in evidence by the government. The trial judge concluded the motion hearing by dismissing the indictment.

"An indictment is sufficient if it (1) contains the essential elements of the offense intended to be charged, (2) sufficiently apprises the accused of what he must be prepared to defend against, and (3) enables the accused to plead a judgment under the indictment as a bar to any subsequent prosecution for the same offense." United States v. Kilpatrick, 821 F.2d 1456, 1461 (10th Cir. 1987), aff'd sub nom. Bank of Nova Scotia v. United States, 487 U.S. 250, 108 S. Ct. 2369, 101 L. Ed. 2d 228 (1988). Arguing the facial sufficiency of the indictment, the government's Reply Brief on appeal says that the indictment here listed items specifically and physically related to the source code, which was physically possessed, stolen and transported to New Mexico. See note 5, supra. The government contends that it "is not for this court or the trial court to determine whether the facts support a conviction at this juncture." This is for the jury. Appellant's Reply Brief at 1-2.

This, however, is not the ordinary case arising on a motion to dismiss the indictment, as under Rule 12(b), Fed. R. Crim. P., for failure to state an offense. Here the parties both presented evidence and raised no objection to the judge's consideration of the facts. These circumstances are similar to those in United States v. Risk, 843 F.2d 1059 (7th Cir. 1988). Risk was charged with failure to file Currency Transaction Reports for transactions involving more than $10,000, in violation of 31 U.S.C. §§ 5313 and 5322, 31 C.F.R. Part 103 and 18 U.S.C. § 2. Through discovery, the government gave Risk access to the documents presented to the grand jury that indicted him and Risk appended these documents to his motion to dismiss. The government's response to this motion conceded that the facts as presented by Risk were " 'essentially accurate [ ].' "⁸  The facts developed showed that although Risk had been involved in transactions which in the aggregate totaled well over $10,000, no single transaction involved over $9,800.

In Risk, the district court held that the indictment was facially sufficient but that the facts developed could not establish a violation of the statute underlying the indictment. Risk, 843 F.2d at 1061. The government argued that the district court erred both procedurally and substantively in dismissing the case, exceeding its authority under Rule 12(b) by relying on incomplete facts. The Seventh Circuit stated that Rule 12(b) allows pretrial determination of any motion which can be resolved without trial of the general issue. Additionally, it was noted that Rule 12(e) allows the court to consider factual issues in determining a pretrial motion.⁹  Id.; see United States v. Coia, 719 F.2d 1120, 1123 (11th Cir. 1983), cert. denied, 466 U.S. 973, 104 S. Ct. 2349, 80 L. Ed. 2d 822 (1984).

We find no procedural error here. Ordinarily the sufficiency of an indictment should be decided solely by the charges made in the indictment, without regard to the strength or weakness of the government's case. Risk, 843 F.2d at 1061. However, in circumstances like those in Risk or in the instant case, it is permissible and may be desirable where the facts are essentially undisputed, for the district court to examine the factual predicate for an indictment to determine whether the elements of the criminal charge can be shown sufficiently for a submissible case. In any event, here the government's procedural objection is untimely. "Now it is too late." Risk, 843 F.2d at 1061.III

We turn now to the charges of the indictment and to the evidentiary hearing on the motion to dismiss, including statements by counsel and testimony of witnesses, which developed essentially undisputed facts.

The indictment was stated in three counts. Count I alleged that Brown violated 18 U.S.C. § 2314, in February 1989 by transporting interstate, from Georgia to New Mexico, "computer programs, software and manuals, to wit: a computer program with source code PC-MOS/386 an exclusive product of The Software Link, Inc., (TSL), such items having a value of $5,000.00 or more." I R. Doc. 1 at 1. Count II alleged that Brown violated 18 U.S.C. § 2315 on July 28, 1989 because he "knowingly possessed, concealed, stored, sold and disposed of computer programs, software and manuals, to wit: a computer program with source code PC-MOS/386 ... which had crossed a state or United States boundary after being stolen." Id. at 1-2. Count III was virtually identical to Count II, except that the date was August 2, 1989 and the "sold and disposed of" language was deleted. Id. at 2.

The primary focus of the hearing on the motion to dismiss was on the applicability of Dowling to the case. Brown argued that Dowling applied because the government was not "complaining that Mr. Brown took a physical object from this company in Georgia and transported it in interstate commerce" but instead that he took a source code and transported it. II R. at 24.

The government attempted to distinguish this case from Dowling, arguing that

[t]he major distinction in this case ... [is that the] source code took 15 years to develop by TSL. It is not something that Mr. Brown could have gone to TSL, talked to the engineers, talked to the computers, even if he is extremely literate and perhaps brilliant in the area of computer programming, left that area, not taken anything physically that was not his, come to New Mexico and recreated it.

Id. at 27.

Brown claimed that the government could at most show that a copy of the program was made at TSL and was then transported in interstate commerce. Id. at 33. The court questioned this characterization of the government case since the indictment did not state that only a "copy" was involved. Id. In an attempt to clarify the government's position, the court asked the prosecutor to describe what its proof would show as to "how the program got to New Mexico" or, specifically, what Brown did "physically to acquire the program in Georgia." Id.

The government reply was that "TSL has it in their computers. He acquired that, and he could either have done it on a floppy disk or a tape or a hard disk and brought that with him to New Mexico." Id. at 35. The district judge asked: "Will the government prove that it was not [sic] the company's hard disk that was brought, physically?" The prosecuting attorney stated that she did "not believe the government can prove that TSL owned hard disk A and he stole hard disk A. I don't believe we can prove that." Id. at 36. The court then stated that since the government could not prove that, "we have to assume that a copy was made." Id. The prosecutor responded " [t]hat's correct," but argued that it made no difference because "he still knows that it is not something that he has a right to take." Id.

The government again attempted to distinguish Dowling by emphasizing that Dowling involved recordings made "off of something that's open to the public", while in the instant case the source code was "removed from things that the victim thought they had protected ...." Id. at 37. The court questioned as to "whether or not [something is] property depends on the method in which it's captured?" Id.¹⁰  The court then directed both counsel to establish "a factual predicate ... to show ... what happened physically, and what physical objects were acted upon to bring the program to New Mexico." Id. at 39.

The government's first witness was Mr. Klossner, a special agent and local information systems administrator for the FBI in Albuquerque, who was present at the execution of the search warrant at Brown's apartment. Id. at 42. He stated that Mr. Roark, co-chairman of TSL and co-developer of PC-MOS/386, identified the source code from Brown's hard disk and bound paper printouts as being part of PC-MOS/386. Id. at 46. The judge attempted to determine the origin of this seized material by asking if the witness had "any information whatsoever insofar as the material that is contained in the five three-ring binders, that this was original material belonging to Software Link?" Id. at 51. Klossner replied that "it doesn't make sense to talk about original material." Id. Klossner further stated that he did not understand that Roark was indicating that the hard disk found in Brown's apartment, the physical object itself, was the property of TSL. Id. at 57. Klossner understood that Roark was saying that "the source code, the electronic signals on the hard disk, were the property of TSL, and the material, the source code as printed out in the binder were the property of TSL." Id. at 58.

The next government witness was FBI agent Gariay. He testified briefly about a tape recording, a transcript of which was offered into evidence. The recording was of a telephone conversation between Brown and Ben Brady. Brady was a cooperating witness for the government, who was to receive copies of the stolen source code.¹¹  Gariay testified that to his knowledge, Brown was discussing his appropriation of the source code itself. Id. at 65. When asked if these printouts could have been generated by Brown's own computer in Albuquerque, the witness stated that he had "no idea." Id. at 65.

The final witness was a defense witness, Peter Ives, who is an attorney specializing in intellectual property and computer law. Ives testified that " [t]he source code itself, under the copyright law, exists separate and apart from the tangible embodiment of that work." Id. at 68. Ives continued that " [t]he source code itself ... is essentially an intangible which then, for purposes of distribution and the like, would be put into some sort of tangible form as was discussed, disks, et cetera." Id. at 70. Ives concluded by agreeing with defense counsel's suggestion that the source code on a floppy disk was analogous to a song on a phono record. Id. at 72.

At this point the trial judge made his ruling "based upon the rationale in Dowling." Id. at 72. The court found that the source code contained in the printouts in the binders, and which was contained in the hard disk, "is not the type of property which is contemplated ... within the language of the statute, goods, wares or merchandise." Id. at 73. Furthermore, the court noted that it took "into consideration that which Dowling discusses, and that is [,] that a criminal statute must be construed strictly." Id. at 73. A brief written order followed this ruling, giving no further reasons, but stating that the indictment was "dismissed in its entirety." I R. Doc. 21.

IV

In Dowling, the defendant was convicted under Sec. 2314 of the National Stolen Property Act following his distribution of "bootleg" phonograph recordings of Elvis Presley vocalizations, the copyrights for which were owned by other persons.¹²  The Court reasoned that crimes involving copyright violations could be dealt with through a variety of means, chiefly civil, and that it was not Congress' intention that the National Stolen Property Act function as a criminalization of copyright infringement. Id. at 216-18, 105 S. Ct. at 3132-34. The Court noted that the courts have never required that the items stolen and transported remain in entirely unaltered form. The Court emphasized, however, that:

[T]hese cases and others prosecuted under Sec. 2314 have always involved physical "goods, wares, [or] merchandise" that have themselves been "stolen, converted or taken by fraud." This basic element comports with the common-sense meaning of the statutory language: by requiring that the "goods, wares, [or] merchandise" be "the same" as those "stolen, converted or taken by fraud," the provision seems clearly to contemplate a physical identity between the items unlawfully obtained and those eventually transported, and hence some prior physical taking of the subject goods.

473 U.S. at 216, 105 S. Ct. at 3132 (emphasis added). This essential ingredient of the statute--the involvement of physical "goods, wares, [or] merchandise" that were themselves "stolen, converted or taken by fraud"--was missing in Dowling and is likewise missing here.

The government argues that the case before us is distinguishable from Dowling primarily because the recordings in Dowling were taken off of the radio. Members of the public are allowed to listen to these recordings when broadcast and to make a copy for their own personal use, but not to make numerous copies and sell them commercially, as Dowling did. See Sony Corp. v. Universal City Studios, Inc., 464 U.S. 417, 104 S. Ct. 774, 78 L. Ed. 2d 574 (1984). Dowling involves a bare copyright violation, since Dowling merely used recordings which he possessed legally, in a manner which went beyond what was permissible. In the instant case, however, the government says that an actual taking occurred because the "source code" which was found in Brown's apartment was never released to anyone outside TSL. The program, therefore, had to have been originally physically taken from TSL through illicit means.¹³ 

As noted, Dowling holds that Sec. 2314 applies only to physical "goods, wares or merchandise." Purely intellectual property is not within this category. It can be represented physically, such as through writing on a page, but the underlying, intellectual property itself, remains intangible.¹⁴  It is true that the intellectual property involved in the instant case was more nearly "stolen, converted or taken by fraud" in the sense that it was at no time freely presented to the public as had been the recordings in Dowling.¹⁵  In fact, the government says here that Brown himself, although a programmer at TSL, did not have authorized access to the PC-MOS/386 source code file. II R. at 58. This point, however, is not dispositive of the critical issue under Dowling. Here we agree that the property, PC-MOS/386, does not meet the requirement of Secs. 2314 and 2315 respecting "goods, wares, or merchandise." We hold that the computer program itself is an intangible intellectual property, and as such, it alone cannot constitute goods, wares, merchandise, securities or moneys which have been stolen, converted or taken within the meaning of Secs. 2314 or 2315.

The recent case of United States v. Riggs, 739 F. Supp. 414 (N.D. Ill. 1990), was cited by the government as supplemental authority for the proposition that source codes can be described as goods, wares, or merchandise. Mr. Riggs was convicted under 18 U.S.C. § 2314 for the theft of an electronic text file owned by Bell South. A text file is very similar to a source code file in most respects. Riggs stole the text file by accessing the Bell South computer and transferring the text file over phone lines to his own computer. No physical item was taken from Bell South.

The district court reasoned that "if the information in Bell South's E911 text file had been affixed to a floppy disk, or printed out on a computer printer, then [defendant's] transfer of that information across state lines would clearly constitute the transfer of 'goods, wares, or merchandise' within the meaning of Sec. 2314." Id. The district court found "no reason to hold differently simply because [defendant] stored the information inside computers instead of printing it out on paper. In either case, the information is in a transferrable, accessible, even salable form." The court further reasoned that "reading a tangibility requirement into the definition of 'goods, wares, or merchandise' might unduly restrict the scope of Sec. 2314, especially in this modern technological age." The court found that " [t]he accessability of the information in readable form from a particular storage place also makes the information tangible, transferable, salable and, in [the district] court's opinion, brings it within the definition of 'goods, wares, or merchandise' under Sec. 2314." Id. at 422.

We disagree. We feel that the Riggs interpretation of the statute is in error in light of the Supreme Court's focus on "physical 'goods, wares [or] merchandise' that have themselves been 'stolen, converted or taken by fraud,' " 473 U.S. at 216, 105 S. Ct. at 3132. The element of physical "goods, wares, or merchandise" in Secs. 2314 and 2315 is critical. The limitation which this places on the reach of the National Stolen Property Act is imposed by the statute itself, and must be observed. See Dowling at 218, 226, 105 S. Ct. at 3133, 3137.

"Federal crimes, of course, 'are solely creatures of statute ...,' " Dowling, 473 U.S. at 213, 105 S. Ct. at 3131 (citations omitted). The language of the statutes involved here does not support the government's broad-ranging interpretation of Secs. 2314 and 2315, and even if this were less apparent, the ambiguity concerning the ambit of the criminal statutes should be resolved in favor of lenity. See Rewis v. United States, 401 U.S. 808, 812, 91 S. Ct. 1056, 1059, 28 L. Ed. 2d 493 (1971). Since the government could not establish that the defendant had transported, transmitted or transferred in interstate commerce (Sec. 2314), or received, possessed, concealed, stored, bartered, sold or disposed of (Sec. 2315) any physical "goods, wares or merchandise ...," the indictment was properly dismissed.

AFFIRMED.