Prior to the enactment of the NET Act in 1997, copyright infringement for a non-commercial purpose was apparently not punishable by criminal prosecution, although non-commercial infringers could be sued in a civil action by the copyright holder to recover damages. At that time, criminal prosecutions under the copyright act were possible only when the infringer derived a commercial benefit from his or her actions. This state of affairs was underscored by the unsuccessful 1994 prosecution of David LaMacchia, then a student at the Massachusetts Institute of Technology, for allegedly facilitating massive copyright infringement as a hobby, without any commercial motive. The court's dismissal of United States v. LaMacchia suggested that then-existing criminal law simply did not apply to non-commercial infringements (a state of affairs which became known as the "LaMacchia Loophole"). The court suggested that Congress could act to make some non-commercial infringements a crime, and Congress acted on that suggestion in the NET Act.
The NET Act amends the definition of "commercial advantage or private financial gain" to include the exchange of copies of copyrighted works even if no money changes hands and specifies penalties of up to five years in prison and up to $250,000 in fines. It also creates a threshold for criminal liability even where the infringer neither obtained nor expected to obtain anything of value for the infringement.
The act raised the levels of statutory damages in civil cases to $750 - $30,000 per work (and up to $150,000 per work in case of willful infringement).