Court-Ordered Restitution Vacated in Criminal Copyright Infringement Case, Based on Lack of Relevant Evidence

On November 9, 2012, the United States Court of Appeals for the District of Columbia Circuit (D.C. Cir.) vacated a district court's decision to impose a restitution penalty against Defendant Gregory Fair ("Defendant Fair") in favor of Adobe Systems in the amount of $734,098. U.S.A. v. Gregory William Fair, No. 09-3120, slip op. at 2 (D.C. Cir. Nov. 9, 2012) (appealing from Crim. A. No. 1:09-cr-00089-1 (D.D.C.) - Pacer login required). The D.C. Circuit concluded that the district court had abused its discretion by awarding restitution, when the government failed to meet its burden to prove the amount of Adobe's losses.
 
The Mandatory Victims Restitution Act (18 U.S.C. § 3663A) ("MVRA") – upon which this restitution award was based – provides that victims of certain crimes may be awarded restitution to compensate them for their actual losses that resulted from the defendant's crime. In this case, however, the government only introduced evidence of what Defendant Fair's actual sales were – and based its request for restitution on that amount. It did not introduce any evidence that Adobe Systems had lost sales as a result of this criminal activity, or that its sales were diverted to Defendant Fair.

Underlying Facts

Defendant Fair pled guilty to charges of criminal copyright infringement (18 U.S.C. § 2319, 17 U.S.C. § 506(a)(1)(a)) and mail fraud (18 U.S.C. § 1341), after spending more than six years (Feb. 2001-Sept. 2007) selling counterfeit copies of outdated Adobe software and upgrade codes on eBay, which allowed his customers to obtain full copies of the current versions of these programs at a fraction of the regular price. Opinion at 3. "For example, a customer could first buy a pirated copy of outdated PageMaker software and an upgrade code from [Defendant] Fair for around $125 and then pay around $200 to Adobe Systems to upgrade to the most current version. The total price paid, around $325, would be less than half of the retail price of the authentic up-to-date Adobe program (approximately $700)." Id. at 2.

According to evidence presented at trial of the completed eBay transactions that filtered through PayPal, "[Defendant] Fair received, and he admitted receiving, approximately $1.4 million from his sales of pirated software on eBay." Id. at 3. When Defendant Fair objected to the restitution claim, he initially sought a reduction to $455,000, the amount which he had actually withdrawn in currency from the PayPal account. Id.
   
Following the plea agreement, the district court sentenced Defendant Fair to 41 months' imprisonment and three years' supervised release – and ordered the $743,098.99 restitution payment to Adobe Systems (the balance of the amount identified on the government's spreadsheet, less the $24,367 that the Postal Service had already released to Adobe Systems). Id. at 5.

Defendant Fair's counsel argued that Adobe Systems was capable of distinguishing between its regular customers, and those who sought upgrades as a result of Defendant Fair's scheme, and instead "chose as a 'corporate strategy' to permit [Defendant] Fair's customers to purchase upgrades but to give no tech support to Fair's software." Id. at 5. This suggests two things: 1) that evidence of lost sales could have been available if the government requested it; and 2) that Defendant Fair may have had an argument that Adobe had acquiesced by its conduct (in part) to the so-called "criminal scheme."

However, the government did not introduce any evidence that Adobe lost any sales due to Defendant Fair's criminal activities. Instead, the government presented a spreadsheet tallying Defendant Fair's eBay sales and "unsubstantiated, generalized assertions of government counsel regarding Adobe Systems' lost sales." Id. at 11. When presented with the opportunity to present such evidence, the government attorney attempted to shift the burden set forth in the MVRA to the defendant, arguing that because he "created an potential uncertainty in calculating pecuniary harm by selling outdated counterfeit software." Id. at 12. The government also argued that the lost-profits rationale "makes no sense in the present context because Adobe Systems no longer sells the versions of the software that Fair sold." Id. The appellate court was unpersuaded.  

On Appeal

The appellate court reviewed the record – and particularly the absence of any evidence of Adobe Systems' actual losses, and agreed with the analysis of a Tenth Circuit opinion that commented, "we are very skeptical of the implicit suggestion that customers' purchase of a certain number of copies of low-priced counterfeit software proves that those customers would have agreed to purchase the same number of copies from the legitimate seller for many times more." Id. at 11 (quoting United States v. Hudson, 483 F.3d 707, 710 (10th Cir. 2009)) (internal quotations omitted). The Fair court also concluded that the government's evidence in support of its claim for retribution was "merely speculative." Id. at 12.

The appellate court also recognized that there were other avenues of recovery of restitution: specifically, under the "actual damages" provision for copyright infringement, the copyright owner can recover both actual damages and "any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages." 17 U.S.C. § 504(b). These damages were not claimed in this (criminal) case.

Finally, the appellate court also considered whether a remand of any degree was warranted in this case – and concluded that it was not. The appellate court declined to give the government "'a second bite at the apple' absent special circumstances," especially in light of the fact that the government had the explicit opportunity to introduce this type of evidence, and had declined to do. Id. at 15-16.

In summary, it appears that the prison sentence (and 3 years of supervised release) remains, but that the award of restitution alone has been vacated.