United States v. Fair

• Decision Date: 09 November 2012
• Docket Number: No. 09–3120.,09–3120.
• Citation: 699 F.3d 508
• Parties: UNITED STATES of America, Appellee v. Gregory William FAIR, Appellant.
• Court: U.S. Court of Appeals — District of Columbia Circuit

699 F.3d 508

2012 Copr.L.Dec. P 30,343

104 U.S.P.Q.2d 1774

UNITED STATES of America, Appellee

v.Gregory William FAIR, Appellant.

No. 09–3120.

United States Court of Appeals,District of Columbia Circuit.

Argued Sept. 19, 2012.

Decided Nov. 9, 2012.

Appeal from the United States District Court for the District of Columbia (No. 1:09–cr–00089–1).

Beverly G. Dyer, Assistant Federal Public Defender, argued the cause for appellant. With her on the briefs was A.J. Kramer, Federal Public Defender.

Neil H. Jaffee, Assistant Federal Public Defender, entered an appearance.

Christopher S. Merriam, Assistant Deputy Chief, U.S. Department of Justice, argued the cause for appellee. With him on the brief was Lanny A. Breuer, Assistant Attorney General. Elizabeth Trosman, Assistant U.S. Attorney, entered an appearance.

Before: ROGERS and KAVANAUGH, Circuit Judges, and SILBERMAN, Senior Circuit Judge.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge:

Gregory Fair pled guilty to copyright infringement, in violation of 17 U.S.C. § 506(a) and 18 U.S.C. § 2319, and mail fraud, in violation of 18 U.S.C. § 1341. Pursuant to the Mandatory Victim Restitution Act (“MVRA”), 18 U.S.C. § 3663A, the district court ordered him to pay restitution to Adobe Systems, Inc. in an amount equivalent to the revenue he received from his sales of the pirated products. On appeal he contends that the district court abused its discretion because the government failed to offer evidence of Adobe Systems' actual loss, instead offering evidence only of his gain. Because the government did not meet its burden to present evidence from which the district court could determine Adobe Systems' actual loss as a result of the pirated sales, we vacate the restitution order.

I.

According to the stipulated facts in the plea agreement, Fair's criminal scheme involved high-volume sales of pirated Adobe Systems' software on eBay. He sold copies of outdated versions of popular Adobe products, such as Adobe Photoshop and PageMaker. Along with the pirated software, he included numerical codes that allowed buyers to update their software to the most recent version at a reduced cost from Adobe Systems. Fair's scheme thus represented a much cheaper route to an up-to-date version of the software. For example, a customer could first buy a pirated copy of outdated PageMaker software and an upgrade code from 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).

Fair's infringement scheme lasted from February 2001 to September 2007, after which time an undercover investigation by the United States Postal Inspection Service, based on information from Adobe Systems about unauthorized sales, identified his sales activity. According to records from PayPal, the program used for completing eBay transactions, Fair had received, and he admitted receiving, approximately $1.4 million from his sales of pirated software on eBay. The plea agreement also stated, for purposes of calculating the offense levels under the U.S. Sentencing Guidelines, that “the infringement amount” was greater than $400,000 but less than $1 million. Plea Agreement at 2, 3 (Apr. 16, 2009). It also acknowledged that the MVRA mandated restitution, citing 18 U.S.C. § 3663A, but did not specify an agreed-to amount.

Prior to sentencing, the government provided the probation office with “a spreadsheet summarizing records in the government's possession relating to [Fair']s specific sales.” Gov't's Mem. in Aid of Sent. at 6 & Attach. A (Jun. 29, 2009). The spreadsheet showed over 7,000 sales with total sales revenue of $767,465.99, which the government advanced as “a reasonable calculation of the restitution.” Id. at 6. Fair objected and initially suggested restitution of $455,000, the amount of currency he withdrew from PayPal accounts associated with the fraudulent transactions. See Def.'s Mem. in Aid of Sent. at 3 & n.1 (June 26, 2009). He subsequently submitted that (1) restitution under the MVRA must take the form of “actual loss” to the victim; (2) “actual loss cannot be equated to ‘intended loss' or to gain by the defendant”; and (3) the government had offered “no proof ... of any actual loss by [the victim,] Adobe Systems.” Def.'s Supp. Sent. Mem. at 1–4 (Sept. 22, 2009). He further suggested that his piracy might in fact have benefitted Adobe Systems by increasing consumers' awareness and use of its products. See id. at 3.

The government rejected Fair's suggestion that Adobe Systems benefitted from his sales or had any policy of acquiescing to piracy, and argued that “[Fair]'s pirated works cheat[ed] Adobe [Systems] out of sales of full[-cost] versions of its product at the much higher price point.” Gov't's Supp. Mem. in Aid of Sent. at 5 (Oct. 13, 2009). Although objecting to Fair's suggestion that his sales revenues should be offset by his costs, the government did not squarely address Fair's argument that the victim's actual loss, not the defendant's gain, should provide the basis for the restitution amount under the MVRA. Rather, the government merely noted that it was “not relying upon a restitution figure tied to the much higher retail price of the legitimate Adobe software, but instead is using the actual sales records and dollar amount sold by [Fair].” Id. at 8–9. In its view, “[t]hough admittedly more difficult to quantify” than lost sales, Fair additionally “inflicted other considerable harm to Adobe,” such as damage to Adobe's “good name.” Id. at 9.

At the sentencing hearing on October 22, 2009, defense counsel emphasized that the government had failed to prove the amount of Adobe Systems' actual loss and had not raised sufficient reasons why Adobe Systems could not prove the amount of its loss, but instead relied on how much money Fair earned from the infringing sales. Counsel pointed out that although “several hundred thousand dollars worth of cash and cars were seized from [Fair], all of which were ... undoubtedly proceeds of this [scheme],” and “Adobe [Systems] applied to get them,” the Postal Inspection Service only released approximately $24,000, “decid[ing] that Adobe [Systems] hasn't shown that they deserve [the rest of] that money.” Tr. Oct. 22, 2009 at 21. Counsel argued that “[i]f Adobe Systems does not come ... with some data to indicate ... that they had sales interrupted that amounted to more than the sales that they clearly got, based upon [Fair's] activity, then ... they should not be awarded restitution.” Id. at 21–22. Government counsel responded that Adobe Systems had provided the spreadsheet but did not have the information Fair sought and “never did a study that showed piracy benefitted them.” Id. at 24. Otherwise, government counsel referred to screen shots of Fair's eBay listings showing he was advertising his products as genuine, as well as the $455,000 tied to PayPal withdrawals. Defense counsel, in reply, described how Adobe Systems distinguished between persons buying from Fair and those who bought legitimate software and chose as “a corporate strategy” to permit Fair's customers to purchase upgrades but to give no tech support to Fair's software. Id. at 26.

The district court sentenced Fair to 41 months' imprisonment and three years' supervised release, and ordered him to pay to Adobe Systems restitution of $743,098.99, an amount representing the total sales listed on the spreadsheet ($767,465.99) less the forfeited funds turned over to Adobe Systems by the Postal Inspection Service ($24,367.00). Looking for “hard proof from the government,” the district court reasoned that “[i]t's undisputed that [Fair]'s revenue from the sales of pirated Adobe products was at least $767,000,” and that “if anyone held the right to collect revenue from the sale of these products, it was Adobe [Systems],” and so it followed that “since the sales did occur and revenue was generated, and the right to the revenue was held by Adobe [Systems] and not by [Fair], that Adobe [Systems] has the right to be restored to the revenue that it lost [in] its right to collect on actual sales that were made.” Tr. Oct. 22, 2009 at 27–28. Fair appeals the restitution order, and our review of a restitution order is for abuse of discretion. United States v. Bryson, 485 F.3d 1205, 1208 (D.C.Cir.2007); cf. United States v. Leonzo, 50 F.3d 1086, 1088 (D.C.Cir.1995).

II.

Federal courts do not have inherent authority to order restitution. See United States v. Papagno, 639 F.3d 1093, 1096 (D.C.Cir.2011). A product of the victims' rights movement, see id., the MVRA, 18 U.S.C. § 3663A, is unlike other restitution statutes under which the award of restitution is discretionary, see Papagno, 639 F.3d at 1096–97. The MVRA applies only to certain types of crimes, including Title 18 property offenses “in which an identifiable victim ... has suffered a physical injury or pecuniary loss.” 18 U.S.C. § 3663A(c)(1). It provides that the restitution order “shall require” that the defendant either return the property or reimburse the victim for his or her “loss”—i.e., the value of the property offset by the value of any part of the property that was returned. Id. § 3663A(b)(1). The MVRA is to be enforced pursuant to section 3664, id. at § 3663A(d), which requires courts to order the defendant to pay “restitution to each victim in the full amount of each victim's losses,” id. § 3664(f)(1)(A).

The purpose of the MVRA, then, is “essentially compensatory: to restore a victim, to the extent money can do so, to the position [the victim] occupied before sustaining injury.” United States v. Boccagna, 450 F.3d 107, 115 (2d Cir.2006) (citations omitted). Its authorization is accordingly limited to the actual, provable loss suffered by the victim and caused by the offense conduct. See United States v. Zangari, 677 F.3d 86, 91–92 (...