RIAA's "download equals lost sale" theory rejected by federal court in Virginia; restitution motion denied in USA v. Dove

Thank you to "an anonymous friend" for bringing this case to my attention.

In the context of a restitution motion, in United States of America v. Dove, the RIAA's "download equals lost sale" theory has been flatly rejected.

In a 16-page opinion, District Judge James P. Jones, sitting in the Western Disrict of Virginia, denied the RIAA's request for restitution, holding the RIAA's reasoning to be unsound:

It is a basic principle of economics that as price increases, demand decreases. Customers who download music and movies for free would not necessarily spend money to acquire the same product. Like the court in Hudson, I am skeptical that customers would pay $7.22 or $19 for something they got for free. Certainly 100% of the illegal downloads through Elite Torrents did not result in the loss of a sale, but both Lionsgate and RIAA estimate their losses based on this faulty assumption.

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...... Those who download movies and music for free would not necessarily purchase those movies and music at the full purchase price.......see Hudson, 483 F.3d at 710 (expressing doubt that a customer who purchased $86,000 worth of counterfeit Microsoft products would have paid the full purchase price of $321,000 for the same number of copies of the legitimate version)........

RIAA cites United States v. Chay, 281 F.3d 682 (7th Cir. 2002), as support that the MVRA applies in this case. The defendant in Chay sold counterfeit versions of newly released computer games on eBay and other internet auction sites. Id. at 684. The defendant pled guilty, and the court ordered him to pay $49,941.02 in restitution to the 52 victim companies, which was the amount of his gross receipts from the sale of pirated computer games. Id. The Seventh Circuit upheld the amount of the restitution award, reasoning that it was not an abuse of discretion for the district court to find the defendant’s gross receipts approximated the victims’ losses. The method of ascertaining loss used in Chay is inapplicable to this case because neither the government nor the victims have made any attempt to put a value on Dove’s gain. Also, a defendant’s gain does not always mirror the victims’ loss. See Chalupnik, 514 F.3d at 754.

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....The government admits that “there is no direct evidence that each unlawful distribution of an RIAA member company’s album through the Elite Torrents network diverted a sale from that company,” but insists that “the circumstantial evidence supporting RIAA’s conservative estimate of actual losses is strong.” Id. at 3. However, although it is true that someone who copies a digital version of a sound recording has little incentive to purchase the recording through legitimate means, it does not necessarily follow that the downloader would have made a legitimate purchase if the recording had not been available for free.

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......RIAA’s request problematically assumes that every illegal download resulted in a lost sale. .....

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The cases cited by the government and RIAA offer many alternative measurements of actual loss other than diverted sales, yet all interested parties have failed to bring sufficient evidence of loss under any theory. There has certainly been some harm to the victims, but without more accurate estimates from the victims it would be very difficult to arrive at an accurate and fair number for a restitution award. The government and the victims who have come forward have failed to meet their burden of proof as to actual loss under § 3664(e). This failed attempt has demonstrated that although there was an injury to the market, as in Chalupnik, the difficulty of determining each victim’s actual loss makes the collective injury inappropriate for MVRA restitution. 18 U.S.C.A. § 3663A(c)(3).

November 7, 2008, Opinion and Order

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