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April 17, 2014

D.C. Circuit Holds Restitution Must Be Based on Loss of Victim, Not Defendant’s Gain

Addressing for the first time the issue of whether restitution (in the context of pirated copyrighted software) under the Mandatory Victim Restitution Act (MVRA) may be based on a defendant’s profit, the U.S. Circuit Court of Appeals for the District of Columbia vacated a restitution order and joined numerous other circuits in holding that restitution must be based on the quantifiable loss of the victim. United States v. Fair, Case No. 09-3120, (D.C. Cir., Nov. 9, 2012) (Rogers, J.).

From February 2001 to September 2007, Gregory Fair was involved in an infringement scheme in which he sold pirated outdated versions of Adobe Systems software on eBay.  Along with the outdated products, Fair included numerical codes that allowed buyers to update their software to the most recent versions at a reduced cost from Adobe Systems.  As a result of his scheme, customers were able to obtain current versions of the Adobe products at less than half the legitimate retail price.  Facing prosecution for his actions, Fair plead guilty to copyright infringement and mail fraud.  Pursuant to the MVRA, 18 U.S.C. §3663A, the district court ordered him to pay restitution to the copyright holder, Adobe Systems, in an amount equivalent to the revenue he received from his sales of the pirated products.  Fair appealed. 

On appeal, the D.C. Circuit vacated the district court’s restitution award, concluding that in ordering restitution pursuant to the MVRA, a district court may not substitute a defendant’s ill-gotten gains for the victim’s actual, provable loss.  The Court noted that the plain text of the MVRA makes clear that its scope is purely compensatory.  Thus, awarding restitution in excess of the victim’s actual loss would be punitive in nature and falls outside the scope of the MVRA.  The Court also noted that its holding is consistent with other circuit courts of appeals that have considered the issue and found that a defendant’s gain is not an appropriate measure of a victim’s actual loss in an MVRA calculation.

The MVRA places the burden on the government to prove the victim’s loss by a preponderance of the evidence.  The Court held that the district court abused its discretion because the government failed to ascertain or present evidence from which the district court could determine Adobe System’s actual loss or that Fair’s gain was equivalent to that loss.  For instance, the government could have surveyed Fair’s customers to determine whether they would have bought full-priced Adobe Systems products, if Fair’s products were not available.  The D.C. Circuit also rejected the government’s argument that requiring proof of lost profits would reward defendants by imposing on victims the task of quantifying each loss noting that the plain statutory text places the burden on the government, not the victim. 

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