By Dave McCune

This January the fight against online piracy got a little more difficult with a ruling from a district judge in Virginia that the Recording Industry Association of America’s (RIAA) reasoning in asking for restitution is “unsound.”  As such, the court’s ruling has torn apart the RIAA’s and the Motion Picture Association of America’s (MPAA) argument that the alleged ‘losses’ from online sharing amount to ‘theft’ and that the persons who share files with each others are criminals.

The case was United States v. Dove.¹ It marked the first time that a jury in the United States found a defendant guilty of felony file sharing.  But when the RIAA sought restitution, things went south.  Attempting to sound reasonable, the RIAA offered to seek restitution only for the twenty most downloaded albums from Dove’s computer.  They then took those 6,528 transfers and multiplied them by the average wholesale price in 2005 ($7.22) to reach a “reasonable” $47,132.16 in damages.  The problem with the way the RIAA calculated its losses simply comes down to supply and demand: the cheaper things are, the more people will buy them.  You can see this at your local supermarket on free sample day.  Most everyone will take a free sample, because it is free.  However, should the store start charging for these delectable morsels, many fewer people would take them.

In the same way, Judge Jones reasoned that just because people would download a song or album for free, doesn’t mean that these people would have otherwise bought the album.  Most of these people in fact only downloaded the albums from Dove because they had no intention of otherwise buying them.

The RIAA was able to seek restitution under the Mandatory Victim’s Restitution Act of 1996.  This allows the victim of a  “an offense against property under [title 18],” § 3663A(c)(1)(A)(ii), in which (2) ‘an identifiable victim or victims has suffered a . . . pecuniary loss,’ § 3663A(c)(1)(B), and (3) the court has not found that the number of identifiable victims or the complexity of determining causation or the amount of the victims’ losses would make restitution impracticable, § 3663A(c)(3).” In laying out its theory of restitution all the RIAA did was claim that their damages were equal to the number of shared copies multiplied by the wholesale price per copy.

To support its case, the RIAA and the government cited United States v. Martin,² United States v. Milstein,³ and United States v. Chay.⁴ Judge Jones recognized differences in each of the theories presented in those cases that kept them from being applied to Dove.  In Martin and Milstein, the issue was a counterfeit product that was sold at a profit by the offender.  In those cases there is a clear deferment of payment from the copyright holder to the offender, although Judge Jones noted that, in the case of United States v. Hudson,⁵ which involved the same activity as Martin, there is some question as to whether or not a customer who bought $86,000 of counterfeit product would have paid the full mark up of $321,000 for the authentic product; this issue was never reached on appeal, however.  Even in Milstein, which involved selling foreign pharmaceuticals as another brand, the court held the restitution amount was proper because it was the amount the offender would have paid for the actual product to re-sell.

Chay also fails the test because that case, like the others, involved an offender selling an illegal or counterfeit copy of an existing good for personal profit.  But, Judge Jones ruled, because Dove did not sell anything and no attempt was made to put a monetary value on any gain he did make, the same theory of restitution does not apply.

Jones does find that the restitution scheme offered by the RIAA in Dove is similar to the scheme proposed in United States v. Chalupnik,⁶ which was rejected.  Chalupnik noted that the customers had different, legal options, available to them other than purchasing the product at full retail price.  In Chalupnik, it was to buy used CDs from another source; in Dove, Judge Jones points out that the downloaders could buy individual songs online, rent movies, borrow CDs and DVDs from the library, or done without the album entirely.

Judge Jones points out the flaws in the RIAA’s case best:

“The government finds RIAA’s estimated losses reasonable because it calculates loss based on only 20 of the 183 albums in the Elite Torrents tracker database, but there is no suggested logical basis for making the calculation based on 20 albums as opposed to 1 or 100 albums. There is no allegation, for instance, that people who downloaded those first 20 albums would have been more likely to pay the full purchase price for those albums had they not been available on the Elite Torrents network. RIAA does not aver that 6,528 out of the 17,281 total downloads from Dove’s server accurately represents the number of lost sales to RIAA’s members.”

It is possible that RIAA requests $47,000 because Dove’s services are worth $77,768.82 to RIAA, the difference between the full amount of economic loss RIAA claims ($124,768.82) and the amount it is willing to accept if Dove agrees to participate in a public service announcement ($47,000). But RIAA does not offer this explanation. Nor does RIAA adequately prove that its members’ total actual losses were $124,768.82. RIAA only proves that the first 20 of the 183 total albums on Dove’s server are held by record labels that are RIAA members; there is no such proof as to the remaining 163 albums. Also, RIAA uses $7.22, the average wholesale price of a digital album in 2005, to calculate its loss, but it is unclear whether member copyright holders would receive the full $7.22 as profit or only a portion of that amount. Further, if the reason RIAA decreases its request from the alleged total economic losses of $124,768.82 to $47,000 is because Dove’s services are worth $77,768.82, RIAA’s request problematically assumes that every illegal download resulted in a lost sale. On the other hand, if the value of Dove’s services is not the basis for RIAA’s “conservative” $ 47,000 request, RIAA has essentially requested an arbitrary amount.”
Judge Jones’ ruling comes as another challenge to an organization whose courtroom bullying and steamrolling is no longer being quietly acquiesced to.  With the new requirement that the RIAA prove actual losses and not simply create fictitious numbers that represent the number of sales they wish they had, the fact that more evidentiary issues are appearing with the RIAA’s methods, and that more consumers are standing up for their own digital ownership and privacy rights, the RIAA’s legal battles are proving more costly than ever.
One wonders if the RIAA actually researches how many sales are actually being lost due to internet piracy, if they will realize their millions of dollars in restrictive-DRM research and relentless legal war against their consumers has cost them more in lost revenue and public perception than any piracy ever has.
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¹ 585 F. Supp. 2d 865 (W. Dist. VA. 2008).

² 64 F. App’x. 129 (10th Cir. 2003).

³ 481 F.3d 132 (2d Cir. 2007).

⁴ 281 F.3d 682 (7th Cir. 2002).

⁵ 483 F.3d 707 (10th Cir. 2007).

⁶ 514 F.3d 748 (8th Cir. 2008).