p2pnet news view | RIAA News:- “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.”

p2pnet has been saying that for years, pointing out RIAA and MPAA claims that files shared equal sales lost are pure fiction dreamed up to enable corporate entertainment cartels to attack their own customers in a bid to gain control of how, and by whom, product is managed and distributed online.

Now, 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,” says Recording Industry vs The People.

Vivendi Universal, EMI, Warner Music and Sony BMG and their RIAA, as well as Time Warner, Viacom, Fox, Sony, NBC Universal and Disney and their MPAA, pretend their alleged ‘losses’ amount to ‘theft’ of ‘product’ and that people who share files with each other are, therefore, criminals and thieves.

This, in turn, allowed them to elevate the purely civil matter of copyright infringement to that of major crime.

Now, however, chief United States judge James P. Jones has torn the claim to shreds.

The opinion quoted in the intro comes from his decision in a case in which ex-Elite Torrents admin Daniel Dove, 27, was convicted of conspiracy and felony copyright infringement.

It was the first time in the US a P2P user was convicted by a jury of copyright infringement, boasted the FBI at the time.

But not content with their win, in Dove vs the RIAA and Lionsgate films let their greed get the better of them, also trying to claim restitution based on their spurious ’sales lost’ ploy.

Instead, they’ve opened the door for defendents in both RIAA and MPAA copyright infringement suits to say, ‘Prove it!’

Because Case 2:07CR00015 will also go down as landmark in which a judge categorically states contrary to RIAA and MPAA statements, file sharing does not automatically equal the loss of a sale, or sales.

And his ruling will be of primary importance in the current Joel Tenenbaum and Jammie Thomas lawsuits in which the Big 4 try to maintain they lost hundreds of thousands of dollars because the two, one a student and the other single mother, were, “massive” online distributors of copyrighted corporate product.

‘Give us $47,000′

The RIAA’s Declaration of Victim Losses says, “183 sound recording albums were transferred through Dove’s server a combined total of 17,281 times,” according to the decision, which states

Multiplying 17,281 by the average wholesale price of a digital album in 2005 ($7.22), RIAA concludes that its member companies suffered economic loss in the amount of $124,768.82. RIAA offers to accept only $47,000 if Dove agrees to “participate in a public service announcement designed to educate the public that music piracy is unlawful and has the potential to result in stiff criminal penalties.” (Id. at 3.) The $47,000 figure represents the approximate amount of economic loss resulting from the transfers of the 20 most frequently transferred albums on Dove’s server: 6,528 transfers multiplied by the average wholesale price in 2005 ($7.22) yields $47,132.16 in economic damages.

There is no indication as to why RIAA reduces its monetary request to the first 20 albums as opposed to 10 or 100 albums. It is notable, though, that RIAA only proves that the first 20 albums are held by record labels that are RIAA members; there is no such proof as to the remaining 163 albums.

Lionsgate’s Declaration of Victim Losses indicates that it owns the copyrights to 28 of the 700 movies Dove infringed. Lionsgate does not show any proof as to how many times those 28 titles were downloaded from Dove’s server. Lionsgate states that Dove “sold over a million units” of the 700 movie titles “at $19 per unit,” resulting in a “$22 million amount of loss to [the] industry.” (Lionsgate Decl. of Victim Losses 1.) From this $22 million figure representing the total loss to the movie industry, Lionsgate concludes that since it holds 4% of the movie titles at issue (28 out of 700), it should get 4% of $22 million, which is $880,000 RIAA and Lionsgate have the same theory of loss. They assert that for each illegal download of music or movies on the Elite Torrents network, profits were diverted from legitimate sales the copyright holders could have otherwise made. 

‘Faulty assumption’

Jones says he’s “skeptical” anyone would have paid pay $7.22 or $19, “for something they got for free,” going on »»»

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.

The cases cited by the government and RIAA are distinguishable from or are otherwise inapplicable to this case. For instance, both the government and RIAA cite to United States v. Martin, 64 F. App’x. 129 (10th Cir. 2003) (unpublished). In Martin, the defendant pled guilty to trafficking in counterfeit goods (Microsoft Office 2000 CDs), and was ordered to pay $395,000 in restitution for Microsoft’s lost profits from diverted sales. Id. at 130, 131. The issue before the court was whether the defendant’s waiver of his appellate rights in his written plea agreement was enforceable, id. at 130, and the court found that the waiver was valid, id. at 132.

Therefore, the court did not fully review the district court’s restitution decision. Also, the crime in Martin, trafficking in counterfeit Microsoft Office CDs, is distinguishable from the copyright infringement in this case. Those who download movies and music for free would not necessarily purchase those movies and music at the full purchase price, but those who purchase counterfeit Microsoft Office CDs are more likely to purchase the legitimate version if the counterfeit version is not available.

Jones writes the the RIAA cites a similar case, “United States v Milstein, 481 F.3d 132 (2d Cir. 2007), when it argues that “[l]ost sales are an appropriate measure of restitution in criminal cases involving the misappropriation of intellectual property.”

But in this case, “the defendant was convicted of fraudulently distributing misbranded drugs and other related crimes,” he says.

“The defendant purchased foreign pharmaceuticals and re-sold them in the United States with counterfeit packaging to pass them off as their domestic counterparts. Id. at 133-34. The defendant was ordered to pay $3.5 million in restitution to the two drug manufacturers whose trademarks he misappropriated. “This figure reflected the sales that these two companies would have made if [the defendant] had actually purchased the products from them for distribution in the U.S. market.” Id. at 135. The court upheld the restitution award, noting that the defendant did not make any claim that manufacturing costs or other costs should be deducted from lost sales to arrive at a more appropriate restitution amount.”

Revenge of the Sith

Ironically, when the FBI went after Dove, it specifically cited Star Wars, Episode III – Revenge of the Sith, as being, “available for downloading on the network more than six hours before it was first shown in theatres” which in the ensuing 24 hours, “was downloaded more than 10,000 times”.

The implication was the studios had lost all kinds of business as a direct result.

But the file was a print copy available only to Hollywood insiders, as p2pnet pointed out, also saying »»»

When Revenge of the Sith arrived on the p2p networks, “There is no better example of how theft dims the magic of the movies for everyone than this report today regarding BitTorrent providing users with illegal copies of Revenge of the Sith,” raved MPAA (Motion Picture Association of America) boss Dan ‘Jedi’ Glickman.

But the illegal distribution of ‘Sith’ started during the week before its May 19 release, when Albert Valente, 28, of Lakewood took a DVD copy of the film from a post-production facility where he worked,” said the Los Angeles Daily News.

‘Unit price is not the appropriate figure for calculating loss’

Meanwhile, Lionsgate’s estimation of lost profits faces several additional problems, says Jones, continuing »»»

Lionsgate makes no showing of how many times its 28 titles were transferred by Dove’s server, but simply concludes that it is entitled to 4% (28 out of 700) of the total damages to the movie industry. When using a diverted sales theory, the victim should show how many infringing items were actually placed into commerce in competition with legitimate items. Beydoun, 469 F.3d at 108. In addition, the $19 per unit price is not the appropriate figure for calculating loss, since it represents lost revenue rather than lost profits. See id. Finally, like RIAA, Lionsgate bases its estimate of actual loss on the faulty assumption that every illegal download resulted in a lost sale.

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).

Definitely stay tuned.

January , 2009

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This entry was posted on Friday, January 16th, 2009 at 2:28 pm and is filed under RIAA News. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

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