United States v. Chalupnik

14 F.3d 748 (2008)

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Nature of the Case

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Facts

BMG Columbia House (BMG) sells CDs and DVDs by mail. Many BMG discs prove to be undeliverable. BMG arranged with the Post Office to gather and discard undeliverable discs, as it was less costly for BMG to produce replacement discs than to pay for the return and restocking of undeliverable discs. D, a janitorial supervisor at the downtown post office in Fargo, North Dakota, took several thousand undeliverable CDs and DVDs from the post office trash and sold them to used record stores. The Post Office began investigating the disappearance of undeliverable CDs and DVDs at the Fargo post office. A surveillance camera revealed D hiding discs in a telephone closet, and 3,580 CDs and 125 DVDs were found in his possession. He admitted selling the discs. Store records reflected purchases of several thousand discs and payments totaling $78,818. One store owner told investigators that most if not all were BMG products. D pleaded guilty to a charge that he willfully infringed numerous copyrighted sound recordings for private financial gain and admitted selling discs for $78,818 without authority from the copyright owners. The government recommended a sentence of probation. The district court agreed and sentenced D to two years probation. The presentence investigation report (PSR) recommended restitution to BMG in the amount of $78,818. D stated there was no evidence that BMG owned any copyright interest in the discs, and that BMG was not a victim of his offense. D also reminded the court that BMG threw away or destroyed undeliverable discs, and customers at used music stores will not buy new products by mail. P argued that BMG is a victim because it owns the discs, sells them with permission of the copyright owners, and controls the disposition of undeliverable discs; that each time D sold an undeliverable disc, the artist lost a royalty and BMG lost a potential sale, and that the amount of those losses is conservatively estimated by D's gross revenues, $78,818. The court noted that, in a civil lawsuit by BMG, D's liability would include disgorgement of his profits from converting BMG property, therefore, imposing a fine payable to the United States instead of restitution might well increase D's total liability. The court ordered restitution of the full amount and D appealed.