Opinion ID: 2996618
Heading Depth: 2
Heading Rank: 2

Heading: Valuation of Loss

Text: We now turn to Slater’s claim, which fares no better than Morley’s. Under the 1998 Sentencing Guidelines, the defendant’s sentence is enhanced according to the table in section 2F1.1 if the retail value of the loss exceeded $2000. Nos. 02-2059 & 02-2182 7 U.S.S.G. § 2B5.3(b)(1) (1998). The value of the loss is measured by the retail value of the “infringing items,” defined as “the items that violate the copyright or trademark laws.” Id. at cmt. n.1. (The Sentencing Guidelines have since been amended, but those amendments have no effect on the present case. The May 2000 amendments provide that the value of the loss is to be measured according to the retail value of the “infringed item.” See § 2B5.3, cmt. n.2 (2002). Infringing items are distinguishable from “infringed items,” which are “the legitimate items that are infringed upon.” U.S.S.G. app. C (2002). The total value of the infringing items can be calculated by multiplying the number of infringing items by their average retail value.) In this case, neither the government nor Slater disputes the district court’s exceedingly conservative finding of the number of infringing items. The issue raised on appeal is whether the district court’s valuation of the infringing items is clearly erroneous. Vivit, 214 F.3d at 914. In nonsoftware cases, this court has calculated the value of infringing items based on the retail value of those goods on the black market—“the full price the willing buyer in this market would have paid the willing seller in the same market for the appellants’ products.” United States v. Oberhardt, 887 F.2d 790, 792-93 (7th Cir. 1989) (document); United States v. Bakken, 734 F.2d 1273, 1278 (7th Cir. 1984) (antifreeze); United States v. Berkwitt, 619 F.2d 649, 658 (7th Cir. 1980), abrogated on other grounds, Dowling v. United States, 473 U.S. 207 (1985) (bootlegged tapes). Other circuits also follow this approach. United States v. Guerra, 293 F.3d 1279, 1292 (11th Cir. 2002) (cigars); United States v. Bao, 189 F.3d 860, 867 (9th Cir. 1999) (Microsoft Windows 95 manuals). But see United States v. Larracuente, 952 F.2d 672, 674-75 (2d Cir. 1992) (applying the normal retail price of movies rather than the lower price of counterfeit copies). This assumes, importantly, that the infringing 8 Nos. 02-2059 & 02-2182 item is somehow distinguishable from and less valuable than the original. Neither assumption, as we shall see, necessarily applies to digital copies that have been purged of copy-protection features and thus are easier to replicate than the originals. Slater argues that black-market approach ought to govern here. Because members paid nothing to download the programs, he further claims that the retail value of the infringing items should be zero. The district court, however, correctly rejected a zero value for the infringing items. Zero reflects neither the price paid to acquire the program (i.e., the value of the member’s services) nor the retail value of a digital duplicate of the original copyrighted software. The district court instead accepted the government’s approach, finding that in the particular case of almost exact digital copies, it was appropriate to value the infringing items by reference to the normal retail price of the bona fide copyrighted software. Based on the evidence, it calculated the average retail value as $384 per infringing item. While we recognize that $384 equates the retail value of the “infringing item” with the retail value of the “infringed item,”this was an acceptable choice in this situation, where the infringing item is the virtual equivalent of the infringed item. The district court properly understood that it was assessing the retail value of the infringing items—not the retail value of the infringed items. Section 2F1.1 of the Sentencing Guidelines gives the district court considerable leeway in assessing the retail value of the infringing items. For the purposes of subsection (b)(1), the loss need not be determined with precision. The court need only make a reasonable estimate of the loss, given the available information. Nos. 02-2059 & 02-2182 9 U.S.S.G. § 2F1.1, cmt. n.8. Unlike more conventional infringement cases, such as those we faced in Oberhardt, Bakken, and Berkwitt, supra, here there was no evidence of the value of the pirated copies on the black market. We agree with the district court that the pirated copies were certainly worth more than a retail value of zero. For this reason, it is not appropriate to apply any rule of lenity, such as the one used in the Ninth Circuit under which the court selects “the value bringing lesser punishment” where “two prices are equally good measures of the actual or intended loss to the victim.” United States v. Hardy, 289 F.3d 608, 614 (9th Cir. 2001). Here, a value of zero is not an “equally good measure” of loss. Instead, we join the Fifth Circuit and find that where there is little or no evidence of the value of the infringing item, the court may consider the retail value of the infringed item. United States v. Kim, 963 F.2d 65, 69-70 (5th Cir. 1992). In this case, the pirated programs were digital duplicates of the original copyrighted program, providing reasonable justification for the district court’s reliance on the normal retail price of the software. See Larracuente, 952 F.2d at 674 (where “unauthorized copies are prepared with sufficient quality to permit their distribution through normal retail outlets, the value of the infringing items is their normal retail price to ultimate consumers who purchase from such outlets”). We are further mindful that the total value of the loss for sentencing purposes depends not only on the retail value of the infringing item, but also on the number of infringing items. Here the district court used an exceptionally conservative estimate of the number of infringing items—looking not at the total number of downloads or uploads for the period charged, but only at the number of programs actually remaining on Sentinel at the time of the hardware’s seizure. Because the district court used a considerably lower figure for the number of infringing items than the 10 Nos. 02-2059 & 02-2182 evidence might have supported, its reliance on the normal retail price to arrive at the total value of the loss was not clearly erroneous.