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How Hollywood Convinced California's Senate to Pass a Bill Increasing Piracy Damages

An obscure case last year challenged the value of damages from piracy. Now, California law on calculating restitution could be on the verge of changing what pirates owe.

Chris Dodd MPAA P 2012
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Statistics about the economic damage from piracy tend to be controversial because of a dispute about methodology. When calculating the loss to an entertainment company from someone who pirates a song or movie, do you assume the pirate would have purchased that song or movie at full wholesale price? The difference between "Yes" and "No" amounts to billions of dollars in estimated damages for Hollywood each year.

The problem is not merely academic. Those who are arrested for piracy, and then convicted, often have to pay restitution. If a jury orders them to pay actual damages as restitution for harm, what do they pay? The question led to a decision last year by a California appellate court that the industry hated, and now a possible change in state law.

On Thursday, somewhat underneath the radar, the California Senate passed SB-1479 by a 36-0 margin with four state senators not voting. The bill would amend state law pertaining to how victims of crime who incur economic loss as a result of a crime receive restitution from a defendant.

Among the changes is that now, when someone is convicted of a crime involving the infringement of a "phonograph record, disc, wire, tape, film, or other device or article from which sounds or visual images are derived," restitution will be calculated "based on the aggregate wholesale value." This includes unreleased works, and according to the bill, "Proof of the specific wholesale value of each nonconforming device or article is not required."

In March, the RIAA provided some support for the changes, and specifically pointed to the case, People v. Garcia, decided last year by a California appellate circuit which it said had "dramatically changed the landscape."

In the case, Hector Garcia and Martin Avila were arrested and convicted for intending to sell thousands of pirated DVDs and counterfeit music CDs.

At the trial, the RIAA provided a wholesale value for approximately 4,000 seized CDs of $7.15 each. The MPAA testified that that more than 10,000 confiscated DVDs were worth an average wholesale value of $11.10 each.

As a result, the defendants were ordered to pay more than $61,000 to the RIAA and nearly $174,000 to the MPAA for a total just north of $235,000.

But last April, those restitution fines were knocked out by California appeals judge Roger Boren, who ordered the total award be trimmed to $87,113. According to the decision, "assigning the aggregate wholesale value as the loss where there is none violates the intent of the victim restitution statute."

The appellate judge took a look at the statutory language, debate, and interpretation over how to award restitution for "potential losses." The appellate court completely rejected the industry's theories on how to calculate this.

The judge notes that in passing the original law, the RIAA submitted a "victim-impact statement" that estimated that it was losing $5.33 billion per year. But the judge also notes a comment made by lawmakers in drafting the legislation at committee:

"Industry representatives have argued that a music or audio-visual pirates' unsold inventory of illegally produced or copied works represents a lost wholesale sale. This appears to ignore that a pirate would never obtain pirated works from a legitimate wholesaler. Only legitimate retail sales were preceded by a legitimate wholesale sale. Any illicit work sold at the retail or street level never went through the legitimate wholesale market."

The judge took this as evidence that "clearly shows that the RIAA's rationale was rejected" during the drafting of the legislation.

After the decision, the entertainment trade associations appear to have gone back to lawmakers to get the state to accept their calculations on damage from piracy and to overturn the precedent from last year's appellate decision. The bill has now passed the Senate and is closer to becoming law.

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner