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In this rather odd sentencing case, the Eighth Circuit trashed the restitution order that had been imposed by the District Court for the District of North Dakota on janitorial supervisor James A. Chalupnik. United States v. Chalupnik, 2008 WL 268997 (8th Cir. Feb. 1, 2008).
The decision threw out janitor Chalupnik's obligation to pay BMG Columbia House ('BMG') mandatory restitution of $78,818. BMG, the mail-order CD and DVD business, was found in this odd case to be a victim of the copyright misdemeanor crime to which Chalupnik pleaded guilty. Initially, Chalupnik had been charged with felony mail theft, a charge dropped in favor of the plea to copyright misdemeanor. Granted, it is far more pleasant to be charged with a misdemeanor than a felony; if those are the choices on the table, then copyright misdemeanor. But neither the pled-to crime nor the dropped 'mail theft' one seems to match up with what happened here. Chalupnik's appeal addresses solely the restitution order, since Chalupnik pleaded guilty to the copyright misdemeanor. Still, the most interesting aspect of this case is the judicial pas-de-deux between the admitted crime, and how (and whether) the punishment meets the crime.
The Facts
Here's what happened. Many BMG discs turn out to be undeliverable. BMG therefore, as a cost-saving measure, arranged with the United States Postal Service to gather and discard the undeliverable items. BMG found it was cheaper to pay to produce replacement discs than to pay for postage and restocking of undeliverable ones. The Postal Service complied, and tossed the undeliverable CDs and DVDs in the post office trash. Enter James Chalupnik. Mr. Chalupnik supervised disabled persons who provided janitorial services at the post office in Fargo, ND. In between his official supervisory duties, he recovered the CDs and DVDs from the post office trash, where they had been tossed at BMG's request, and with the post office's blessing. Caught on camera stowing a mound of this retrieved garbage in a post office telephone closet, Chalupnik admitted selling the discs to used record stores. Evidence showed that the store records reflected purchases of substantial numbers of discs, and a total of $78,818 payments to Chalupnik. No store kept records of the titles they had bought from Chalupnik, 'but one store owner told investigators that most if not all were BMG products.' [Opinion, p.2].
The criminal misdemeanor charge to which Chalupnik pleaded was that he willfully infringed numerous sound recordings for private financial gain over a five-year period, in violation of 17 U.S.C. '506(a) and 18 U.S.C. '2319(b)(3).
17 U.S.C. '506(a) provides:
(a) Criminal Infringement. ' Any person who infringes a copyright willfully either '
1. for purposes of commercial advantage or private financial gain, or
2. by the reproduction or distribution ' of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000 '
The pre-sentence investigation report had recommended that Chalupnik be ordered to pay BMG mandatory restitution of $78,818 ' because his offense conduct deprived BMG of 'the option of returning the CD's to the market or destroying them.” Understandably, Chalupnik pointed out that the 'returning the CDs to the market' part was nonsense, as BMG had asked for them to be thrown in the garbage.
The Court's Findings
The District Court found that: ”I do believe that there is in fact a lost opportunity to ' BMG, that the people that bought those CDs ' would likely have bought new CDs, and that represents a real and substantial loss to ' BMG in the amount of $78, 818.” [Opinion, p. 3].
However, the Eighth Circuit found that, although the government had failed to prove the amount of loss to BMG caused by Chalupnik's sales of the discs, BMG was, in fact, a victim within the meaning of the Mandatory Victims Restitution Act ('MVRA'), 18 U.S.C. ”3663 A (a)(1),(c)(1). Chalupnik argued that BMG, a
mail-order seller of CDs and DVDs had no interest in the copyrights
that he'd pleaded he had infringed by distributing them for money. The court found this contention 'intriguing,' citing 3 Nimmer on Copyright '12.02[B](2007) for a proposition that Nimmer does not advance. The treatise section cited actually pertains to Broadcast Music Inc. ('BMI'), which is a U.S. performing rights organization that collects licensing fees on behalf of songwriters, composers and music publishers; the court seemingly misunderstood BMG and BMI to be the same, or at least to be in the same business.
The Eighth Circuit identified Chalupnik's point that BMG needed a copyright interest to qualify as a victim as 'unsettled,' relying on Silvers v. Sony Pictures Entm't, Inc. 402 F. 3d 881 (9th Cir. 2005) (en banc), a case which simply concerns whether an accrued cause of action for copyright infringement can be assigned. But, Silvers has nothing to do with Chalupnik's situation.
The Eighth Circuit concluded that the status of BMG as a victim does not turn on whether or not BMG could sue Chalupnik for copyright infringement. The court said that the issue is whether BMG could sue Chalupnik in a civil action for the 'copyright infringement offense of conviction.' It agreed on this point with the District Court that BMG could sue Chalupnik, 'because Chalupnik's offense conduct including stealing or converting BMG property from BMG's bailee, United States Postal Service.' In other words, because the infringement required this 'stealing or converting' from the bailee, BMG could sue Chalupnik in a civil action for that conduct, and so the victim status of MVRA is properly bestowed upon BMG. For this logic, the court relied on Moore v. United States, 178 F.3d 994, 1001 (9th Cir. 1999). There, a bank customer suffered lost wages because he witnessed an attempted bank robbery. He could not have sued the would-be bank robber, but he was held to be a MVRA victim anyhow because he suffered monetary damage as a result of the defendant's efforts to hold up the bank, the criminal offense in that case.
The Bailment Theory
There is a case in point for the court's bailment theory, although the court did not cite it or any other authority. In Little, Brown and Co. v. American Paper Recycling Corp., 824 F. Supp. 11 (D. Mass. 1993) a publisher and owner of copyrighted works sued a contract recycler for breach of contract and copyright infringement. There, the recycler was supposed to destroy the books and recycle the paper. Instead, the recycler sold some of the copyrighted books to another recycler, who, instead of destroying them, sold them to entities that offered the books for sale. The court found a bailment relationship, such that the bailee recycler had infringed Little, Brown's exclusive copyright interest in distribution of copies of the copyrighted work. The Eighth Circuit assumed, but did not explore, a key issue in the sentencing (liability having been admitted in the plea), namely that title remained with BMG in the discs the Post Office threw out. Because, if it did not, why wouldn't the first sale doctrine apply? Let's consider the first sale doctrine.
First Sale Doctrine
The copyright owner's right to distribute the work is limited by the first sale doctrine, which allows the owner of a legally acquired copy of a work to sell that particular copy without the consent of the copyright owner. 17 U.S.C. '109. So, can one legally acquire a copy from a garbage can, bearing in mind the bailment limitations of the Little, Brown case? The U.S. Supreme Court in California v. Greenwood, 486 U.S. 35 (1988), held that 'society would not accept as reasonable [a] claim to an expectation of privacy in trash left for collection in an area accessible to the public.' We don't know where the United States Postal Service dumped its BMG garbage, or from where Chalupnik scooped it up. We do know that a few facts are missing: Did title pass from BMG to the United States Postal Service when BMG told the Postal Service to pitch the goods? If so, the first sale doctrine might have shielded the janitor from liability. And if title passed, was the garbage in an area the public might consider to be a free-garbage zone? If so, did Chalupnik do anything wrong such that BMG was a victim under the law? Next chapter, the remand.
Jane Shay Wald is a partner at Irell & Manella LLP, Los Angeles, and chairs the firm's trademark practice group.
In this rather odd sentencing case, the Eighth Circuit trashed the restitution order that had been imposed by the District Court for the District of North Dakota on janitorial supervisor James A. Chalupnik. United States v. Chalupnik, 2008 WL 268997 (8th Cir. Feb. 1, 2008).
The decision threw out janitor Chalupnik's obligation to pay BMG Columbia House ('BMG') mandatory restitution of $78,818. BMG, the mail-order CD and DVD business, was found in this odd case to be a victim of the copyright misdemeanor crime to which Chalupnik pleaded guilty. Initially, Chalupnik had been charged with felony mail theft, a charge dropped in favor of the plea to copyright misdemeanor. Granted, it is far more pleasant to be charged with a misdemeanor than a felony; if those are the choices on the table, then copyright misdemeanor. But neither the pled-to crime nor the dropped 'mail theft' one seems to match up with what happened here. Chalupnik's appeal addresses solely the restitution order, since Chalupnik pleaded guilty to the copyright misdemeanor. Still, the most interesting aspect of this case is the judicial pas-de-deux between the admitted crime, and how (and whether) the punishment meets the crime.
The Facts
Here's what happened. Many BMG discs turn out to be undeliverable. BMG therefore, as a cost-saving measure, arranged with the United States Postal Service to gather and discard the undeliverable items. BMG found it was cheaper to pay to produce replacement discs than to pay for postage and restocking of undeliverable ones. The Postal Service complied, and tossed the undeliverable CDs and DVDs in the post office trash. Enter James Chalupnik. Mr. Chalupnik supervised disabled persons who provided janitorial services at the post office in Fargo, ND. In between his official supervisory duties, he recovered the CDs and DVDs from the post office trash, where they had been tossed at BMG's request, and with the post office's blessing. Caught on camera stowing a mound of this retrieved garbage in a post office telephone closet, Chalupnik admitted selling the discs to used record stores. Evidence showed that the store records reflected purchases of substantial numbers of discs, and a total of $78,818 payments to Chalupnik. No store kept records of the titles they had bought from Chalupnik, 'but one store owner told investigators that most if not all were BMG products.' [Opinion, p.2].
The criminal misdemeanor charge to which Chalupnik pleaded was that he willfully infringed numerous sound recordings for private financial gain over a five-year period, in violation of 17 U.S.C. '506(a) and 18 U.S.C. '2319(b)(3).
17 U.S.C. '506(a) provides:
(a) Criminal Infringement. ' Any person who infringes a copyright willfully either '
1. for purposes of commercial advantage or private financial gain, or
2. by the reproduction or distribution ' of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000 '
The pre-sentence investigation report had recommended that Chalupnik be ordered to pay BMG mandatory restitution of $78,818 ' because his offense conduct deprived BMG of 'the option of returning the CD's to the market or destroying them.” Understandably, Chalupnik pointed out that the 'returning the CDs to the market' part was nonsense, as BMG had asked for them to be thrown in the garbage.
The Court's Findings
The District Court found that: ”I do believe that there is in fact a lost opportunity to ' BMG, that the people that bought those CDs ' would likely have bought new CDs, and that represents a real and substantial loss to ' BMG in the amount of $78, 818.” [Opinion, p. 3].
However, the Eighth Circuit found that, although the government had failed to prove the amount of loss to BMG caused by Chalupnik's sales of the discs, BMG was, in fact, a victim within the meaning of the Mandatory Victims Restitution Act ('MVRA'), 18 U.S.C. ”3663 A (a)(1),(c)(1). Chalupnik argued that BMG, a
mail-order seller of CDs and DVDs had no interest in the copyrights
that he'd pleaded he had infringed by distributing them for money. The court found this contention 'intriguing,' citing 3 Nimmer on Copyright '12.02[B](2007) for a proposition that Nimmer does not advance. The treatise section cited actually pertains to Broadcast Music Inc. ('BMI'), which is a U.S. performing rights organization that collects licensing fees on behalf of songwriters, composers and music publishers; the court seemingly misunderstood BMG and BMI to be the same, or at least to be in the same business.
The Eighth Circuit identified Chalupnik's point that BMG needed a copyright interest to qualify as a victim as 'unsettled,' relying on
The Eighth Circuit concluded that the status of BMG as a victim does not turn on whether or not BMG could sue Chalupnik for copyright infringement. The court said that the issue is whether BMG could sue Chalupnik in a civil action for the 'copyright infringement offense of conviction.' It agreed on this point with the District Court that BMG could sue Chalupnik, 'because Chalupnik's offense conduct including stealing or converting BMG property from BMG's bailee, United States Postal Service.' In other words, because the infringement required this 'stealing or converting' from the bailee, BMG could sue Chalupnik in a civil action for that conduct, and so the victim status of MVRA is properly bestowed upon BMG. For this logic, the court relied on
The Bailment Theory
There is a case in point for the court's bailment theory, although the court did not cite it or any other authority.
First Sale Doctrine
The copyright owner's right to distribute the work is limited by the first sale doctrine, which allows the owner of a legally acquired copy of a work to sell that particular copy without the consent of the copyright owner. 17 U.S.C. '109. So, can one legally acquire a copy from a garbage can, bearing in mind the bailment limitations of the Little, Brown case?
Jane Shay Wald is a partner at
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