United States v. Armstead ( 2008 )


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  •                            PUBLISHED
    UNITED STATES COURT OF APPEALS
    FOR THE FOURTH CIRCUIT
    UNITED STATES OF AMERICA,              
    Plaintiff-Appellee,
    v.                             No. 05-5157
    DAVID ARMSTEAD,
    Defendant-Appellant.
    
    Appeal from the United States District Court
    for the Eastern District of Virginia, at Alexandria.
    Leonard D. Wexler, Senior District Judge,
    sitting by designation.
    (CR-05-13)
    Argued: February 1, 2008
    Decided: May 6, 2008
    Before NIEMEYER, TRAXLER, and DUNCAN, Circuit Judges.
    Affirmed by published opinion. Judge Niemeyer wrote the opinion,
    in which Judge Traxler and Judge Duncan joined.
    COUNSEL
    ARGUED: Dale Edwin Sanders, Alexandria, Virginia, for Appellant.
    Jay V. Prabhu, OFFICE OF THE UNITED STATES ATTORNEY,
    Alexandria, Virginia, for Appellee. ON BRIEF: Chuck Rosenberg,
    United States Attorney, Charles F. Connolly, OFFICE OF THE
    UNITED STATES ATTORNEY, Alexandria, Virginia, for Appellee.
    2                    UNITED STATES v. ARMSTEAD
    OPINION
    NIEMEYER, Circuit Judge:
    After selling 100 "bootleg" DVDs of unreleased movies to an
    undercover federal agent on June 11, 2003, and then selling 200 more
    to the same agent on January 13, 2004, David Armstead was indicted
    and convicted on two felony counts of willful copyright infringement
    for private financial gain by distributing at least 10 unauthorized
    DVDs on each occasion, having "a total retail value of more than
    $2,500," in violation of 
    17 U.S.C. § 506
    (a)(1) and 
    18 U.S.C. § 2319
    (b)(1). At trial, Armstead contested only the total retail value
    of the DVDs sold and urged that he be convicted of only misdemea-
    nors for selling DVDs with a total retail value of $2,500 or less. See
    
    18 U.S.C. § 2319
    (b)(3). The jury, however, convicted Armstead of
    the felony charges, and he was sentenced to six months’ home deten-
    tion.
    On appeal, Armstead focuses on the fact that he sold the DVDs in
    the first transaction for a total of $500 and in the second transaction
    for a total of $1,000, and that the government offered no adequate
    alternative value to prove that the "total retail value" of the DVDs
    sold in each transaction was more than $2,500, as required for felony
    convictions. He requests that we vacate the felony convictions and
    enter judgments for misdemeanor offenses, remanding the case for
    resentencing accordingly.
    As a matter of first impression, we hold that "retail value" as used
    in 
    18 U.S.C. § 2319
    (b)(1) refers to the value of copies of the copy-
    righted material at the time the defendant committed the violation and
    sold the copies and that the retail value is determined by taking the
    highest of the "face value," "par value," or "market value" of copies
    of the copyrighted material in a retail context. See 
    18 U.S.C. § 2311
    .
    Because the evidence of retail value, so construed, supported felony
    convictions, we affirm.
    I
    On June 11, 2003, Armstead sold 100 illicit movies in DVD format
    for $500 ($5 per DVD) to an undercover agent of the Bureau of
    UNITED STATES v. ARMSTEAD                        3
    Immigration and Customs Enforcement ("ICE") at the parking lot of
    the Springfield Mall in northern Virginia. The 100 bootleg DVDs
    included 25 copies of "2 Fast 2 Furious"; 25 copies of "The Matrix
    Reloaded"; 25 copies of "Finding Nemo"; 15 copies of "The Italian
    Job"; and 10 copies of "Wrong Turn." Again on January 13, 2004,
    Armstead sold the same agent more illicit movies in DVD format, this
    time 200 DVDs for $1,000 (again $5 per DVD). The 200 bootleg
    DVDs included 75 copies of "Lord of the Rings: The Return of the
    King"; 75 copies of "Paycheck"; 25 copies of "Bad Santa"; 15 copies
    of "My Baby’s Daddy"; and 10 copies of "Gang of Roses." The cop-
    ies sold on both occasions were, for the most part, made by using a
    hand-held camcorder to record the films as they played in movie the-
    aters and were, with a few exceptions, of poor quality. At the time,
    however, better copies of the DVD movies sold to the undercover
    agent were not available, as the movies were only in the "theatrical
    release" stage and authorized DVDs were not yet available. Accord-
    ing to the undercover agent, legitimate DVDs would not be available
    until three to six months after the movie was released to theaters.
    Armstead was indicted in two felony counts, one for each occasion
    on which he sold DVDs to the undercover agent.
    At trial, Armstead conceded all elements of the offenses against
    him except the "total retail value" of the DVDs, claiming that their
    total value on each date was far less than $2,500, the threshold
    amount for felony liability under 
    18 U.S.C. § 2319
    (b)(1). He con-
    tended that with the proper finding of retail value, he could be con-
    victed of only misdemeanors. He grounded his retail value assertions
    on the fact that the only hard evidence of retail value was the price
    of the DVDs in the "thieves’ market," which priced the DVDs at $500
    on the first occasion and $1,000 on the second.
    Although the jury was instructed that if it found every element of
    the crime other than a retail value of over $2,500, it could return only
    misdemeanor convictions, it returned felony convictions on both
    counts. The district court sentenced Armstead to six months’ home
    detention, five years’ probation, and ordered him to pay $1,500 in res-
    titution.
    On appeal, Armstead presents the single issue of retail value and
    argues that "retail value," as used in § 2319(b)(1), refers to "the price
    4                    UNITED STATES v. ARMSTEAD
    a willing buyer would pay a willing seller at the time and in the mar-
    ket in which [the infringing DVDs are] sold — the thieves’ market."
    With that definition of "retail value," Armstead contends that the evi-
    dence at trial was insufficient to support felony convictions.
    II
    The Copyright Act, in relevant part, provides that "[a]ny person
    who willfully infringes a copyright shall be punished as provided
    under section 2319 of title 18, if the infringement was committed —
    (A) for purposes of commercial advantage or private financial gain."
    
    17 U.S.C. § 506
    (a)(1)(A). Section 2319 of Title 18, in turn, provides
    in relevant part:
    Any person who commits an offense under section
    506(a)(1)(A) of title 17 —
    (1) shall be imprisoned not more than 5 years, or fined in
    the amount set forth in this title, or both, if the offense
    consists of the reproduction or distribution, including
    by electronic means, during any 180-day period, of at
    least 10 copies or phonorecords, of 1 or more copy-
    righted works, which have a total retail value of more
    than $2,500.
    
    18 U.S.C. § 2319
    (b)(1) (emphasis added). Section 2319 also provides
    that if the $2,500-retail-value element is not satisfied, the defendant
    is to be punished for a misdemeanor. See 
    id.
     § 2319(b)(3).
    Armstead’s argument that the government failed to produce suffi-
    cient evidence that the DVDs he sold to the undercover agent had an
    aggregate retail value of more than $2,500 hinges on the meaning of
    "retail value" as used in § 2319(b)(1). He asserts that retail value, as
    used in the statute, means "the price a willing buyer would pay a will-
    ing seller at the time and in the market in which it is sold — the
    thieves’ market." With this definition of "retail value," he argues that
    what a willing buyer would pay a willing seller at the time was evi-
    denced by what the undercover agent paid him and therefore that the
    retail value amount was insufficient to satisfy the felony threshold
    amount of $2,500.
    UNITED STATES v. ARMSTEAD                         5
    The government contends that "retail value" refers to the higher
    value of what a willing buyer would pay a willing seller for a legiti-
    mate copy of the infringed item, such as an authentic, authorized
    DVD of the same movie. The government states that retail value as
    used in the statute is not the "‘bootleg value’ the defendant received
    on the black market." It argues, "[i]f the Congress had meant to use
    the ‘bootleg value’ or ‘wholesale value’ of counterfeit product[s], it
    certainly would have used that or similar language; instead, the Con-
    gress used the phrase ‘total retail value’ of the copyright works."
    Both parties seem to be arguing about a "market value," debating
    whether the relevant "market" from which to draw this market value
    refers to the market for bootleg products or the market for legitimate
    products. But their debate fails to account for the statutory language,
    which produces a broader formulation of "retail value."
    "Retail value," as a phrase, is not defined in the statute, but "value"
    is. Section 2311, which provides definitions for chapter 113 of Title
    18 (addressing "Stolen Property") defines "value" for the entire chap-
    ter (in which § 2319 is included) as "the face, par, or market value,
    whichever is the greatest." 
    18 U.S.C. § 2311
     (emphasis added). Thus,
    "value" is measured not only by actual transactions that define a mar-
    ket, but also by face or par values assigned to commodities or goods
    before reaching the market, and the statute instructs that the greatest
    of those "values" be used. "Retail," which is not defined at all, refers,
    in its ordinary meaning, to sales transactions of commodities or goods
    in small quantities to ultimate consumers. See, e.g., Webster’s Third
    New International Dictionary 1938 (1993). As distinct from "retail,"
    "wholesale" refers to sales transactions of goods and commodities in
    quantity for resale. 
    Id. at 2611
    . It follows, accordingly, that retail
    prices are higher than wholesale prices.
    Thus considering "retail" and "value" as component terms that are
    individually defined by common understanding and by § 2311,
    respectively, we conclude that "retail value" refers to the greatest of
    any face value, par value, or market value of commodities or goods
    in reference to actual or potential sales to ultimate consumers. Thus,
    while market value — a value determined by the price that a willing
    buyer would pay a willing seller — is included in the class of values
    defined as "retail value," it is not the exclusive determinant. It follows
    6                     UNITED STATES v. ARMSTEAD
    that if a manufacturer of DVDs sells its DVDs at wholesale with a
    suggested retail price of $29 and the retailer actually sells the DVDs
    to the consumer at the discounted price of $19, the "retail value" as
    used in § 2319(b)(1) refers to the greater of the two numbers, or $29
    per DVD. Of course, if the prices paid in actual retail transactions
    were the only evidence presented to support a prosecution under
    § 2319(b)(1), those prices could be considered as evidence of an
    actual "market value," which would be a permissible value for consid-
    eration as the "retail value."
    In this case, while the parties agree that a "market value" may be
    determined by the price that a willing buyer would pay a willing
    seller, see United States v. Ruhe, 
    191 F.3d 376
    , 390 (4th Cir. 1999)
    (defining a "market value" as "the price a willing buyer would pay a
    willing seller at the time and place the property was stolen"), they dis-
    agree on whether that market value may be determined by sales in a
    "thieves’ market." The government provides no authority to support
    the position that prices paid in a "thieves’ market" cannot be a market
    value. Indeed, its only definition — the price of a movie "if it were
    sold to a member of the public" — would seem to include any market,
    except for the fact that the government argues for a value determined
    only by a market of "legitimate" copies. The government’s assertion
    that the market for illicit goods is not determinative of "retail value"
    may be correct, but only if there is other evidence of a higher "value."
    See 
    18 U.S.C. § 2311
    . Otherwise, a black market for illegitimate
    goods undoubtedly may provide evidence of a "market value." See
    United States v. Oberhardt, 
    887 F.2d 790
    , 792-93 (7th Cir. 1989)
    (applying the "thieves’ market" price when it was higher than the
    legitimate price of the item to be valued under 
    18 U.S.C. § 641
    , which
    instructed the court to use "face, par, or market value, or cost price,
    either wholesale or retail, whichever is greater"); cf. United States v.
    Bakken, 
    734 F.2d 1273
    , 1278-79 (7th Cir. 1984) (holding that the
    "market value" component of 
    18 U.S.C. § 2311
     included the "thieves
    market" price a willing buyer would pay a willing seller for the illicit
    goods); United States v. Berkwitt, 
    619 F.2d 649
    , 658 (7th Cir. 1980)
    (same). And § 2311 directs that the criterion for satisfying the thresh-
    old amount for a felony conviction be the "greatest" of the permissible
    values in evidence. See also Ruhe, 
    191 F.3d at 390
    .
    It remains undisputed by the parties that whatever value is used, it
    must be a value applicable at the time the violations occurred and the
    UNITED STATES v. ARMSTEAD                         7
    transactions in question took place — in this case, June 2003 and Jan-
    uary 2004.
    Accordingly, retail value, as used in § 2319(b)(1), refers to prices
    assigned to commodities and goods for sale at the retail level at the
    time of sales at issue, representing face value or par value, or prices
    of commodities and goods determined by actual transactions between
    willing buyers and willing sellers at the retail level — whichever is
    the greatest. This understanding of "retail value," which is derived
    from §§ 2311 and 2319, is confirmed by the House Committee Report
    that accompanied enactment of § 2319. That Report provided:
    The term "retail value" is deliberately undefined, since in
    most cases it will represent the price at which the work is
    sold through normal retail channels. At the same time, the
    Committee recognizes that copyrighted works are frequently
    infringed before a retail value has been established, and that
    in some cases, copyrighted works are not marketed through
    normal retail channels. Examples include motion pictures
    prints distributed only for theatrical release, and beta-test
    versions of computer programs. In such cases, the courts
    may look to the suggested retail price, the wholesale price,
    the replacement cost of the item, or financial injury caused
    to the copyright owner.
    H.R. Rep. No. 102-997, at 6-7 (1992), as reprinted in 1992
    U.S.C.C.A.N. 3569, 3574-75 (emphasis added) (footnote omitted);
    see also 138 Cong. Rec. 34,370-72 (1992) (statement of Sen. Hatch),
    available at 
    1992 WL 279577
    .
    III
    In this case, Armstead sold the illicit DVDs to an undercover agent
    when the movies recorded on them had only been distributed for the-
    atrical release (and perhaps for hotel and airline release) but certainly
    before they had been released on DVDs to the public. Thus, at the
    time of the illicit transactions, there was no legitimate retail market
    for the sale of DVDs except as evidenced by the occasional and spo-
    radic illicit transactions of the kind represented in this case. As noted,
    prices paid in those illicit transactions might be evidence of a market
    8                    UNITED STATES v. ARMSTEAD
    value. But in this case, the "thieves’ market" prices were not the only
    evidence. The government presented evidence of other kinds of value
    that related to retail value during the theatrical release stage of the
    movies when the illegal transactions occurred.
    First, the government offered the testimony of two different wit-
    nesses who indicated that, based on information from the Motion Pic-
    ture Association of America, a single copy of a motion picture sold
    during the prerelease stage to hotels and airlines carries a price of at
    least $1,000 per copy, and, depending on the movie, up to $50,000
    per copy. As one ICE agent explained, this was so because "at the
    time that these films are released in theaters, there is no legitimate
    market for [the public] to get [DVDs]. And the only people who can
    get a licensed copy of this film while it’s in theaters is a hotel chain
    or an airline." The witness explained further that $1,000 was the price
    for the low-end films, and the more popular films could cost any-
    where from $25,000 to $50,000 a copy. A piracy investigator for the
    Motion Picture Association of America then gave his opinion that
    there was "a good argument" to be made that the actual bootleg copies
    sold by Armstead "had a retail value of $1,000 a copy[,] as much as
    $50,000 [a] copy," even though he acknowledged that the number
    might be reduced somewhat to accommodate deficiencies in quality.
    The government also presented testimony that after a movie was
    released to the public through DVDs — when prices for DVDs are
    much lower than prerelease values — the average retail price of the
    10 DVD movies involved in this case would be "in every instance . . .
    higher than $19" per DVD.
    Finally, the government proffered evidence that the "suggested
    retail price" of each of the DVDs sold by Armstead was between $25
    and $30 per copy, but the district court excluded that evidence pre-
    cisely because it was only suggested, and not actual. This was error,
    however, because the suggested retail price was relevant to determine
    a "face value" or "par value" that would be especially relevant to
    determining prerelease retail value. Indeed, the House Report that
    accompanied the bill for § 2319 explicitly noted that for unreleased
    movies, courts could look at suggested retail prices. H.R. Rep. No.
    102-997, at 6-7. And since there would be evidence of both face value
    (had the court properly allowed it) and market value, the higher would
    UNITED STATES v. ARMSTEAD                        9
    be applicable in determining the threshold amount for a felony con-
    viction under § 2319(b)(1).
    Based on our reading of the statute, the government’s evidence of
    the prerelease values of copies of movies, the actual selling prices of
    legitimate copies of movies in the postrelease period, as well as the
    suggested retail prices (which were erroneously excluded by the trial
    court), were all appropriate evidence for a jury to consider in deter-
    mining total retail value of the illicit transactions. Likewise, the evi-
    dence relied on by Armstead of the actual transaction prices in the
    wholesale "thieves’ market" was appropriate evidence for a jury to
    consider. But in considering whether the evidence supports a convic-
    tion, we of course take the evidence actually presented to the jury and
    consider it in a view "most favorable to the Government." See United
    States v. Kelly, 
    510 F.3d 433
    , 440 (4th Cir. 2007).
    While the government’s evidence about the wholesale cost of a sin-
    gle copy of a movie sold to hotels before DVDs were released to the
    public was not directly on point, it was a benchmark from which the
    jury could rationally have concluded that DVDs sold during that
    period had a retail value that exceeded $25 per copy. The minimum
    $1,000 per copy for a movie sold to hotels was a wholesale price that
    included payment for a license to show the movie to hotel customers.
    But the jury could conclude that, if there were a market for the retail
    sale of such DVDs, it would be higher than the wholesale price. And
    even though hotels did not resell the copies they bought, they none-
    theless recovered their costs and profits from multiple retail rentals in
    hotel rooms. In this manner, the jury could readily reason from the
    $1,000 threshold level to conclude that the retail value of a single
    DVD before general release of the movie as a DVD exceeded $25.
    This conclusion would be buttressed by the fact that the average
    postrelease price of DVDs in the legitimate market would be greater
    than $19 per copy, indicating a much greater price for such DVDs
    prerelease.
    (Moreover, while the jury did not hear the evidence of the sug-
    gested retail prices, had the court admitted that evidence, as it should
    have, the "retail value" of a DVD would again be shown to exceed
    $25 per copy and therefore the threshold amount for a felony convic-
    tion.)
    10                     UNITED STATES v. ARMSTEAD
    The fact that Armstead actually sold his DVDs in bulk for $5 per
    copy was also evidence that the jury could have considered. But this
    evidence would not be evidence of the greatest value; rather, it pro-
    vided evidence of the lowest value that could be assigned to the
    DVDs. Indeed, the $5-per-copy price was a wholesale price, suggest-
    ing a "retail" value somewhat greater than $5 per copy.
    Armstead makes much of the fact that the DVDs he sold were of
    poor quality, since most of them were recorded with camcorders in
    theaters. While he may be correct that the quality of the infringing
    copy might bear on retail value, this was something that he was able
    to, and did, argue to the jury, and the jury was fully able to take that
    into account in determining the retail value of the DVDs. But it could
    have recognized, for example, that at this prerelease stage, advance
    knowledge of the plot of a movie, the action, and how the movie ends
    might be far more significant to retail value than reproduction quality.
    At bottom, the jury had sufficient evidence from which to conclude
    that each copy of the DVDs sold by Armstead to undercover agents
    during the period before the films’ release to the public on authorized
    DVDs had a retail value exceeding $25 per copy and therefore that
    each transaction exceeded the threshold amount for a felony convic-
    tion. Moreover, with respect to the second transaction, which
    involved the sale of 200 DVDs, even the $19 per copy ($3,800 in
    total), testified to by government witnesses as a retail value for the
    postrelease market, exceeded the $2,500 threshold amount.
    The judgment of the district court is
    AFFIRMED.
    

Document Info

Docket Number: 05-5157

Judges: Niemeyer, Traxler, Duncan

Filed Date: 5/6/2008

Precedential Status: Precedential

Modified Date: 3/2/2024