BILL ANALYSIS Ó
SENATE COMMITTEE ON PUBLIC SAFETY
Senator Loni Hancock, Chair S
2011-2012 Regular Session B
1
4
7
SB 1479 (Pavley) 9
As Amended March 29, 2012
Hearing date: April 17, 2012
Penal Code
JM:dl
MUSIC AND VIDEO PIRACY:
RESTITUTION BASED ON PIRATED WORKS SEIZED FROM THE OFFENDER
HISTORY
Source: Recording Industry Association of America
Prior Legislation: AB 2750 (Krekorian) - Ch. 468, Stats. 2008
AB 64 (Cohn) - Ch. 9, Stats. 2006
SB 1506 (Murray) - Ch. 617, Stats. 2004
Support: Unknown
Opposition:California Public Defenders Association (unless
amended)
KEY ISSUE
IN A MUSIC OR VIDEO PIRACY CASE, SHOULD RESTITUTION INCLUDE THE
VALUE OF "DISPLACED LEGITIMATE WHOLESALE PURCHASES" - PIRATED WORKS
SEIZED FROM A DEFENDANT AND DESTROYED?
(More)
SB 1479 (Pavley)
PageB
PURPOSE
The purpose of this bill is to provide that in music or video
piracy restitution shall include the value of pirated works -
works not obtained at wholesale from the copyright holder or
licensee - that were seized from the defendant and destroyed.
Existing law (Pen. Code § 653w) provides that a person is guilty
of a crime when he or she knowingly attempts to sell, rent or
manufacture, or possess for these purposes, an illicit audio
recording or audiovisual work. The essence of this crime is
that the defendant failed to disclose the true name and address
of the manufacturer and the name of the artist.
§ A violation involving at least 100 copies of
an audio recording or an audiovisual work is an
alternative felony-misdemeanor, punishable by
imprisonment for up to one year in the county
jail, or in state prison for 2, 3, or 5 years,
or a fine of up to $500,000, or both.
§ A first violation involving less than 100
copies is a misdemeanor, punishable by up to one
year in county jail, or a fine not exceeding
$50,000, or both.
§ A subsequent violation involving less than
100 copies is an alternative felony-misdemeanor,
punishable by up to one year in county jail, 16
months, 2 years, or 3 years in state prison, or
a fine not exceeding $200,000, or both. (Pen
Code § 653w.)
Existing law includes a number of crimes concerning music
piracy, other than Section 653w, which appears to be the most
commonly prosecuted of these crimes. These related sections -
653h, 653s and 653u are complex and confusing.
§ Section 653h, subdivision (a), prohibits
transferring any recording for purposes of sale or
commercial public performance and transporting such
recordings for financial gain. An offense involving
(More)
SB 1479 (Pavley)
PageC
at least 1000 units is an alternate
felony-misdemeanor, with prison triad of 2, 3 or 5
years and $500,000 fine. An offense involving less
than 1000 units is a misdemeanor. A second conviction
for fewer than 1000 units is a straight felony, with a
maximum fine of $200,000.
§ Section 653h, subdivision (d), prohibits selling or
offering for sale, etc. illegally transferred
recordings. A first offense involving at least 100
units is a misdemeanor, with maximum one-year jail
term and maximum $20,000 fine. A second conviction is
an alternate felony- misdemeanor, with maximum $50,000
fine. A first offense involving less than 100 units
is a misdemeanor, with maximum 6-months' jail term and
a maximum fine of $10,000. A second offense involving
less than 100 units is a misdemeanor, with maximum
one-year jail term and maximum $20,000 fine. A third
offense involving less than 100 units is an alternate
felony-misdemeanor, with maximum $25,000 fine.
§ Penal Code Sections 653s and 653u concern unlawful
recording and sale of live performances. The elements
of the crimes and the fines are equivalent to those in
Penal Code Section 653h.
Existing provisions in the California Constitution state that
all persons who suffer losses as a result of criminal activity
shall have the right to restitution from the perpetrators of
these crimes. Restitution shall be ordered in every case unless
compelling and extraordinary reasons exist to the contrary. The
Legislature shall adopt provisions to implement this section
during the calendar year following adoption of this section.
(Cal. Const. Art. 1 § 28(b).)
Existing law states legislative intent that a victim of crime
who incurs any economic loss as a result of the commission of a
crime shall receive restitution directly from any defendant
convicted of that crime. (Pen. Code § 1202.4, subd. (a)(1).)
(More)
SB 1479 (Pavley)
PageD
Existing law directs the court to order a defendant to make
restitution to the victim or victims of the defendant's crime.
The court shall order full restitution for the losses caused by
the defendant's crime unless the court finds and states
compelling and extraordinary reasons for not doing so. (Pen.
Code § 1202.4, subd. (f).)
Existing decisional law provides that restitution must be
determined from the losses actually caused by the defendant's
crime. (People v. Lyon (1996) 49 Cal.App.4th 1521.) With the
exception of lewd conduct cases, compensable losses are limited
to economic losses. (People v. Giordano (2007) 42 Cal.4th 644.
Existing decisional law provides in broadest terms that the
restitution "ensures that amends . . . be made to society for the
breach of the law, enables people who suffer loss as a result of
criminal activity Ýto] be compensated for those losses, and acts
as a deterrent to future criminality . . . and to rehabilitate
the criminal." (People v. Crow (1993) 6 Cal.4th 952, 958,
internal quotation marks omitted.) Restitution orders in
probation cases can be somewhat broader than in cases where
probation is denied. (People v. Giordano, supra, 2007) 42
Cal.4th 644, 653; Pen. Code § 1203.1.)
Existing law provides that if the amount of restitution cannot
be determined at the time of sentencing, the restitution order
shall state that the amount will be determined at the direction
of the court. (Pen. Code § 1202.4, subd. (f).)
Existing law grants the defendant the right to a hearing to
dispute the amount of restitution. (Pen. Code § 1202.4, subd.
(f)(1).)
Existing law states upon a person being convicted of any
crime in the State of California, the court shall order the
defendant to pay a fine in the form of a penalty assessment.
Penalty assessments are calculated at approximately 280% of
the base fine, which is added to the base fine to determine
that actual amount paid by the defendant. (Pen. Code §
(More)
SB 1479 (Pavley)
PageE
1202.4, subd. (a)(2).)
Existing law provides in every case where a person is
convicted of a crime, the court shall impose a separate and
additional restitution fine unless the court finds
compelling and extraordinary reasons for not doing so and
states those reasons on the record. (Pen. Code § 1202.4,
subd. (b).)
This bill provides that in a music or video piracy case,
restitution shall include the value of pirated works - described
as "displaced legitimate wholesale purchases" - that were seized
from a defendant and destroyed.
RECEIVERSHIP/OVERCROWDING CRISIS AGGRAVATION
("ROCA")
In response to the unresolved prison capacity crisis, since
early 2007 it has been the policy of the chair of the Senate
Committee on Public Safety and the Senate President pro Tem to
hold legislative proposals which could further aggravate prison
overcrowding through new or expanded felony prosecutions. Under
the resulting policy known as "ROCA" (which stands for
"Receivership/Overcrowding Crisis Aggravation"), the Committee
has held measures which create a new felony, expand the scope or
penalty of an existing felony, or otherwise increase the
application of a felony in a manner which could exacerbate the
prison overcrowding crisis by expanding the availability or
length of prison terms (such as extending the statute of
limitations for felonies or constricting statutory parole
standards). In addition, proposed expansions to the
classification of felonies enacted last year by AB 109 (the 2011
Public Safety Realignment) which may be punishable in jail and
not prison (Penal Code section 1170(h)) would be subject to ROCA
because an offender's criminal record could make the offender
ineligible for jail and therefore subject to state prison.
Under these principles, ROCA has been applied as a
content-neutral, provisional measure necessary to ensure that
the Legislature does not erode progress towards reducing prison
overcrowding by passing legislation which could increase the
(More)
SB 1479 (Pavley)
PageF
prison population. ROCA will continue until prison overcrowding
is resolved.
For the last several years, severe overcrowding in California's
prisons has been the focus of evolving and expensive litigation.
On June 30, 2005, in a class action lawsuit filed four years
earlier, the United States District Court for the Northern
District of California established a Receivership to take
control of the delivery of medical services to all California
state prisoners confined by the California Department of
Corrections and Rehabilitation ("CDCR"). In December of 2006,
plaintiffs in two federal lawsuits against CDCR sought a
court-ordered limit on the prison population pursuant to the
federal Prison Litigation Reform Act. On January 12, 2010, a
three-judge federal panel issued an order requiring California
to reduce its inmate population to 137.5 percent of design
capacity -- a reduction at that time of roughly 40,000 inmates
-- within two years. The court stayed implementation of its
ruling pending the state's appeal to the U.S. Supreme Court.
On May 23, 2011, the United States Supreme Court upheld the
decision of the three-judge panel in its entirety, giving
California two years from the date of its ruling to reduce its
prison population to 137.5 percent of design capacity, subject
to the right of the state to seek modifications in appropriate
circumstances. Design capacity is the number of inmates a
prison can house based on one inmate per cell, single-level
bunks in dormitories, and no beds in places not designed for
housing. Current design capacity in CDCR's 33 institutions is
79,650.
On January 6, 2012, CDCR announced that California had cut
prison overcrowding by more than 11,000 inmates over the last
six months, a reduction largely accomplished by the passage of
Assembly Bill 109. Under the prisoner-reduction order, the
inmate population in California's 33 prisons must be no more
than the following:
167 percent of design capacity by December 27, 2011
(133,016 inmates);
155 percent by June 27, 2012;
(More)
SB 1479 (Pavley)
PageG
147 percent by December 27, 2012; and
137.5 percent by June 27, 2013.
This bill does not aggravate the prison overcrowding crisis
described above under ROCA.
COMMENTS
1. Need for This Bill
According to the author:
SB 1479 provides clarity as to the amount of
restitution that victims may claim under Penal Code
1202.4. When AB 2750 was passed in 2008, the author
clearly intended that record companies and their
designees (such as RIAA) are entitled to restitution
for economic loss arising from the sale, or possession
for sale, of Ýpirated] copies of copyright-protected
sound recordings and motion pictures. Restitution
should be set at the average wholesale price of the
items that were illegally possessed by the defendant
with the intent to sell. The rationale behind this
calculation is that the only way for a party to obtain
such copies legally would be to purchase them from an
authorized source---in this case, a wholesaler. Thus,
by possessing the copies, the pirate displaced the
wholesale purchase.
The "wholesale" argument used by RIAA has been
advanced successfully in many restitution cases.
However, a 2011 decision in the case of People vs.
Garcia Ý(2011) 194 Cal.App.4th 612] dramatically
changed the landscape. In Garcia, the appellate court
threw out the wholesale basis for restitution and
provided restitution only for past sales of unlawful
sound recordings documented in Ýthe defendant's]
"pay-owe" sheet and the costs of investigations and
assistance to the prosecutor. The court failed to
(More)
SB 1479 (Pavley)
PageH
recognize that piracy causes economic harm on the
retail and wholesale levels. When a pirate possesses
illicit goods for sale, he deprives the owners of the
media (record labels, film studios, etc.) of the
wholesale transaction that would have occurred had he
purchased the product from its legitimate source. If
and when a pirate sells his goods to a consumer, he
deprives retailers of sales. Thus, the court in Garcia
failed to recognize that 1202.4(r) focuses on the
actual economic harm to producers of media based on
displaced wholesale purchases, and not potentially
displaced retail sales. Garcia reduces incentives for
prosecutors to pursue piracy cases, since the typical
case produces little or no jail time, small fines,
and, now, little restitution to the victims. SB 1479
will provide clear direction to the courts on how to
properly calculate a restitution order and settle,
once and for all, the basis that should be used by the
courts in determining these values.
Piracy causes substantial damage to affected
industries. In its 2007 report entitled, "A False
Bargain: The Los Angeles County Economic Consequences
of Counterfeit Products," the L.A. Economic
Development Corporation noted that counterfeiting is
not taken seriously as criminal activity. The report,
however, argued that "consumers lose when companies
Ýreduce] investment in research and development,
whether developing new drugs or new music acts. More
immediately, piracy causes real losses measurable in
revenues, jobs, wages, and taxes." The report stated
that motion picture production accounted for nearly $3
billion in losses, while music accounted for $851
million in losses. As a result, local and state
government lost substantial tax revenue.
2. Legislation from 2008 (AB 2750 - Krekorian) on Restitution
in Music and Video Piracy Case
This bill requires a court to order a convicted music or video
(More)
SB 1479 (Pavley)
PageI
piracy defendant to pay to the copyright holder the value of
potential lost wholesale sales, essentially as measured by the
number of pirated items seized from the defendant. The bill
describes this payment as a form of restitution. California law
largely addresses music and video piracy through the true name
and address statute in Penal Code Section 653w. Because only
federal law can directly address copyright, Section 653w
protects copyright holders by requiring any manufacturer of
music or video works to include his or her true name and address
on the work.
The restitution provision in this bill previously appeared in AB
2750 (Krekorian), Ch. 468, Stats. 2008. The provision was
amended out of the bill before it was enacted. As enacted, AB
2750 provided that a music or video industry trade organization
could be the victim of piracy and be awarded restitution in a
piracy case. AB 2750 also directed a sentencing court in a
piracy case to grant restitution to a trade organization for the
costs of investigation of the piracy case. Finally, the bill
provided that restitution for pirated works was to be valued as
the average wholesale valued of works of that kind, eliminating
the need for the court to determine the value of each of the
specific works pirated by the defendant.
3. Ortiz (1997) and Garcia (2011) Cases held that a Music
Piracy Victim is not Entitled to Restitution for Potential
Losses based on Pirated Items Seized from a Defendant - this
Bill Requires Such Restitution
The appellate court in People v. Ortiz (1997) 53 Cal.App.4th
791<1> considered many issues of restitution presented in music
and video piracy cases. In Ortiz, the Association of Latin
American Record Manufacturers (ALARM) had investigated piracy of
music by the defendant. The trial court estimated that Ortiz
had sold 2000 pirated cassette tapes. She had 53,000 cassettes
at the time or her arrest.
As relevant to this bill, ALARM argued that the defendant should
---------------------------
<1> People v. Ortiz (1997) 53 Cal.App.4th 791; People v. Garcia
(2011) 194 Cal.App.4th 612
(More)
SB 1479 (Pavley)
PageJ
be ordered to pay restitution for the "potential loss" of sales
of the 53,000 unsold pirated cassettes. The trial court
rejected the potential loss of sales theory and ordered Ortiz to
pay restitution for the estimated 2000 tapes she had sold. The
court valued the sold tapes at $1.00 per tape. The court also
ordered the defendant to pay investigative costs incurred by
ALARM. The appellate court in Ortiz held that the trial judge
"properly rejected ALARM's 'potential loss' theory of recovery."
(Id. at 798-799.) This bill would explicitly require a
sentencing court to order restitution for the "potential loss"
of sales, as measured by the number of items possessed by the
defendant, regardless that the items were seized before sale.
In People v. Garcia (2011) 194 Cal.App.4th 612, the Recording
Industry Association of America (RIAA, sponsor of this bill) and
the Motion Picture Association of America (MPAA) argued that AB
2750 in 2008 effectively overruled Ortiz and entitled a music or
video piracy victim to restitution for potential lost sales at
wholesale. RIAA and MPAA argued that they were owed restitution
for lost wholesale sales because the defendant could only have
legitimately obtained copies of music and video works through
wholesale purchases from the copyright owner. That is, RIAA and
MPAA argued that the piracy perpetrator must be forced to
essentially pay the purchase price for items he obtained
illegally, although he or she did not sell the material to
others and although he or she could not keep the items. The
trial court granted restitution requested by the victims for
potential lost sales. The RIAA witness in the trial court
stated that the loss occurred when the pirated copy of each work
was made. The MPAA witness testified that the loss - displaced
sales - occurred when the pirated DVDs were seized from the
defendant. (Id, at p. 615.)
The defendant appealed and the appellate court in Garcia
reversed the trial court. In a lengthy opinion that considered
in detail the history of AB 2750, the court ruled that RIAA and
MPAA were not entitled to restitution for potential lost
wholesale sales, as measured by the number of pirated works
seized from the defendant. The court appears to have noted that
the defendant would not have purchased the works from the RIAA
(More)
SB 1479 (Pavley)
PageK
and MPAA affiliated companies had he not pirated the works.
Therefore, RIAA, MPAA or the affiliated company did not lose any
sales to the perpetrator. The pirated works simply provided the
measure of the extent of the crime, not the value of
restitution. The court held that the relevant statute - Penal
Code Section 1204, subdivision (r), was clear and that a letter
to the Assembly Journal from the author of AB 2750 did not
establish a contrary interpretation. (Id, at 614-622.)
This bill seeks to explicitly provide that a defendant must pay
restitution to the victim in an amount equal to the value of
legitimate copies of the works illegally possessed by the
defendant, had that number of works been legitimately purchased
at the wholesale price. The bill states that this form of
restitution reflects the loss of legitimate sales at wholesale.
4. Issue Whether This Bill 1) Defines a New Form of Restitution
or 2) Defines a Penalty That is Paid to the Victim - Possible
Precedent for Payment by Defendant of a Penalty to a Victim
The Nature of Restitution - Civil Law Remedies in Criminal
Prosecutions
A core distinction between a criminal prosecution and civil suit
for damages is that the plaintiff (the party bringing suit) in a
criminal case is the People of the State of California, while in
a civil suit for damages the plaintiff is an individual or
defined group seeking recompense for damages caused by
defendant. Essentially, a crime involves a wrong done to
society at large, while a civil suit for damages typically
involves a wrong done to a private party. A crime victim is not
a party to a criminal case. Crime statutes include a measure of
punishment and deterrence, while civil statutes are remedial -
designed to compensate the plaintiff or fix a problem. (Int.
Union v. Bagwell (1994) 512, U.S. 821; People v. Roberts (1992)
2 Cal.4th 271; Witkin, 1 Crim, Law, Intro. to Crimes, § 1-7.)
In unusual civil cases not arising from contract, the defendant
can be forced to pay "exemplary" damages in the form of a
penalty to the plaintiff if it is shown by clear and convincing
evidence that the defendant acted despicably, with malice,
(More)
SB 1479 (Pavley)
PageL
oppression or fraud. (Civ. Code §3294.)
Nevertheless, under the California Constitution (Art. 1, §28),
as implemented by statute (Pen. Code §1202.4) a sentencing judge
in a criminal case must order the defendant to pay full
restitution to the victim for all his or her economic losses. A
restitution order may include some aspect of penalty when the
order is intended to rehabilitate the defendant as part of a
grant of probation. (People v. Giordano (2007) 42 Cal.4th 644,
653.)
New Form or Measure of Restitution in this Bill
Under this bill, a convicted defendant in a music or video
piracy case would be required to pay to the victim (copyright
owner or designee) the wholesale value of all pirated works
taken from the defendant and destroyed. For example, a
defendant who was arrested while in possession of 10,000 CDs
that were made from illegally downloaded digital files would be
ordered to pay the copyright owner<2> the wholesale value of
10,000 legitimate CDs, although the CDs were never sold and were
not purchased from another manufacturer. (If the defendant
found in possession of the pirated works purchased the CDs from
another illegitimate source, the ultimate source of the works
would also be guilty of record piracy.)
The sponsor argues that anyone who is in possession of wholesale
quantities of music or video works can only legitimately obtain
---------------------------
<2> Federal copyright law preempts California law. That is,
California law cannot directly regulate copyright or create
remedies for copyright violations. California protects
copyright works indirectly, through requiring anyone who creates
or copies a music or video work to print the true name and
address of the manufacturer of the work. The stated purpose for
the law is to protect the consumer from substandard works,
partly by allowing the consumer to return the work back to the
manufacturer or retailer for a refund. Federal courts have held
that as long as a state law addresses a non-copyright interest,
the state law can validly protect or address the interests of
the copyright holder.
(More)
SB 1479 (Pavley)
PageM
those works from the copyright holder or licensee. Thus, a
defendant who possesses a certain quantity of works that were
not obtained from the copyright holder must be forced to pay the
purchases price that would apply to legitimate works of that
same quantity. One could describe such an order as a forced
purchase from the victim. Of course, the sponsor is not arguing
that defendant would be able to actually receive or keep
legitimate products for the payment.
Issue of whether this Bill Involves Payment of a Penalty by the
Defendant to a Record of Video Piracy Victim
In most cases, the defendant in a music or video piracy case
would never have purchased legitimate works from the copyright
holder. Such defendants operate as manufacturers and
wholesalers, and sometimes retailers as well. As such, it would
arguably appear that the items seized from the defendant do not
represent sales lost by the copyright holder. The works seized
from the defendant did not truly replace any legitimate sales.
The items seized from the defendant establish the nature and
extent of his or her crime.<3>
Wholesale sales are only an intermediate step in the marketing
and distribution of music or videos to the public. The point of
manufacturing and distributing individual works of music or
video is to sell them to individual consumers for use. One
would not purchase wholesale quantities of individual music or
video works to hold. A case of Lady Gaga CDs or a case of
Avatar DVDs is essentially a case full of plastic until the
works are distributed. That is, there is no point in making a
wholesale purchase unless the works are eventually individually
---------------------------
<3> If 100 or more copies were involved in the piracy, the crime
is an alternate felony-misdemeanor, with a prison term of 2, 3
or 5 years and a fine of up to $500,000. A first offense of
less than 100 copies is a misdemeanor, with a jail term and a
fine of up to $50,000. A repeated violation of less than 100
copies is an alternative felony-misdemeanor with a felony jail
term of 16 months, 2 years or 3 years and a fine of up to $
200,000. (Pen Code § 653w.)
(More)
SB 1479 (Pavley)
PageN
sold to consumers. Without the retail market, there is no
wholesale market.
One could argue that where a legitimate CD or DVD retailer - a
regularly run and licensed business - purchased pirated works,
those works otherwise would have been purchased from the
legitimate copyright holder. Arguably, pirated works possessed
by a retailer and offered for sale to the public do displace
sales that would have been made to the retailer by the copyright
owner.
However, the logic of this argument might not withstand
analysis. Where a record store owner obtains pirated works and
intends to sell the works to the public, but the works are
seized before retail sale, a retail sale would not likely be
displaced. A consumer who has decided to buy the CD will still
purchase the CD, just not a pirated work from the
defendant-retailer. The consumer will purchase a legitimate CD
from a legitimate retailer who purchased that work at wholesale
from the copyright holder. The copyright holder did not
actually lose a wholesale sale. The sale was simply made to
another retailer who sold the work to a consumer. The sale was
moved, not lost.
(More)
Thus, it can be argued that forcing a music or video piracy
defendant to pay to the copyright holder the value of pirated
works seized from the defendant is essentially a penalty. The
penalty is measured by the extent of the defendant's crime, as
reflected by the number of pirated (non-conforming) works seized
from the defendant. By nature, penalties are paid to the state.
This bill would direct payment of a penalty be made to the
victim of a crime.
Policy Issues Concerning Payment of a Penalty to the Victim, not
the State, in a Criminal Case
One could argue that payment of a penalty to a music or video
piracy victim is just. The music and video industries have been
harmed by widespread piracy. Piracy defendants have contributed
to the harm suffered by the industries and should, by this
logic, be ordered to pay monetary penalties to those who have
been harmed. All penalties would otherwise be paid to the
state, and the victim suffers much more directly and fully from
music and video piracy than the state. The court could still
order a defendant to pay very substantial, even severe, fines to
the state that would often be well in excess of the payment
required by this bill.
Nevertheless, requiring a court to order a defendant to pay a
penalty to a crime victim, rather than restitution to the victim
for direct economic losses caused by the defendant, would be a
very new form of penalty in a criminal case. The sponsor notes
that one may only legitimately obtain wholesale quantities of
music or video from the owner of the copyright or a licensee.
However, that is true as to virtually every form of intellectual
property - books, trademarked clothing and patented inventions
and processes. A defendant arrested in possession of 10,000
counterfeit Gucci bags or Nike shoes would be in essentially the
same position as one found in possession of 10,000 pirated CDs.
The same logic could apply to defendant found in possession of
counterfeit Viagra or Oxycontin.
Once the precedent is set for payments of penalties to victims
in intellectual property crimes, one could expect that advocates
SB 1479 (Pavley)
PageP
would seek to extend that precedent to all victims. An assault
victim is entitled to restitution for all economic losses, but
why should any monetary penalty be paid to the state? The
victim directly suffered while the harm to the state is vague
and abstract. Nevertheless, requiring a defendant to pay a
penalty to the victim would be a novel sentencing law.
DOES THIS BILL PROVIDE FOR A PENALTY TO BE PAID BY A MUSIC OR
VIDEO PIRACY DEFEDANT TO THE COPYRIGHT HOLDER, RATHER THAN TRUE
RESTITUTION FOR THE ECONOMIC DAMAGES OF LOST SALES?
(More)