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February 1, 2008

Fascinating Eighth Circuit case on restitution

A somewhat amusing set of facts leads to an Eighth Circuit opinion today addressing a very interesting set of legal issues in US v. Chalupnik, No. 07-1355P (8th Cir. Feb. 1, 2008) (available here). Here is how the opinion starts:

BMG Columbia House (“BMG”) sells CDs and DVDs by mail. Many BMG discs prove to be undeliverable. During the time in question, BMG arranged with the United States Postal Service (“USPS”) to gather and discard undeliverable discs, as it was less costly for BMG to produce replacement discs than to pay for the return and restocking of undeliverable discs. James Chalupnik, a janitorial supervisor at the downtown post office in Fargo, North Dakota, took several thousand undeliverable CDs and DVDs from the post office trash and sold them to used record stores. Initially charged with felony mail theft, Chalupnik pleaded guilty to misdemeanor copyright infringement in violation of 17 U.S.C. § 506(a) and 18 U.S.C. § 2319(b)(3). The district court sentenced Chalupnik to two years probation and ordered him to pay -2- BMG restitution in an amount equal to his documented sales proceeds, $78,818. Chalupnik appeals the restitution award. We conclude that the government failed to prove the amount of loss to BMG proximately caused by Chalupnik’s offense. Accordingly, we vacate the restitution award and remand for resentencing.

February 1, 2008 at 01:04 PM | Permalink


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I guess the first response I have, is amazement that BMG Direct Marketing is still in business. I would have thought that on-line shopping would have eliminated the "record club" business model.

Very odd case - its very arguable, that because BMG was disposing of the CDs (probably because the cost of shipping cds and DVDs is way more than the cost of manufacturing CDs and DVDs) anyway, and that Mr. Chalupnick took them out of the trash, that they were abandoned property (probably why the government backed down from the mail theft charge). But if that is the case, why doesn't the "first sale" doctorine bar conviction based on copyright infringement? Yes, the product was not sold, but it was abandoned - which means that the proper amount of restition is likely $0 (since its cheaper to just make a new cd than to ship it) because that is the value that BMG put on it. I still am not sure that the court should have accepted the guilty plea in the first place - since its at least arguable that he came into possession of the CDs and DVDs legally (as abandoned property) and contrary to RIAA propaganda, if someone legally possesses a CD or a DVD they can legally sell it.

The court did miss one of the biggest ironies in this case - namely, record labels do not pay artists for returns and destroyed albums (which also raises the question on whether Mr. Chalupnik was actually guilty of the charged crimes) or even returned albums that the record company resells (in fact, this has traditionally been one of the major ways that record companies have defrauded their artists - they write off a bunch of albums as being returns, then go ahead and sell them anyone, pocketing all of the money). Which again, means that the proper restitution amount is likely zero.

Posted by: Zack | Feb 1, 2008 2:23:20 PM

I had the same general thought as Zack--how is it copyright infringement (criminal, no less) to retrieve CDs and DVDs from the trash and sell them?

I suppose the court didn't need to address that, because it's not argued on appeal.

As for the restitution, it's arguable, but I can understand the court's reasoning. It seems fairly straightforward that the "victim" of copyright infringement is the copyright owner. The loss amount is a bit trickier, but it's still hard to fault the court on that.

Posted by: | Feb 1, 2008 3:29:56 PM

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