A man who ran a high-volume business selling counterfeit Adobe Systems software online has successfully challenged a judge’s order that he pay the company more than $743,000 in restitution.

The U.S. Court of Appeals for the D.C. Circuit, in a unanimous three-judge ruling, vacated a court order that required the defendant, Gregory Fair, pay Adobe $743,098 — the amount equivalent to his sale of pirated software. The government, the appeals court said, failed to show Adobe’s actual losses from the copyright infringement.

Fair pleaded guilty to his role in the criminal scheme, which generated hundreds of thousands of dollars in revenue between 2001 and 2007. In the trial court, prosecutors presented evidence of thousands of sales with total revenue of about $767,000. Fair was sentenced in 2009 to more than three years in prison.

A trial judge, however, “may not substitute a defendant’s ill-gotten gains for the victim’s actual, provable loss,” Judge Judith Rogers wrote November 9 for the D.C. Circuit panel. “Victims of crime may achieve disgorgement of profits and ill-gotten gains through other statutory and civil-recovery mechanisms.”

The D.C. Circuit said that the Mandatory Victims Restitution Act, the law at issue in Fair’s case, is “limited to the actual, provable loss suffered by the victim and caused by the offense conduct.” An award above actual loss, the court said, would be punitive and outside the scope of the law.

Federal appellate courts, Rogers wrote, “are in general agreement that the defendant’s gain is not an appropriate measure of the victim’s actual loss in MVRA calculations.”

Rogers said the “government offered no evidence of either the number of sales that Adobe Systems likely lost as a result of Fair’s scheme or the profit that Adobe Systems would have made on any such diverted sales.”

In a statement in the trial court, Adobe urged the trial judge, Richard Roberts, to “impose the maximum possible sentence on this offender in order to send a strong deterrent message to others.”

Prosecutors argued, unsuccessfully, that the lost-profits foundation for restitution “makes no sense in this context” because Fair was providing outdated versions of Adobe products that the company itself no longer sells.

“The factual record here contains ample support — evidence of Fair’s actual sales and revenue generated from his illegal sale of pirated copies of Adobe’s software — for the specific amount of restitution ordered,” Christopher Merriam, a Justice Department attorney, said in D.C. Circuit papers.

Intellectual property rights holders, prosecutors said, should not have to provide “a precise accounting of the number of customers who would have purchased legitimate copies of the victim’s software if not for his illegal acts.”

Requiring a victim to prove lost profit, U.S. Justice Department lawyers said, “would reward defendants by imposing on victims the difficult task of quantifying each lost sale resulting from their criminal conduct.”

The D.C. Circuit judges said that in any case where the actual-loss calculation is too complex to permit a timely calculation of restitution, federal judges can hold additional hearings “or to decline to order restitution at all, not to issue an order unsupported by the evidence.”

Fair argued in the trial court that Adobe permitted his infringement to continue until it was no longer to the company’s advantage. Prosecutors called Fair’s argument “self-serving speculation.”

Fair’s attorney, Beverly Dyer of the Federal Public Defender’s Office in Washington, said there was no evidence Fair’s sale of counterfeit software led to lost sales of currently available full-price Adobe products.

The D.C. Circuit declined the government’s request to send the case back to the trial court to let a judge there re-examine how much money Adobe should receive in restitution from Fair.

“No special circumstances are present that would warrant reopening the record on restitution in Fair’s case,” Rogers wrote in the opinion. “The government’s burden to prove actual loss under the MVRA was well-established before sentencing.”

Mike Scarcella is a reporter for The National Law Journal, a Legal affiliate based in New York. This article first appeared on The BLT: The Blog of Legal Times. •