                       FOR PUBLICATION

    UNITED STATES COURT OF APPEALS
         FOR THE NINTH CIRCUIT


 UNITED STATES OF AMERICA,                           No. 12-10344
             Plaintiff-Appellee,
                                                       D.C. No.
                     v.                          5:09-cr-01015-EJD-1

 ROOSEVELT ANDERSON, JR.,
          Defendant-Appellant.                          OPINION


         Appeal from the United States District Court
           for the Northern District of California
         Edward J. Davila, District Judge, Presiding

                     Argued and Submitted
           June 11, 2013—San Francisco, California
              Submission vacated July 15, 2013
               Resubmitted December 12, 2013

                      Filed December 19, 2013

Before: Ferdinand F. Fernandez and Consuelo M. Callahan
Circuit Judges, and Sarah S. Vance, Chief District Judge.*

                     Opinion by Judge Callahan




  *
    The Honorable Sarah S. Vance, Chief District Judge for the U.S.
District Court for the Eastern District of Louisiana, sitting by designation.
2                 UNITED STATES V. ANDERSON

                           SUMMARY**


                           Criminal Law

    The panel affirmed a conviction for criminal copyright
infringement, but vacated the restitution order and remanded.

    The panel held that a jury instruction on willfulness was
flawed but did not rise to the level of plain error, and that
evidence of uncharged acts was properly admitted as intrinsic
to the charged conduct.

    The panel held that the district court erred in failing to
award restitution reflecting the victim’s actual loss, which
consisted of the victim’s lost profits on sales of authentic
copies that would have taken place if not for the defendant’s
conduct. The panel remanded for the district court to
reconsider restitution on an open record.


                             COUNSEL

John J. Jordan (argued), San Francisco, California, for
Defendant-Appellant.

Melinda Haag, United States Attorney; Barbara J. Valliere,
Assistant United States Attorney, Chief, Appellate Division;
Susan B. Gray (argued), Assistant United States Attorney,
San Francisco, California, for Plaintiff-Appellee.


  **
     This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
                UNITED STATES V. ANDERSON                        3

                           OPINION

CALLAHAN, Circuit Judge:

    Roosevelt Anderson, Jr., appeals his conviction for
criminal copyright infringement under 17 U.S.C.
§ 506(a)(1)(A) and 18 U.S.C. § 2319(b)(1). Anderson
contends that the district court erred: (1) by giving an
incorrect jury instruction on willfulness; (2) by allowing the
government to introduce evidence of uncharged acts of
infringement; and (3) in calculating restitution. Applying the
willfulness standard for criminal copyright cases as recently
clarified in United States v. Liu, 731 F.3d 982 (9th Cir. 2013),
we conclude that the jury instruction was flawed but did not
rise to the level of plain error. We also find that the evidence
of uncharged acts was properly admitted as intrinsic to the
charged conduct, and accordingly, we affirm Anderson’s
conviction. Nonetheless, consistent with United States v.
Fair, 699 F.3d 508 (D.C. Cir. 2012), and United States v.
Chalupnik, 514 F.3d 748 (8th Cir. 2008), we conclude that
the district court erred in failing to award restitution reflecting
the victim’s actual loss, which consisted of the victim’s lost
profits on sales of authentic copies that would have taken
place if not for Anderson’s conduct. Consequently, we
vacate the restitution order and remand to the district court to
reconsider restitution on an open record.

                                 I

    Anderson was a Las Vegas cab driver who also dabbled
in photography and electronics repair. At some point, he
decided to start selling software. He initially considered
contacting Adobe Systems, Inc. (“Adobe”) to see if he could
work out a “financial deal” with it. Lacking any funding for
4              UNITED STATES V. ANDERSON

such a deal, however, he decided to take an “alternative”
route. Using the moniker “Moneyworld123,” Anderson
began a “one-man” operation selling Adobe software online
through the price comparison website Pricegrabber, while
handling payments through the Google Checkout processing
service. He also advertised software on his own website,
Anderson9000.com.

    The discs containing the software Anderson sold were
consumer-grade “burned” discs with generic labels.
Anderson’s advertisements and the documents accompanying
the discs referred to the software as “full” or “complete”
“OEM” (meaning “original equipment manufacturer”)
products. The accompanying documents also indicated that
Moneyworld123 would make “plug-ins” (i.e., optional
software upgrades providing improved software
functionality) available to the customer if the customer would
rate Moneyworld123 on Pricegrabber. The discs also
contained a “terms and conditions” document, which stated
that the software was only to be used for “archival purposes”
or as a “backup” copy. The terms and conditions were not
printed out for the customers, however, and the customers
could (and did) install the software without viewing them.

    In order to activate legitimate Adobe software, a customer
must enter a 24-digit serial number (or “product key”)
provided by Adobe which it generates using an algorithm.
The software first confirms that the number is in the correct
format and then confirms that it is a valid number with
Adobe. However, counterfeiters can use “key generators” to
create serial numbers that match Adobe’s algorithm and
disable or bypass the function requiring the software to
confirm that the number is valid. Anderson’s software was
packaged with serial numbers written in permanent marker.
               UNITED STATES V. ANDERSON                     5

    Based in part on the inauthentic appearance of the
product, two customers contacted Anderson and demanded
refunds. One bluntly told Anderson: “You are pirating
software and marketing it as if you are not doing something
illegal. I have no doubt that this is not new software and that
you are not operating under legal means.” Anderson
provided the requested refunds.

    Anderson’s operation eventually attracted Adobe’s
attention. An Adobe investigator purchased a copy of
Photoshop CS3 Extended from Anderson using Pricegrabber
and Google Checkout. The investigator purchased the
software, which had a retail price of $999, from Anderson for
$262.90, including shipping and handling. Adobe then
contacted Christopher Morris, a U.S. Postal Inspector, who
subpoenaed records from Pricegrabber and Google, as well as
records from email addresses related to the Pricegrabber and
Google accounts. Morris eventually concluded that Anderson
controlled the accounts. The records showed that Anderson
had sold 209 copies of Photoshop CS3 and 30 copies of
Photoshop CS3 Extended from February 2008 through
February 2009. During that time period, Anderson made
approximately 350 total software sales, totaling $70,551.

    Morris subsequently found Anderson9000.com and
arranged a purchase of Adobe Fireworks after exchanging
voicemails with an individual identifying himself as “J.”
Morris paid $131, including shipping and handling, for the
product, which had a retail price of $299. Surveillance
cameras captured images of Anderson checking the post
office box listed as the return address.

   Morris subsequently set up another sale using the same
process and arrested Anderson. Anderson then consented to
6                      UNITED STATES V. ANDERSON

a search of the rental car that he drove to the post office. In
the car, Morris found a number of blank discs, two copies of
Photoshop CS3, various discs with Adobe plug-ins, a key
generator disc, and discs with various other Adobe programs.

    Anderson was subsequently charged with criminal
copyright infringement based on his sales of Photoshop CS3
and Photoshop CS3 Extended. At trial, Anderson admitted to
selling the software but explained that, based on his internet
research, he believed that OEMs were companies that resell
other companies’ products under their own names, and that
“OEM” referred to backup copies. He said that he pulled the
information for the terms and conditions from the Copyright
Act (specifically, 17 U.S.C. §§ 106, 1171) and from other
websites selling OEM software. He explained that he
provided customers with serial numbers using a key generator
because customers frequently misplace their original serial
numbers.


    1
        In relevant part, § 117(a) provides:

             Notwithstanding the provisions of section 106, it is not
             an infringement for the owner of a copy of a computer
             program to make or authorize the making of another
             copy or adaptation of that computer program provided
             ...

             (2) that such new copy or adaptation is for archival
             purposes only and that all archival copies are destroyed
             in the event that continued possession of the computer
             program should cease to be rightful.

The statute further provides that any copies made in such a manner may
only be “leased, sold, or otherwise transferred, along with the copy from
which such copies were prepared, . . . as part of the lease, sale, or other
transfer of all rights in the program.” § 117(b).
               UNITED STATES V. ANDERSON                    7

    Anderson conceded that he did not mention that the
software was for backup or archival purposes on Pricegrabber
and Anderson9000.com. He also conceded that he continued
to sell the software even after his customers told him that it
looked illegal. He was also aware that some customers were
installing the software and using it, as opposed to merely
retaining it for backup purposes, but he did not change his
practices. Several customers testified that they would not
have purchased Anderson’s software if they had known it
could be used only for backup purposes.

    A representative from Adobe testified that there was no
market for backup copies of Adobe software and that Adobe
does not authorize anyone to make backup copies for
customers. He said that in an OEM deal, Adobe sells a copy
of software at a discounted rate to a hardware purchaser. He
said that OEM software is not sold separately from a piece of
hardware and “OEM” does not refer to backup copies. He
confirmed that the copy of CS3 Extended that the investigator
purchased and the copy of Fireworks that Morris purchased
from Anderson were unauthorized. He also stated that Adobe
had no relationship with Anderson and did not authorize him
to sell its products.

    After a four-day trial, the jury found Anderson guilty.
The district court sentenced him to 24 months of
imprisonment and two years of supervised release. It further
ordered him to pay a $100 special assessment and $247,144
in restitution to Adobe. Anderson now appeals, and we have
jurisdiction pursuant to 28 U.S.C. § 1291.
8                 UNITED STATES V. ANDERSON

                                   II

    Anderson first contends that the district court erred
because its jury instruction on the criminal copyright
willfulness standard improperly suggested that the jury could
convict him even if he did not have the specific intent to
violate the law.

                                   A

    Prior to trial, both parties submitted proposed jury
instructions. The government’s set of proposed instructions
included the following instruction, titled “Willfully –
Defined”:

             The government must prove that the
         defendant willfully infringed a copyrighted
         work. An infringement was willful when (1)
         the defendant engaged in acts that infringed
         the copyrights, and (2) knew that those actions
         may infringe the copyrights [or acted with
         reckless disregard for, or willful blindness to
         the copyright holder’s rights].2

Among other supporting authorities, the government cited the
Ninth Circuit Manual of Model Civil Jury Instructions
§ 17.27 (2007). Anderson proposed the following competing
explanation of “willful” infringement:

            A copyright is proven to be infringed
         “willfully” when the defendant voluntarily

  2
    The bracketed language appears as it did in the government’s proposed
instruction.
                  UNITED STATES V. ANDERSON                               9

         and intentionally violated a known legal duty.
         [United States v. Moran, 757 F. Supp. 1046,
         1050–51 (D. Neb. 1991) (citing Cheek v.
         United States, 498 U.S. 192, 201 (1991)).] To
         find him guilty, you must find Mr. Anderson
         acted with a motive to violate that which the
         statute protects; something more is required
         than the doing of the act proscribed by the
         statute. [Screws v. United States, 325 U.S. 91,
         101 (1945).] Infringement of a copyright held
         by Adobe requires a finding that Mr.
         Anderson acted with the purpose of depriving
         Adobe of the interest protected by its
         copyright.     [United States v. Heilman,
         614 F.2d 1133, 1137 (1980); accord Screws,
         325 U.S. at 101.] Mr. Anderson must have
         known his actions constituted a copyright
         infringement in order for you to find he acted
         “willfully.” [Peer Int’l Corp. v. Pausa
         Records, Inc., 909 F.2d 1332, 1335 & n.3 (9th
         Cir. 1990).] If you find that Mr. Anderson did
         not know his actions were infringing the
         rights of Adobe, then you must find him not
         guilty.3

    Anderson objected to the government’s instruction, noting
that there was no model instruction and that the government
was relying on civil authority. The government argued that
Anderson’s instruction was “not an accurate statement of the
requirement of willfulness.” In particular, the government


  3
    In an explanatory section of his submission, Anderson provided the
bracketed case citations for the court’s reference but did not suggest
incorporating them into the body of the instruction to be given to the jury.
10              UNITED STATES V. ANDERSON

indicated that it was concerned that Anderson’s instruction
added additional undefined elements, such as “motive,”
“known legal duty,” and “purpose.” It argued that its
instruction accurately stated the law, “which is that the
defendant knew what he was doing would violate Adobe’s
copyright.”

    The court found that Anderson’s instruction did seek to
add additional factors that were likely irrelevant. It proposed
adding the last two sentences of Anderson’s instruction to the
end of the government’s instruction. Anderson’s counsel
then stated: “Okay, I’ll accept that.” The government agreed
that the penultimate sentence was “an accurate statement of
the government’s burden” but argued that the last sentence
was unnecessary and might lead to confusion about what the
jury had to find. The court agreed that the last sentence
would be left out of the instruction and left for the parties to
address at closing argument. Anderson’s counsel responded,
“Okay.” The court asked Anderson’s counsel if he wanted
the sentence as a stand-alone instruction, but he responded:
“As much as I would love to have a stand-alone instruction,
it makes sense to keep it with the willfully defined.” The
parties also agreed that the bracketed language in the
government’s instruction regarding recklessness and willful
blindness was not necessary based on the evidence in the
record.

     The final instruction, as read to the jury, was:

            The government must prove that the
        defendant willfully infringed a copyrighted
        work. An infringement was willful when the
        defendant engaged in acts that infringed the
                 UNITED STATES V. ANDERSON                         11

        copyrights and knew those actions may
        infringe the copyrights.

            Mr. Anderson must have known his
        actions substituted [sic 4 ] a copyright
        infringement in order for you to find he acted
        willfully.

The district court asked both parties if they objected to the
reading of the instructions, and both responded, “No.”
Written copies of the instructions were also provided to the
jury.

    On the second day of deliberations, the jury sent a note
stating: “A juror has looked at the word willful[] in a
dictionary and shared that it means deliberate. Please
advise.” In response, the court sent a note back pursuant to
the parties’ agreement indicating that the jurors were
instructed not to do any research and referring them to the
willfulness instruction. Twenty minutes later, the jury
indicated that it had reached a unanimous verdict.

                                  B

    Anderson contends that: (1) de novo review applies; (2)
the district court improperly rejected his proposed willfulness
instruction and adopted an instruction that misstated the law;
and (3) the error affected the jury’s verdict.




 4
   The court obviously meant “constituted.” From the record, we cannot
determine whether this was a transcription error or the judge misspoke
when reading the instructions.
12             UNITED STATES V. ANDERSON

                               1

    The parties dispute whether a de novo or plain error
standard of review applies here. We generally review
whether a jury instruction omits or misstates an element of a
crime on a de novo basis. United States v. Kilbride, 584 F.3d
1240, 1247 (9th Cir. 2009). “However, in the absence of a
timely objection to the jury instructions, we review for plain
error.” Id. (internal quotation marks omitted). In order to
find plain error, we must “find (1) an error that is (2) plain
and (3) affects substantial rights.” Id. Even where these
conditions are met, however, “we may only exercise our
discretion to correct the error if it seriously affects the
fairness, integrity or public reputation of judicial
proceedings.” Id.

     Under Federal Rule of Criminal Procedure 30(d), a “party
who objects to any portion of the instructions or to a failure
to give a requested instruction must inform the court of the
specific objection and the grounds for the objection before the
jury retires to deliberate.” We have held that Rule 30
“requires a defendant to state with adequate specificity the
grounds for an objection to a jury instruction before the jury
retires, and that a defendant’s mere proposal of an alternate
instruction does not satisfy Rule 30’s standard of specificity.”
United States v. Hofus, 598 F.3d 1171, 1175 (9th Cir. 2010)
(internal quotation marks omitted). An objection to an
instruction on a different ground is not sufficient to preserve
de novo review. See United States v. Peterson, 538 F.3d
1064, 1071 (9th Cir. 2008).

    Here, Anderson submitted an alternative willfulness
instruction that the court largely rejected. However, after the
court discussed the issue with counsel, Anderson’s attorney
                  UNITED STATES V. ANDERSON                           13

said: “Okay, I’ll accept that.” Moreover, despite having
multiple opportunities to do so, Anderson’s attorney did not
specifically object to the court’s formulation of the final
willfulness instruction, which was a combination of the
government’s instruction and Anderson’s instruction. Indeed,
rather than objecting, Anderson’s attorney explicitly
acquiesced to it. Accordingly, plain error review applies.5

                                    2

    Under 17 U.S.C. § 506(a)(1)(A), a person is guilty of
criminal copyright infringement if he or she “willfully”
infringes a copyright for the purpose of commercial
advantage or private financial gain. We do not have a model
instruction explaining the “willfulness” requirement in
criminal copyright infringement cases. However, we recently
set forth the relevant standards in United States v. Liu,
731 F.3d 982 (9th Cir. 2013).6

    In Liu, the district court had instructed the jury that the
defendant could be convicted of willful infringement if he
“without authorization duplicated, reproduced or sold the
copyright belonging to the owners of the works” and that “an
act is done ‘willfully’ if the act is done knowingly and


  5
    Even if we ignored counsel’s acceptance of the combined instruction,
de novo review would only apply to the district court’s decision to reject
Anderson’s willfulness instruction. Plain error review would still apply
to the district court’s formulation of the final instruction.
  6
    The decision in Liu was issued after we heard argument in this case.
We subsequently granted the parties’ joint request to provide supplemental
briefing “addressing the effect of this court’s decision in Liu on the
question of whether the district court’s instructions properly charged the
jury on the element of willfulness.”
14             UNITED STATES V. ANDERSON

intentionally, not through ignorance, mistake or accident.”
Id. at 988 (alteration and internal quotation marks omitted).
The district court failed to incorporate an agreed-upon
instruction that would have provided that “evidence of
reproduction or distribution of a copyrighted work, by itself,
shall not be sufficient to establish willful infringement of a
copyright.” Id. at 987–88 (alteration and internal quotation
marks omitted). We reviewed the instructions de novo
because the court failed to provide the defendant with an
opportunity to object. Id. at 988.

    We held that “willfully” as used in § 506(a) “connotes a
‘voluntary, intentional violation of a known legal duty.’” Id.
at 990 (quoting Cheek, 498 U.S. at 201). We noted that the
key distinction between civil and criminal copyright liability
is that civil liability requires the general intent to copy,
whereas criminal liability requires the specific intent to
violate the law. Id. at 989–90. We accordingly found that the
district court had erred and that the error was not harmless.
Id. at 992–93; see also United States v. Wise, 550 F.2d 1180,
1194 (9th Cir. 1977) (suggesting that the government must
prove “an act intentionally done in violation of the law” to
establish willfulness).

    Thus, in order to satisfy the willfulness requirement, a
defendant must have known that the copying was illegal. The
parties do not seriously dispute this proposition. Rather,
Anderson claims that the court’s instruction was erroneous
because it indicated that Anderson was guilty if he knew his
actions “may infringe the copyrights” and “[m]ore is required
than just Anderson knowing his actions may be illegal.”

   The government’s original instruction in this case
appeared to be based on commentary to a prior version of the
                   UNITED STATES V. ANDERSON                             15

model civil instruction for “Willful Infringement.”7 The
commentary stated: “An infringement was willful when the
defendant engaged in acts that infringed the copyright, and
knew that those actions may infringe the copyright.” Ninth
Circuit Manual of Model Civil Jury Instructions 20.25 cmt.
(2001) (emphasis added). At the time of Anderson’s
prosecution, this commentary had been superseded by a new
instruction that no longer used the word “may.” Ninth Circuit
Manual of Model Civil Jury Instructions 17.27 (2007). The
commentary in the 2007 edition acknowledged that the earlier
version “suggested language for a willful infringement
instruction that merely required that a defendant have
knowledge that its actions ‘may influence’ the plaintiff’s
copyright.” Id. cmt. The government cited the 2007 edition
of the Manual but relied on the superseded language from the
2001 edition. It is unclear to us why the government based its
proposed instruction on the older version of the instruction.

                                     3

    “In general, a party is entitled to an instruction to help it
prove its theory of the case . . . .” United States v. Heredia,
483 F.3d 913, 922 (9th Cir. 2007) (en banc). This
entitlement, however, “is not unlimited.” United States v.
Doe, 705 F.3d 1134, 1144 (9th Cir. 2013). A district court
may properly reject a misleading or confusing instruction.
See Hammer v. Gross, 932 F.2d 842, 849 (9th Cir. 1991). “In


 7
   Although willfulness is not required to establish civil liability, it does
play a role in civil copyright litigation. Where proven, it can subject a
civil defendant to an increased award of statutory damages under the Act.
§ 504(c)(2). We have previously accepted “the general principle in
copyright law of looking to civil authority for guidance in criminal cases.”
Wise, 550 F.3d at 1188 n.14.
16             UNITED STATES V. ANDERSON

reviewing jury instructions, the relevant inquiry is whether
the instructions as a whole are misleading or inadequate to
guide the jury’s deliberation.” United States v. Chao Fan Xu,
706 F.3d 965, 985 (9th Cir. 2013) (internal quotation marks
omitted).

     The district court rejected Anderson’s proposed
instruction because it sought to add additional elements and
had the potential to create confusion. Although each
individual statement in Anderson’s instruction had support in
the case law, the combination of the statements was, at the
very least, ineloquent and would have likely created
confusion among persons without legal training. The district
court reasonably distilled Anderson’s proposed instruction to
its fundamental point.

    Anderson’s real objection is to the use of the word “may”
in the sentence of the instruction indicating that the
government had to prove that he must have known that his
“actions may infringe the copyrights.” He failed to object to
this language and this failure was likely material given that
the government agreed during the conference that it had to
show that Anderson knew he was infringing Adobe’s
copyright in order to establish willfulness.

    The word “may” is vague and renders the first sentence of
the instruction incorrect to the extent that it suggests that
Anderson could be convicted without knowing that he was
violating Adobe’s rights. Indeed, it would not be enough for
the government to show only that he knew that there was a
possibility that his actions were illegal. Nonetheless, error is
only plain where it is “clear and obvious.” Kilbride, 584 F.3d
at 1255. The parties and the court did not perceive any issue
               UNITED STATES V. ANDERSON                    17

with the phrasing of the sentence despite parsing the language
very carefully.

     Notably, although the government did not pursue
recklessness or willful blindness theories, those are valid
theories for satisfying the intent element in this context. See
Wash. Shoe Co. v. A-Z Sporting Goods, Inc., 704 F.3d 668,
674 (9th Cir. 2012). Under those theories, the willfulness
requirement is satisfied where there is a showing that the
defendant recklessly disregarded “the high probability that it
was infringing plaintiffs’ copyrights.” Id. (internal quotation
marks and citation omitted). Thus, the defendant’s actions
could be willful even if the defendant only knew that the
copying “may be illegal” but did not know that it was to a
certainty. Consequently, the instruction was arguably correct
in that technical sense. Nonetheless, we do not endorse the
instruction, as without further explanation, it was imprecise
at the very least. Imprecision, however, is not the equivalent
of clear and obvious error.

    More significantly, when viewed in its entirety, the
instruction was not misleading or inadequate. Although the
word “may” rendered the first half of the instruction vague,
the last sentence explicitly required the jury to find that
Anderson knew his actions constituted copyright
infringement for the jury to convict. Indeed, this standard is
arguably more stringent than what Liu requires, as it required
the jury to find that he specifically knew that his actions
constituted “copyright infringement” in order to convict,
rather than the more generalized knowledge that he was
18                UNITED STATES V. ANDERSON

violating a legal duty.8         This language materially
distinguishes this case from Liu, where the district court
essentially instructed the jury that it could convict the
defendant as long as it found that he had the general intent to
copy. Although the district court may have misspoken when
reading the instruction to the jury, it directed the jury to the
written copies of the instructions that were provided to the
jury immediately before the jury announced that it had
reached the verdict.

    Moreover, any error did not affect substantial rights or the
fairness, integrity or public reputation of the proceedings. In
context, it is apparent that there was no misunderstanding
about the meaning of the instruction. The government
referred to the last sentence of the instruction in its closing
argument, asking: “did the defendant know that his actions
constituted copyright infringement? Of course he knew.”
Defense counsel also invoked the correct standard, stating


   8
     Indeed, in analogous contexts, we have found that a specific intent
requirement only required that the defendant know that his or her conduct
was unlawful rather than that he or she was violating a specific statutory
or regulatory provision. See United States v. Mousavi, 604 F.3d 1084,
1094 (9th Cir. 2010) (“[W]e conclude that ‘willfulness’ under [the
International Economic Emergency Powers Act] requires the government
to prove beyond a reasonable doubt that the defendant acted with
knowledge ‘that his conduct was unlawful,’ but not that the defendant was
aware of a specific licensing requirement.” (citation omitted)); United
States v. Easterday, 564 F.3d 1004, 1006 (9th Cir. 2009) (“[I]f you know
that you owe taxes and you do not pay them, you have acted willfully.”).
The following instruction, referenced in United States v. Cross, 816 F.2d
297 (7th Cir. 1987), thus accurately states the law: “the wor[d] ‘willfully’
as used in the statute means the act was committed by a defendant
voluntarily, with knowledge that it was prohibited by law, and with the
purpose of violating the law, and not by mistake, accident or in good
faith.” Id. at 300 (alteration marks omitted).
               UNITED STATES V. ANDERSON                    19

that Anderson “must have known his actions constituted a
copyright infringement in order for you to find he acted
willfully.” There was also overwhelming evidence that
Anderson acted with the requisite knowledge that his actions
were unlawful, including his admissions that he: (a) only
resorted to selling unauthorized software after determining
that he did not have the resources to pursue a legitimate deal
with Adobe; (b) had been told by his customers that what he
was doing was illegal, but continued to do it; and (c) knew
that his customers were not using the discs for backup
purposes.

    Thus, evaluating the instructions as a whole, any error
was neither “clear and obvious” nor substantial or prejudicial.
Consequently, the district court’s willfulness instruction did
not constitute plain error.

                              III

    Prior to trial, Anderson filed a motion in limine seeking
to preclude the government from introducing “uncharged but
allegedly improper conduct,” including evidence that: (1)
Morris purchased a copy of Adobe Fireworks from Anderson;
and (2) Anderson possessed other discs containing Adobe
software. He argued that the evidence was not admissible
under Federal Rule of Evidence 404(b) as intrinsic evidence
of the crime, and alternatively, that it should be excluded
under Rule 403. The district court denied the motion, finding
that the evidence was “intrinsic” to Anderson’s “business
model,” completed an explanation of Anderson’s conduct and
business plan, and was not unfairly prejudicial. Anderson
20                UNITED STATES V. ANDERSON

contends that the district court erred.9 “We review a district
court’s evidentiary rulings for an abuse of discretion and its
interpretation of the Federal Rules of Evidence de novo.”
United States v. Waters, 627 F.3d 345, 351–52 (9th Cir.
2010) (emphasis omitted).

                                   A

    “Other act” evidence that is “inextricably intertwined”
with a charged offense is independently admissible and is
exempt from the requirements of Rule 404(b). United States
v. Dorsey, 677 F.3d 944, 951 (9th Cir. 2012); accord Fed. R.
Evid. 404(b) advisory committee’s notes (stating that Rule
404(b)’s requirements do “not extend to evidence of acts
which are ‘intrinsic’ to the charged offense”). Such intrinsic
evidence includes evidence constituting “a part of the
transaction that serves as the basis for the criminal charge.”
Dorsey, 677 F.3d at 951 (internal quotation marks omitted).
We have found, for example, that contemporaneous
uncharged drug transactions may be admissible on this basis.
United States v. Vizcarra-Martinez, 66 F.3d 1006, 1012 (9th
Cir. 1995). This is because Rule 404(b) does not apply
“when offenses committed as part of a single criminal
episode become other acts simply because the defendant is
indicted for less than all of his actions.” Id. (internal
quotation marks omitted). A transaction that is far removed
in time from the charged transaction, however, cannot be
considered “a part of” the charged transaction. See United
States v. DeGeorge, 380 F.3d 1203, 1220 (9th Cir. 2004).




  9
    On appeal, Anderson does not challenge the evidence that the discs he
sold contained plug-ins, or that he possessed the key generator.
                  UNITED STATES V. ANDERSON                           21

     Intrinsic evidence, however, also includes evidence that
is “necessary to permit the prosecutor to offer a coherent and
comprehensible story regarding the commission of the
crime.” Dorsey, 677 F.3d at 951 (alteration and internal
quotation marks omitted). This is because “[t]he jury cannot
be expected to make its decision in a void – without
knowledge of the time, place, and circumstances of the acts
which form the basis of the charge.” Vizcarra-Martinez,
66 F.3d at 1013 (original alteration marks and quotation
marks omitted). This includes circumstantial evidence
explaining the general nature of a defendant’s business
activity and providing a context in which the transactions at
issue took place. United States v. King, 200 F.3d 1207, 1215
(9th Cir. 1999). Where the evidence, however, is not part of
the charged transaction and the prosecution would encounter
little difficulty in presenting the evidence relevant to its case
against the defendant without it, the evidence is not
admissible as being intrinsic to the charged offense. See id.

    Here, the Fireworks sale, which occurred six months after
the charged conduct took place, is arguably too far removed
in time to constitute a part of the charged transaction.10
Nonetheless, the evidence of both the Fireworks sale and the
Adobe programs that Anderson possessed when he was
arrested do help explain Anderson’s business operations,
including his manufacturing process. Anderson argues that
the government’s case was “complete” without this evidence
and that it was unnecessary. However, the larger and more
sophisticated his operation was, the more likely it was that he


 10
    The Fireworks sale was not chargeable on the same basis as the other
sales because 18 U.S.C. § 2319(b)(1) requires reproduction or distribution
of a minimum of ten copies to subject an individual to a sentence of up to
five years of imprisonment.
22             UNITED STATES V. ANDERSON

knew what he was doing was illegal. Moreover, the
Fireworks sale also explained the circumstances leading up to
his arrest, where the government obtained additional evidence
that Anderson is not disputing, including the blank discs, key
generator disc, and plug-ins disc. Consequently, the evidence
was intrinsic to the charged conduct in that it was reasonably
necessary for the prosecution to tell a clear and
comprehensible story.

                               B

    A district court has discretion to exclude otherwise
relevant evidence under Rule 403 “if its probative value is
substantially outweighed by the danger of unfair prejudice,
confusion of the issues, or misleading the jury, or by
considerations of undue delay, waste of time, or needless
presentation of cumulative evidence.” Waters, 627 F.3d at
353 (quoting Fed. R. Evid. 403). “Unfair prejudice” is an
“undue tendency to suggest decision on an improper basis,
commonly, though not necessarily, an emotional one.”
United States v. Hankey, 203 F.3d 1160, 1172 (9th Cir. 2000)
(quoting Fed. R. Evid. 403 advisory committee’s note). The
Rule “requires that the probative value of the evidence be
compared to the articulated reasons for exclusion and permits
exclusion only if one or more of those reasons ‘substantially
outweigh’ the probative value.” Id.

    The evidence here was not unfairly prejudicial. It was
very similar to the charged conduct. It was probative because
it showed the scale of Anderson’s operations and conduct.
Nonetheless, it was not particularly damning in light of all the
other evidence directly relating to the charged conduct.
Consequently, any prejudice was fairly insignificant.
Moreover, it was not the type of “bad act” evidence that
                UNITED STATES V. ANDERSON                     23

would suggest that the jury should decide the case on an
improper emotional basis. Unlike evidence of drug sales, for
example, evidence of software sales does not have a strong
prejudicial impact because there is nothing inherently wrong
with selling software, which is usually sold legally. In any
event, the district court did not abuse its discretion by finding
that the evidence was not unfairly prejudicial.

                               IV

    The district court found that Adobe was the victim of
Anderson’s crime and calculated restitution by multiplying
the number of copies Anderson sold by Adobe’s retail price.
Anderson claims that the district court erred, arguing that the
court should have: (a) used the price he charged his customers
because they were the real victims and Adobe’s loss is
speculative; (b) used Adobe’s lost profits instead of its retail
price because lost profit is a more accurate measure of actual
loss; and (c) discounted the amount of restitution by the
number of returns. “We review the legality of a restitution
order, including the district court’s valuation method, de
novo.” United States v. Yeung, 672 F.3d 594, 600 (9th Cir.
2012). We review the amount for abuse of discretion if “the
order is within the statutory bounds.” Id. (internal quotation
marks omitted). We review the district court’s “factual
findings supporting an order of restitution for clear error.” Id.

                               A

    The presentence report recommended calculating the loss
at “at least $247,144,” representing Anderson’s total
Pricegrabber sales multiplied by the retail value of the
authorized software. The loss calculation was relevant both
to Anderson’s Sentencing Guidelines’ calculation and the
24             UNITED STATES V. ANDERSON

amount of restitution. Anderson objected to using the retail
value of Adobe’s software (as opposed to the price he
charged) and argued that he should receive credit for returns.
The government agreed with the presentence report but
eventually conceded that Anderson should get credit for the
returned software in the amount of Anderson’s price.
Anderson’s counsel argued that any returns should be offset
at Adobe’s retail price if that was the price being used to set
the amount of the loss. In response to Anderson’s arguments,
the probation officer noted that Anderson’s conduct affected
Adobe in other ways, causing it to spend additional time on
customer support and causing damage to its reputation.

    The district court found that the loss amount exceeded
$200,000, pursuant to the Guidelines commentary, subjecting
Anderson to a sentencing enhancement under U.S.S.G.
§ 2B5.3 note 2(A)(i). The court then imposed restitution in
the amount of $247,144, specifically declining to offset the
returns because “the victim in this case is really Adobe.”

                              B

    Under the Mandatory Victims Restitution Act
(“MVRA”), 18 U.S.C. § 3663A, “a court must order a
defendant to make restitution to a victim of certain specified
offenses without considering the defendant’s economic
circumstances.” Yeung, 672 F.3d at 600. “The MVRA
defines the word ‘victim’ as ‘a person directly and
proximately harmed as a result of the commission of an
offense for which restitution may be ordered.’” Id. (quoting
§ 3663A(a)(2)). The goal of restitution under the MVRA is
to make the victim whole. Id. at 600–01. Consequently, any
award is limited to the victim’s “actual losses.” United States
v. Fu Sheng Kuo, 620 F.3d 1158, 1165–66 (9th Cir. 2010).
                UNITED STATES V. ANDERSON                     25

Accordingly, “the district court may not order restitution to
reflect Defendants’ ill-gotten gains.” Id. at 1166. The
government has the burden of proving the amount of the loss
by a preponderance of the evidence. Yeung, 672 F.3d at 601
(citing § 3664(e)).

    We may uphold a restitution order “where the district
court fails to make pertinent factual findings . . . when the
basis of the district court’s calculations is clear.” Id. at 604.
Indeed, the MVRA affords the district court a degree of
flexibility in assessing the victim’s actual losses; nonetheless,
“the district court may utilize only evidence that possesses
sufficient indicia of reliability to support its probable
accuracy.” United States v. Waknine, 543 F.3d 546, 557 (9th
Cir. 2008) (alteration and quotation marks omitted).
Additionally, a district court should not rely on its calculation
of the loss under the Sentencing Guidelines to determine the
amount of restitution as the two measures serve different
purposes and utilize different calculation methods. United
States v. Gossi, 608 F.3d 574, 580–82 (9th Cir. 2010)
(“Sentencing, unlike restitution, focuses on the criminal
defendant. . . . Restitution clearly focuses on the victim, not
the individual defendant.”). “[R]emand is appropriate where
the restitution award lacks an adequate evidentiary basis and
the district court failed to explain its reasoning.” Yeung,
672 F.3d at 602.

    Anderson relies on United States v. Chalupnik, 514 F.3d
748 (8th Cir. 2008). In that case, the defendant was a post
office janitor who had taken thousands of undeliverable CDs
and DVDs originally sent by BMG and sold them to used
record stores. Id. at 750. The district court imposed
restitution in the amount of the defendant’s gross revenues.
Id. at 751. The Eighth Circuit agreed that BMG could be a
26              UNITED STATES V. ANDERSON

victim even though it was not the owner of the copyrights and
might not be able to sue the defendant for copyright
infringement. Id. at 753–54. However, the court rejected
district court’s use of the defendant’s “ill-gotten gains” as the
measure for BMG’s loss because any loss was suffered by the
market of retailers, in addition to BMG and the copyright
owners. Id. at 754–55. The court also noted that “for goods
held by a merchant for sale, lost profits rather than lost sales
revenues are the proper measure of ‘actual loss.’” Id. at 755.
Moreover, the court stated that any calculation of lost sales or
lost profits may not be “based entirely upon speculation.” Id.
(internal quotation marks omitted).

    The parties also cite the D.C. Circuit’s recent decision in
United States v. Fair, 699 F.3d 508 (D.C. Cir. 2012). Like
the present case, Fair involved a defendant who was
convicted of selling illegal copies of Adobe software. Id. at
510. The district court ordered the defendant to pay
restitution corresponding to his infringing sales. Id. at
511–12. Reviewing the case law, the D.C. Circuit explained:

        In cases involving copyright infringement and
        fraudulent sales, the victim’s actual loss
        typically equates to the profit the victim lost
        on the sales that were diverted from the victim
        as a result of the defendant’s infringing sales.
        Under this lost-profits on diverted-sales
        theory, the government must offer sufficient
        evidence to establish both the profit margin
        per sale and the number of sales lost. If the
        record does not demonstrate that the
        counterfeit goods ever reached the market, or
        that their introduction to the market in fact
        “thwarted” actual sales of the victim’s
                   UNITED STATES V. ANDERSON                             27

         product, courts have held that no actual loss
         can be shown and restitution therefore is
         inappropriate. In this regard, the actual loss to
         the displaced (authentic) seller is the profit
         lost from the displaced sales – not the retail
         value of the goods that would have been sold.
         The gross proceeds that the defendant collects
         from infringing sales are similarly an
         inappropriate gauge of the victim’s lost
         profits.

Id. at 514 (citations omitted). The court also rejected the
reliance on lost opportunity sales where there “was no
evidentiary basis on which the district court could find that
had [the defendant’s] customers not purchased pirated Adobe
software from him at a greatly reduced price, all or any
portion of them would have purchased full-priced versions
from Adobe.” Id. at 515. Accordingly, the court vacated the
district court’s restitution order. Id. at 518.11

   Consistent with our own restitution precedents, as well as
Chalupnik and Fair, we hold that restitution in a criminal
copyright case must reflect the victim’s actual losses, not the


 11
    See also United States v. Hudson, 483 F.3d 707, 710 (10th Cir. 2007)
(expressing skepticism of the suggestion that a purchaser of discounted
counterfeit software would be willing to purchase authentic software at
full price); United States v. Beydoun, 469 F.3d 102, 108 (5th Cir. 2006)
(concluding that there could be no actual loss for inauthentic items that
were never sold and that the proper measure of loss was the legitimate
sellers’ lost net profit rather than lost gross proceeds); United States v.
Dove, 585 F. Supp. 2d 865, 872–73 (W.D. Va. 2008) (rejecting restitution
calculations based on total revenue, as opposed to lost profits, and
assumptions that each of the defendant’s illegal transfers resulted in a lost
sale to the victims).
28              UNITED STATES V. ANDERSON

defendant’s gain. In most cases, that will consist of the
copyright owner’s lost profits on sales that would have taken
place if not for the infringing conduct. Moreover, the fact
that a consumer purchased an infringing copy at a greatly
reduced price is not sufficient, alone, to establish that the
consumer would have purchased an authentic copy at full
price.

    Here, the district court properly concluded that Adobe
was the primary victim of Anderson’s crime. In his brief,
Anderson suggested that this was error, but at oral argument,
Anderson’s counsel essentially conceded that Adobe was a
victim. Indeed, unlike the victim in Chalupnik, Adobe was
the copyright owner, not a mere retailer, and thus it was
entitled to compensation for each lost sale. That does not
necessarily mean, however, that Adobe was the sole victim.
To the extent that Anderson’s conduct directly caused his
customers to suffer actual, quantifiable losses, they may also
be victims under the MVRA. Cf. Chalupnik, 514 F.3d at
753–54.

    Anderson is correct to the extent that he suggests that the
district court erred in calculating restitution. Here, the district
court appeared to rely on the Sentencing Guidelines loss
calculation in setting the amount of restitution. The court
also rejected the parties’ suggestion that restitution should
reflect discounts for any returned products. There was
evidence in the record that Adobe suffered other losses,
including time spent on customer support and a loss of
goodwill, and the district court may have refused to apply the
discount for returns as a proxy for these losses. Although the
district court’s sentiment is understandable, the MVRA
requires more precision. A “back-of-the-envelope” approach
simply will not do. See United States v. Innarelli, 524 F.3d
                  UNITED STATES V. ANDERSON                          29

286, 294 (1st Cir. 2008) (remanding to the district court to
reconsider several possible errors in its “rough
approximation” of the victims’ losses). Consequently, on this
basis alone, the district court’s loss calculation was
erroneous.12

    Although the issue was not raised before the district court,
the district court also erred in using the full retail price as
opposed to lost profits to calculate the actual loss. Moreover,
the district court did not consider whether purchasers of
Anderson’s discounted software would have, in fact,
purchased full price authentic software if Anderson’s
software had not been available. These are clear and obvious
errors because they are inconsistent with the statutory
requirements. The errors affected substantial rights and the
fundamental fairness of the proceeding given that they may
have vastly inflated the restitution in excess of Adobe’s actual
losses. See Yeung, 672 F.3d at 602 (citing cases for the
proposition that it is plain error to award restitution in excess
of the victim’s actual losses); Fu Sheng Kuo, 620 F.3d at
1165 (determining that the district court plainly erred where
we could not determine whether the amount of restitution
exceeded the victim’s actual losses under its incorrect
calculation method).




 12
    We express no view as to whether time spent on customer support and
a loss of goodwill can constitute actual loss under the MVRA, but we note
that the issue is not free from doubt. See Catharine M. Goodwin, Federal
Criminal Restitution § 6:22 (2013) (“[T]he loss must be tangible, actual,
or ‘out-of-pocket.’ It cannot include intangible aspects of harm that are
sometimes included in civil damages or Guidelines sentencing, such as
intended harm, risk of harm, opportunity costs, or speculative harm.”
(citations omitted)).
30                 UNITED STATES V. ANDERSON

    We nonetheless acknowledge that the district court did
not have the benefit of the Fair decision or our guidance in
this specific context. Accordingly, we “vacate the restitution
order and remand the case to the district court on an open
record to allow for the recalculation of restitution.” Fu Sheng
Kuo, 620 F.3d at 1166. Any restitution awarded to Adobe for
lost sales may only reflect Adobe’s lost profits for sales that
were actually diverted.13

                                     V

    We recognize that our application of Liu in this case
arrives at a different result than we reached in that case. That
is so because the facts of this case are materially different
from those in Liu. In Liu, the district court failed to give the
parties’ agreed-upon instruction and essentially told the jury
that it could convict the defendant if it found that he
intentionally made the copies. Here, although the instruction
in this case was imperfect, the district court crafted the
instruction in consultation with the parties and with the
acquiescence of Anderson’s counsel. Furthermore, it
required the jury to find that Anderson knew he was
infringing Adobe’s copyright in order to convict him.
Consequently, there was no plain error. Similarly, because
the evidence of Anderson’s uncharged activities was intrinsic
to the charged conduct and was not unduly prejudicial, the
district court did not err in admitting the evidence.




 13
    Although Anderson does not raise the issue on appeal, we note that the
district court was correct to reject his suggestion that the proper valuation
method was the amount that he charged his customers. See Fu Sheng Kuo,
620 F.3d at 1166.
               UNITED STATES V. ANDERSON                     31

    We further recognize that applying the MVRA can be
complex and somewhat burdensome. The MVRA requires
restitution for certain victims but also requires some precision
when calculating restitution. Speculation and rough justice
are not permitted. See Innarelli, 524 F.3d at 294.
Nonetheless, exact precision is not required and district courts
do have a degree of flexibility in accounting for a victim’s
complete losses; thus, a “reasonable estimate” will suffice.
Goodwin, supra, § 7:4. Ultimately, however, it is the
government’s burden to establish that the victim suffered an
actual loss in a quantifiable amount. Where the alleged loss
is not quantifiable to any degree of certainty, the
government’s burden has not been satisfied, and no restitution
should be ordered. Cf. 18 U.S.C. § 366A(c)(3)(B). As we
had not previously set forth these standards in this context,
the district court understandably failed to apply them.
Accordingly, we vacate the restitution order and remand to
the district court for recalculation of restitution.

  AFFIRMED, IN PART,                     VACATED          AND
REMANDED, IN PART.
