On July 9, Judge Nancy Gertner in Sony BMG v. Tenenbaum did what no court has ever done before. The court held unconstitutional an award of statutory damages in copyright litigation even though the award was within the statutory range set by Congress. This ruling, if affirmed on appeal, will change the shape of copyright litigation for years to come.
In finding the verdict of $675,000 for defendant’s willful infringement of 30 songs “unconstitutionally excessive,” Tenenbaum applied the three “guideposts” established in BMW of North America, Inc. v. Gore, 517 U.S. (1996). The Gore framework assesses an award of punitive damages based on the (1) degree of reprehensibility of the defendant’s misconduct; (2) the disparity or ratio between the actual or potential harm suffered by the plaintiff and the punitive damages award; and (3) the difference between the punitive damages awarded by the jury and civil penalties authorized or imposed in comparable cases.
I suggest that the Gore standards are an ill fit for this case. I agree with Sony (their post-trial brief is here) and the government (post-trial brief here) that the constitutionality of a statutory damages award in copyright litigation is better tested by applying the standard established years earlier in St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63 (1919).
Why the Gore Guidelines Make No Sense Here
The Gore guidelines do not work here for the following reasons:
A. Gore dealt with punitive damages. But statutory damages are different. Punitive damages are designed to punish in amounts that are usually unconstrained. But statutory damages in copyright litigation are different. They are not only intended to punish but to compensate, impose appropriate damages on wrongdoers, deter future infringements and promote the creation of intellectual property.
B. Gore’s guideposts derive from the need to give defendant notice of the severity of the penalty that may be imposed. But the statutory damages scheme in the Copyright Act already gives notice. Congress has established and periodically adjusted the range of statutory damages in copyright litigation and a verdict within that range is entitled to substantial deference.
C. The second Gore guidepost weighs the relationship between the punitive award and the actual harm. But this guidepost has no application to statutory damages in copyright litigation which may be awarded without any showing of harm.
D. The third Gore guidepost judges the propriety of the award by focusing on its relationship with the applicable civil penalty. But this guidepost is irrelevant here because the award is, by definition, the applicable civil penalty.
The Court Creates a Safe Harbor for File Sharers
Tenenbaum avoided the identity between the award and the penalty by reaching an extraordinary conclusion. The court stated that “Congress likely did not foresee’ that the statutory damages scheme in the Digital Theft Deterrence Act of 1999 was be applied to “noncommercial infringers sharing and downloading music through peer-to peer networks.” The court later repeated this conclusion stating there was “substantial evidence indicating that Congress did not contemplate that the Copyright Act’s broad statutory damages scheme would be applied to college students like Tenenbaum who file-shared without any pecuniary gain.”
No doubt college students across the country, who had been previously subjected to waves of John Doe copyright litigation, are loudly toasting this result. But the “substantial evidence” the court relied on consisted of off-hand comments made by Senators Hatch and Leahy at hearings held after Congress passed that statue.
In fact, the legislative history of the aptly-named Digital Theft Deterrence Act demonstrates the opposite—that it addressed the growing online theft of intellectual property by all infringers. Congress expressed the need for this legislation in words that echo Tenenbaum’s conduct:
By the turn of the century … the development of new technology will create additional incentives for copyright thieves to steal protected works. Many computer users … simply believe that they will not be caught or prosecuted for their internet conduct. Also many infringers do not consider the current copyright infringement penalties a real threat and continue infringing even after a copyright owner puts them on notice.
The text of the Digital Theft Deterrence Act does not distinguish between classes of infringers nor immunize file sharers from statutory damages. Because the statutory language was plain, the court should not have examined congressional intent, much less relied on post hoc comments from two Senators.
In light of the above, it is not surprising that Tenenbaum is the first case to apply the Gore guideposts in a due process review of a statutory damages award in copyright litigation. Other courts have opted for the more deferential standard established in Williams.
In Williams, a railroad charged two sisters 66 cents each more than the statutorily prescribed fare. A state statute sought to deter over-charges by providing for statutory damages of between $50 and $350 for each overcharge. The sisters sued separately, and received statutory damage awards of $75 apiece — over 113 times greater than the 66 cents in damages each sister had incurred. The Supreme Court held that award was constitutional.
The Williams Standard is Applicable
Applying the Williams standard to copyright litigation makes more sense because that case also reviewed the constitutionality of an award that fell within a statutorily authorized damage range. Williams stated that an award would only violate due process if it were “so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable” giving “due regard for the interests of the public, the numberless opportunities for committing the offense, and the need for securing uniform adherence to [the law].” The Court expressly rejected defendant’s attempt to test the constitutionality of the “large” penalty by comparing it with the actual damage, stating that statutory remedies for “public wrongs” are not required to “be confined or proportioned to [plaintiff’s] loss or damages.”
The jury’s verdict in Tenenbaum, although substantial, appears to fit within the Williams framework. The award was 15% of the maximum of $4.5 million the jury could have been assessed and therefore seems not “obviously unreasonable” or “oppressive” considering that Tenenbaum’s conduct defines willfulness. The court summarized that conduct on pages 7-8 of the opinion.
Tenenbaum’s Adverse Impact on Copyright Enforcement
Tenenbaum, if affirmed on appeal, will negatively impact enforcement in copyright litigation.
First, it may mean that many meritorious copyright litigation cases will never be brought. That is because Tenenbaum requires the owner to prove actual damage as a pre-condition to recovering statutory damages. But many copyright holders will be unable to show actual damages. The value of a copyright, especially at inception, is often impossible to estimate. How much is an unpublished novel by a first-time author worth?
Second, in cases involving public performances, the only direct loss is the lost license fee. Limiting the copyright owner to only recovering that fee in copyright litigation invites infringers to infringe with no risk of loss.
Third, actual damages are often less than the cost of detecting, investigation and, for sure, litigating. So why bother.
Finally, although actual damages in copyright litigation include the infringer’s profits attributable to the infringement, there may be none to collect either because an infringer earned none, conveniently lost its sales records or never kept any.
Hopefully the First Circuit will be less willing to make illegal behavior affordable.
Other Posts About Statutory Damages in Copyright Litigation
Want to read Parts I, II and III of the posts that attempt to clear up other common misconceptions about statutory damages in copyright litigation? See link (Part I), link (Part II ) and link (Part III). To read a companion post criticizing the decision in Sony BMG v. Tenenbaum go to link. For a post discussing some of the issues raised by the upcoming third trial in Capitol v. Thomas-Rasset case go to link. Still have questions about statutory damages in copyright litigation and want to see a video answering those questions, go to link or want to read an article about statutory damages written for non-lawyers, go here. Also see this link explaining when a copyrighted work qualifies as a work for purposes of fixing statutory damages and another link explaining the one work limitation set forth in the last sentence of 17 U.S.C. § 504 (c)(1).
For a copy of this post published with a few minor changes in the BNA Patent, Trademark & Copyright Journal please go here.