License to Sing

  • May you copy the original work of another without committing copyright infringement? If so, may you copy the entire work or just a portion?
  • If you do infringe a copyright, how much can you be ordered to pay in damages?
  • Can you be required to pay more than you earned from your infringing activity?

Copying the original work of another is not always an infringement of the copyright. Certain uses are "fair use" and do not constitute infringement. If the copying does constitute an infringement, however, the damages awarded may be much greater than the infringer's profits.

The United States Court of Appeals for the Sixth Circuit has recently analyzed both the assertion of the fair-use defense in an action for copyright infringement and an award of statutory damages based on copyright infringement.[1] In Zomba Enterprises Inc. v. Panorama Records Inc., the Sixth Circuit reaffirmed the fact-specific nature of a fair-use analysis and clarified the difference between the review of an award of punitive damages under state law and the review of an award of statutory damages within a range established by Congress.

The case arises in the context of the sale of karaoke discs. As the court observed:
In Zomba, owners of copyrights in musical compositions sued a karaoke manufacturer for the unauthorized use of those compositions on karaoke discs. The subject discs each contained a performance of the music without the lyrics and, when played on a karaoke machine, displayed on a screen the lyrics in synchronization to the music.[3]

As the Sixth Circuit's found, the defendant in Zomba first received notice that its business practices constituted copyright infringement in 2000 when a lawyer representing an owner of musical compositions sent a cease-and-desist letter to the company. The defendant hired a licensing agent who resolved the claim by negotiating licenses for the use of the musical compositions.[4]

Two years later, the defendant received a cease-and-desist letter on behalf of the Zomba plaintiffs. Panorama neither ceased selling the discs nor obtained licenses. The plaintiffs sent a second cease-and-desist letter, but Panorama continued to sell.[5]

Panorama filed a copyright-infringement suit in the United States District Court for the Middle District of Tennessee, alleging copyright. Panorama agreed "to be restrained from distributing, releasing or otherwise exploiting any karaoke package containing compositions owned or administered by" plaintiffs.[6] Panorama, however, promptly violated the order and continued its sales of karaoke discs containing copies of the plaintiffs' musical compositions.[7]

The parties filed cross motions for summary judgment. The trial court found in favor of the plaintiffs and rejected Panorama's fair-use defense. After a trial on the issue of the amount of damages, the trial court entered judgment in the plaintiffs' favor. The trial court awarded $31,000 per infringement for each of the 26 infringements at issue for a total statutory damage award of $806,000.[8] The Sixth Circuit noted that, based on the proof that the defendant presented at trial, actual damages of lost royalties and fees, $18,457.92, plus the profits attributable to the infringement, $9693.86, totaled $28,151.78.[9]

On appeal, Panorama raised a number of issues. Among those were the application of the fair-use defense and the amount of damages the trial court awarded.

Fair Use

Section 107 of the Copyright Act provides that the "fair use" of a copyrighted work is not an infringement of the copyright.[10] Section 107 provides examples of uses that are fair, "such as criticism, comment, news reporting, teaching (including multiple copies for classroom use), scholarship, or research."[11]

Section 107 also lists four factors that courts "shall include" in analyzing a claim of fair use:

  1. the purpose and character of the use, including whether such use is of a commercial nature or is for nonprofit educational purposes;
  2. the nature of the copyrighted work;
  3. the amount and substantially of the portion used in relation to the copyrighted work as a whole; and
  4. the effect of the use upon the potential market for or value of the copyrighted work.[12]

The list of factors is not exhaustive.

The Sixth Circuit's decision in Zomba highlights the fact-specific nature of a fair-use analysis. In evaluating the first factor, the purpose and character of the use, the court considered "whether the new work is 'transformative,' and whether the use of the work is for commercial or noncommercial purposes."[13]

Whether a work is "transformative" turns on whether the new work simply copies the existing work or whether the new work "adds something new, with a further purpose or different character, altering the first with new expression, meaning or message."[14] In Zomba, the court found that Panorama's use added nothing.[15]

Of course, a successful fair-use argument should probably have some basis in fact, and Panorama fell short on that point as well. Panorama argued to the Sixth Circuit that the transformative use was "teaching" customers the words to a particular song. The transformative use that Panorama argued to the trial court was to "encourage creativity" among purchasers of the karaoke discs. The Sixth Circuit found the "teaching" argument to be "wholly meritless," noting that Panorama had described karaoke as primarily "a form of entertainment."[16]

"More importantly though, the end-user's utilization of the product is largely irrelevant; instead, the focus is on whether [the] alleged infringer's use is transformative and/or commercial."[17] The court noted that Panorama did not challenge the "karaoke crooners' renditions (atrocious or otherwise) of the relevant compositions, but rather Panorama's decision" to copy and distribute the underlying musical compositions.[18] The court also concluded that Panorama's use was "commercial in nature, a fact militating against its fair-use defense."[19]

The second factor, the nature of the copyrighted work, recognizes "that some works are closer to the core of intended copyright protection than others."[20] Musical compositions are "within the core of the copyright's protective purposes," so the court also found that this factor militated against Panorama's fair-use defense.[21]

The third factor in the court's fair-use analysis, the amount and substantiality of the portion used, clearly fell in favor of the plaintiffs. Panorama had "hired studio musicians to play the songs as closely as possible to the original performers."[22]

In analyzing the final factor, the effect on the potential market for the copyrighted work, a court considers whether the infringing use affects the copyright owner's ability to exploit the copyright. Panorama argued that the plaintiffs operated in different markets, but the Sixth Circuit found that position "factually inaccurate."[23]

Importantly, the court noted that the burden of proof with respect to this factor shifts from the plaintiff to the defendant "if the copying at issue is commercial in nature."[24] The court found that Panorama's conduct would harm the plaintiffs' ability to license their songs and that Panorama could not prove that its copying passes the market-harm test.[25]

None of the factors that the Sixth Circuit considered in its fair-use analysis militated in favor of Panorama. The court concluded that the district court had correctly rejected the fair-use defense.[26]

The Sixth Circuit analysis was both thorough and fact specific. As the United States Supreme Court noted in Campbell v. Acuff-Rose Music Inc., an analysis of fair use "is not to be simplified with bright-line rules, for the statute, like the doctrine it recognizes, calls for case-by-case analysis."[27]

Statutory Damages

The Copyright Act provides two measures of damage for copyright infringement. A successful plaintiff may elect between (1) the actual damages suffered plus the profits of the infringer or (2) statutory damages.[28]

The framework for statutory damages establishes three ranges. Statutory damages for copyright infringement may be awarded within a range from $750 to $30,000 per infringement.[29] If the defendant proves that the infringement is "innocent," the award may be reduced to $200.[30] If the plaintiff establishes that the infringement was willful, the award may be increased to $150,000 per infringement.[31]

The plaintiffs elected to recover statutory damages, and the district court found that the Panorama's conduct was willful.[32] Panorama argued that its conduct, if in fact infringing, was innocent. The Sixth Circuit disagreed with Panorama and affirmed the district court.[33]

"For infringement to be 'willful,' it must be done 'with knowledge that [one's] conduct constitutes copyright infringement.'"[34] Once an alleged infringer has been put on notice of the infringing conduct, ongoing infringement is willful unless the alleged infringer establishes a reasonable and good-faith belief that the conduct is not actually copyright infringement.[35]

The court focused on whether Panorama's belief that its conduct was not infringing was reasonable. The court did not focus on the first prong of the analysis: whether Panorama held the belief in good faith.[36]

In concluding that Panorama's belief was not reasonably held, the Sixth Circuit found that "[t]he fact most crucial to this inquiry is that [the defendant] continued to sell karaoke packages containing copies of each of the relevant compositions after the district court entered its April 22, 2003, consent order forbidding [defendant] to do so."[37]

The Sixth Circuit found that Panorama had "implicitly agreed to suspend its reliance on the fair-use defense at least temporarily and this agreement was reduced to an order of the court."[38] Therefore, the court agreed with the district court that Panorama's conduct exhibited a reckless disregard of the plaintiffs' property rights justifying an enhanced award of statutory damages.[39]

Panorama challenged the amount of the award on three grounds. First, Panorama argued that the district court abused its discretion by concluding that damages for willful infringement could not be set below $30,000 per infringement. The Sixth Circuit rejected that argument, noting that the district court had specifically determined that the maximum penalty for nonwillful infringement was insufficient given the conduct at issue.[40]

Second, Panorama argued that the Excessive Fines Clause of the Eighth Amendment prohibited such a high award of statutory damage in light of the low amount of actual damage. The Sixth Circuit rejected that argument as well; the Excessive Fines Clause "does not constrain an award of money damages in a civil suit when the government neither has prosecuted the action nor has any right to receive a share of the damages awarded."[41]

Third, the defendant argued that the award of statutory damages " 44 times the amount of actual damages " violates its right to due process. The Sixth Circuit disagreed.[42]

Panorama based its argument on the United States Supreme Court decisions BMW of North America Inc. v. Gore [43] and State Farm Mutual Automobile Insurance Co. v. Campbell.[44] Both cases struck awards of punitive damages (not statutory damages) after considering three guidepost factors: the degree of reprehensibility of the defendant's conduct, the disparity between the actual harm and the award of punitive damages and the difference between the punitive-damage award and civil penalties authorized in comparable cases.[45]

The Sixth Circuit rejected that standard for reviewing awards of statutory damage. Rather, the Sixth Circuit applied the "extraordinarily deferential standard" found in St. Louis, I.M. & Ry. Co .v. Williams.[46] The Williams standard requires a court to ask "whether the awards are 'so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.'"[47]

The Sixth Circuit wrote:

Williams is instructive, and leads us to conclude that the statutory-damage award against Panorama was not sufficiently oppressive to constitute a depravation of due process. In that case, a railroad charged two sisters 66 cents apiece more than the maximum rate permissible by regulation. A state statute sought to deter such overcharges by providing for statutory damages of between $50 and $350 when a railroad charged more than the permissible rate. The sisters sued separately, and received statutory damage awards of $75 apiece " over 113 times the amount they were charged.[48]

The court concluded that, "[i]f the Supreme Court countenanced a 113:1 ratio in Williams, we cannot conclude that a 44:1 ratio is unacceptable here."[49] "Until the Supreme Court applies Campbell to an award of statutory damages, we conclude that Williams controls, not Campbell, and accordingly reject Panorama's due-process argument."[50]

Based on the Sixth Circuit's analysis, a judgment of $2,085,745 would have been sustainable. That sum is 113 times the lost fees of $18,457.92.

Of course, awards of statutory damage are based, in part, on the number of infringements. Even with a multiplier of 113, the total award of damage per infringement would rise from the $31,000 per infringement awarded by the district court to approximately $80,000 per infringement. That sum is still substantially below the maximum award of statutory damage of $150,000 per infringement.

Notwithstanding the Williams standard applied by the Sixth Circuit, courts have awarded statutory damage of $150,000 without regard to the difference between the amount of actual damage and the statutory cap. For instance, in Macklin v. Mueck, the United States District Court for the Southern District of Florida awarded $150,000 per infringement for two separate infringements for total damages of $300,000.[51] The infringed works were poems that the defendants published on a Web site and entered in a poetry contest.[52] The court made no mention of any actual damage.

In The Design Tex Group Inc. v. U.S. Vinyl Manufacturing Corp., the United States District Court for the Southern District of New York awarded maximum statutory damages in a case in which the defendants' profits were $3,389.75.[53] The defendants in Design Tex Group were repeat offenders. The same plaintiffs had sued the same defendants for essentially the same type of infringing conduct.[54] The court specifically addressed the low amount of profit compared to the maximum award of statutory damage:

While $150,000 is considerably higher than either the profits lost by the plaintiffs or the profits made by the defendants as a result of the infringement, in light of defendants' failure to alter their practices following the previous litigation between the parties it is clear that only a substantial financial penalty will deter such conduct in the future.[55]

Conclusion

So, how much is too much? Based on Zomba, and consistent with other "fair-use" cases and the Copyright Act itself, the amount of material copied is only one of four factors a court must consider in analyzing the defense. Even then, the amount of material copied is not the most important factor in the analysis; the most important factor is whether the copying will affect the copyright owner's exploitation of the work.

Can an infringer expect to pay more in damages than the infringer actually earns from the infringing activity? Yes. In fact, the award is entitled to an "extraordinarily deferential" review in the Sixth Circuit. In light of other decisions outside the Sixth Circuit, a multiplier of 113 times actual damage is not necessarily a bright line. An award at or under the maximum statutory cap of $150,000 per infringement, however, is.

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TIMOTHY L. WARNOCK is a founding member of Riley Warnock & Jacobson PLC. He is certified in Tennessee as a civil trial specialist by the Tennessee Commission on Continuing Legal Education and Specialization and is a member of the American Board of Trial Advocates. Warnock also teaches Advanced Trial Practice and Evidence at Vanderbilt University School of Law. He represented the plaintiffs in the case discussed in the article; the defendant's petition for a writ of certiorari was denied on May 12.

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Notes

  1. Zomba Enterprises Inc. v. Panorama Records Inc., 491 F.3d 574 (6th Cir. 2007).
  2. Id. at 577.
  3. Id. at 578-89.
  4. Id. at 579.
  5. Id.
  6. Id. at 579-80.
  7. Id. at 580.
  8. Id.
  9. Id. at 586, n.10.
  10. 17 U.S.C  § 107.
  11. Id.
  12. Id.
  13. Zomba, 491 F.3d at 582.
  14. Id. (quoting Campbell v. Acuff-Rose Music Inc., 510 U.S. 569, 579 (1994)).
  15. Id. at 582.
  16. Id.
  17. Id.
  18. Id. at 583.
  19. Id.
  20. Id. (quoting Campbell, 510 U.S. at 586 (1994)).
  21. Id.
  22. Zomba, 491 F.3d at 583.
  23. Id.
  24. Id.
  25. Id. at 584.
  26. Id.
  27. Campbell, 510 U.S. at 577.
  28. 17 U.S.C.  § 504(c)(1).
  29. Id.
  30. 17 U.S.C.  § 504(c)(2).
  31. Id.
  32. Zomba, 491 F. 3d at 584.
  33. Id.
  34. Id. (quoting Princeton Univ. Press v. Mich. Doc. Servs. Inc., 99 F. 3d 1381, 1392 (6th Cir. 1996)).
  35. Id.
  36. Id.
  37. Id. at 585.
  38. Id.
  39. Id.
  40. Id. at 586.
  41. Id. (quoting Browning-Ferris Indus. of Vermont Inc. v. Kelco Disposal Inc., 492 U.S. 257, 264, 109 S. Ct. 2909, 106 L. Ed. 2d 219 (1989)).
  42. Id. at 586.
  43. BMW of North America Inc. v. Gore, 517 U.S. 559, 116 S. Ct. 1589, 13 L. Ed. 2d 809 (1996).
  44. State Farm Mutual Automobile Insurance Co. v. Campbell, 538 U.S. 408, 123 S. Ct. 1513, 155 L. Ed. 2d 585 (2003).
  45. Zomba, 491 F.3d at 587 (internal citations omitted).
  46. St. Louis, I.M. & Ry. Co .v. Williams, 251 U.S. 63, 66-67, 40 S. Ct. 71, 64 L. Ed. 139 (1919).
  47. Zomba, 491 F.3d at 587 (quoting Williams, 251 U.S. at 67).
  48. Id. at 587-88 (internal citations omitted).
  49. Id. at 588.
  50. Id.
  51. Macklin v. Mueck, No. 00-14092, 2005 U.S. Dist. LEXIS 18026 (S.D. Fla. Jan. 28, 2005).
  52. Id. at ** 3-4.
  53. The Design Tex Group Inc. v. U.S. Vinyl Manufacturing Corp., No. 04 Civ 5002, 2005 U.S. Dist. LEXIS 18276 (S. D. N.Y. Aug. 22, 2005).
  54. Id. at * 2.
  55. Id. at * 2.

TIMOTHY L. WARNOCK TIMOTHY L. WARNOCK is a member of the Nashville firm of Riley Warnock & Jacobson PLC. He is certified in Tennessee as a civil trial specialist by the Tennessee Commission on Continuing Legal Education and Specialization and is a member of the American Board of Trial Advocates. He has served as chair of the Federal Practice Section of the Tennessee Bar Association and served as a member of the Steering Committee for the Tennessee Bar Association’s Leadership Law Program.