Payback for Playback

Setting an Appropriate Award of Statutory Damages in a Copyright-Infringement Action

The Copyright Act sets ranges for awards of statutory damages.[1] Section 504(c)(1) provides:

Except as provided by clause (2) of this subsection, the copyright owner may elect, at any time before final judgment is rendered, to recover, instead of actual damages and profits, an award of statutory damages for all infringements involved in the action, with respect to any one work, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $750 or more than $30,000 as the court considers just. For the purpose of this subsection, all parts of a compilation or derivative work constitute one work.[2]

Clause (2) permits the court to increase the award up to $150,000 for willful infringement.[3] Likewise, clause (2) permits the court to reduce the award to $200 where the court determines that the “infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright.”[4]

Awards of statutory damages per infringed work fall all along this broad range of $200 to $150,000. Recent cases involving multiple infringed works within one case have focused courts on the task of setting an appropriate award of statutory damages per infringed work. In cases involving hundreds of infringed works, the resulting judgments could total tens of millions if not hundreds of millions of dollars. Even though such awards of statutory damages would reflect a simple mathematical calculation — multiplying the number of infringed works with an award found within a legislatively established range — courts have criticized such potentially high awards as “absurd.”[5]

Two questions have controlled the discussion of setting an appropriate award of statutory damages in cases involving multiple infringed works. First, courts examine the importance of the relationship that the award bears to actual damage suffered by the plaintiff. Second, courts examine whether awards raise Constitutional concerns in cases where the statutory award is significantly greater than the actual damages. The increasingly clear answers to those questions, and the analysis that leads to those answers, are helpful not only for lawyers who wrestle with questions of damages in copyright-infringement cases but also for lawyers who are required to evaluate awards of damages in other areas where the range is legislatively determined.

Discussion

How, then, should a finder of fact approach setting an appropriate award of statutory damages per infringed work? Moreover, as advocates seeking to persuade those fact finders, what information do lawyers need to know in order to suggest an award that will withstand appellate scrutiny?

Jury instructions provide some guidance on factors for a court or jury to consider in setting an appropriate award of statutory damages.[6]

For instance, the United States Court of Appeals for the Ninth Circuit has adopted Model Jury Instructions that provide:

If you find for the plaintiff on the plaintiff’s copyright infringement claim, you must determine the plaintiff’s damages. The plaintiff seeks a statutory damage award, established by Congress for [[the work infringed] [each work infringed]]. Its purpose is to penalize the infringer and deter future violations of the copyright laws.[7]

The United States Court of Appeals for the First Circuit has tacitly approved a jury instruction that contains a more extensive but non-exhaustive list of factors that the jury is entitled to consider in setting an award. That list includes:

  1. the nature of the infringement;
  2. the defendant’s purpose and intent;
  3. the profit that the defendant reaped, if any, or the expense that the defendant saved;
  4. the revenue lost by the plaintiff as a result of the infringement;
  5. the value of the copyright;
  6. the duration of the infringement;
  7. the defendant’s continuation of the infringement after notice or knowledge of the copyright claims, and
  8. the need to deter this defendant and other potential offenders.[8]

The pattern jury instructions proposed for the United States Court of Appeals for the Seventh Circuit suggest a similar list of factors:

  1. the expenses that Defendant saved and the profits that he earned because of the infringement;
  2. the revenues that Plaintiff lost because of the infringement;
  3. the difficulty of proving Plaintiff’s actual damages;
  4. the circumstances of the infringement;
  5. whether Defendant intentionally infringed Plaintiff’s copyright, and deterrence of future infringement.[9]

All three instructions recognize that deterrence is an appropriate consideration in setting the award. In addition, numerous appellate decisions recognize that deterrence is an appropriate consideration.[10] An award of statutory damages may therefore serve a punitive purpose.

In light of the punitive aspect of an award of statutory damages, can considerations of due process invalidate an award that falls within the statutory range? The growing weight of authority suggests that an award within the range will withstand a constitutional challenge.

For instance, in Sony BMG Entertainment v. Tenenbaum, the United States Court of Appeals for the First Circuit held that an award of $675,000 for the willful infringement of 30 songs did not violate Joel Tenenbaum’s right to due process.[11] The award represented $22,500 in statutory damages for each of the infringed works.

The court first considered the appropriate standard to apply in analyzing the constitutionality of an award of statutory damages. The court found that the standard applied in St. Louis, I.M. & S. Ry. Co. v. Williams[12] was the appropriate standard to apply.[13] There, the United States Supreme Court held that “a statutory damage award violates due process only ‘where the penalty prescribed is so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.’ ”[14]

What, then, meets the standard? In Williams, the railroad defendant charged two passengers a fare that was 66 cents higher than the law allowed.[15] The Arkansas statute at issue authorized statutory damages from $50 to $300.[16] The Supreme Court upheld an award in favor of each passenger of $75 plus fees.[17] The award was more than 100 times the amount of the actual harm.

The court in Tenenbaum, however, noted that “a plaintiff seeking statutory damages under the Copyright Act need not prove actual damages.”[18] The Tenenbaum court further observed that analyzing the ratio of the award to the actual or potential harm suffered by the plaintiff is a factor to consider under BMW of North America Inc. v. Gore,[19] but Gore controls an award of punitive damages, not statutory damages.[20] In addition, “Gore did not overrule Williams, and the Supreme Court has not suggested that the Gore guideposts should extend to constitutional review of statutory damage awards.”[21]

The United States Court of Appeals for the First Circuit is neither the first nor the only circuit to apply the Williams standard. In Capitol Records Inc. v. Thomas-Rasset, the United States Court of Appeals for the Eighth Circuit concluded “that an award of $9,250 per each of 24 works is not ‘so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.’”[22] In Thomas-Rasset, the first of three juries awarded record companies $222,000 for the defendant’s willful infringement of 24 sound recordings “by engaging in file-sharing on the Internet.”[23] A second jury awarded $1,920,000, and a third jury awarded $1,500,000.[24] “For tactical reasons, the [record] companies [did] not seek reinstatement of the third jury’s award of $1,500,000,” but sought instead reinstatement of the first jury’s award of $222,000.[25]

The court in Thomas-Rasset wrote that “Congress possesses a ‘wide latitude of discretion’ in setting statutory damages.”[26] Thomas-Rasset, like Tanenbaum, urged the court “to consider … the ‘guideposts’ announced by the Supreme Court for the review of punitive damages awards under the Due Process Clause.”[27] The court recited the guideposts — degree of reprehensibility, disparity between actual or potential harm and the punitive damage award, and the difference between the award and civil penalties authorized in comparable cases — and recognized that “[t]he Supreme Court never has held that the punitive damages guideposts are applicable in the context of statutory damages.”[28]

In Zomba Enterprises Inc. v. Panorama Records Inc., the United States Court of Appeals for the Sixth Circuit also applied the Williams standard to hold that an award of statutory damages that was approximately 44 times the measure of actual damage did not violate the defendant’s Due Process rights.[29] In Zomba, the district court awarded $806,000 in statutory damages for the sale of karaoke discs that contained unauthorized copies of plaintiff’s musical compositions.[30] The award represented damages of $31,000 for each of 26 musical compositions.[31]

The defendant raised two constitutional challenges. First, the defendant argued that the award was actually an excessive fine prohibited by the Eighth Amendment.[32] The court rejected that argument because “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.’ ”[33]

Second, the defendant raised a due-process challenge, urging the court to consider Gore and State Farm Mutual Automobile Insurance Co. v. Campbell.34 The court declined to apply Gore and State Farm, electing to analyze and apply Williams in upholding the award of statutory damages.[35]

Tenenbaum, Thomas-Rasset and Zomba all involve awards of statutory damages based on willful infringement. Other cases, however, apply similar criteria in setting an award of statutory damages when the infringement is determined not to be willful. In King Records Inc. v. Bennett, for instance, the United States District Court for the Middle District of Tennessee awarded $10,000 per work.[36]

In King Records, the court considered a number of factors, including the expenses saved and profits reaped by the defendants, loss of revenue by the plaintiffs, the defendants’ state of mind and the goal of discouraging wrongful conduct.[37] Regarding the last factor, the court noted that the defendants were not willful infringers and in fact had obtained the infringing works from non-parties who had misrepresented their ownership in the infringed works.[38] The court further noted “There is very little evidence regarding Defendants’ expenses and profits and Plaintiff’s loss of revenue or harm.”[39]

Regarding the relationship between actual harm and an award of statutory damages, the United States Supreme Court long ago recognized that “[e]ven for uninjurious and unprofitable invasions of copyright the court may, if it deems it just, impose a liability within statutory limits to sanction and vindicate the statutory policy.”[40] In PeerMusic III Ltd. v. Liveuniverse Inc., the United States District Court for the Central District of California recognized that principle and awarded statutory damages “of $12,500 per each of the 528 songs shown to be infringed for a total of $6,600,000.”[41] The court noted that the defendants’ financial condition was not as plaintiff had suggested and that “Defendants’ financial reports show that their net income after taxes for the Month of April was a loss of $1.6 million.”[42]

In Thomas-Rasset, the court wrote that “[i]t makes no sense to consider the disparity between the ‘actual harm’ and an award of statutory damages when statutory damages are designed precisely for instances where actual harm is difficult or impossible to calculate.”[43] Following Thomas-Rasset, the United States District Court for the Southern District of New York wrote, “The Court rejects Defendant’s contention that statutory damages must, or even should, be calculated ‘as an arithmetic multiple of defendant’s actual damages.’”[44]

Conclusion

The consistent results throughout these cases are three. First, an award of statutory damage that falls within the range set by the Copyright Act is unlikely to be overturned on appeal. Second, punishment and deterrence are appropriate goals of an award of statutory damage. Third, the ratio between actual harm to the plaintiff and the financial success of the infringer, on the one hand, and the amount of the award of statutory damages, on the other hand, is unlikely to be a factor that causes a court to overturn an award of statutory damages on appeal.[45]

Notes

  1. 17 U.S.C. § 504.
  2. Id. at (c)(1).
  3. Id. at (c)(2).
  4. Id.
  5. Arista Records LLC v. Lime Group LLC, 784 F. Supp. 2d 313 (S.D.N.Y. 2011).
  6. The Supreme Court has determined that “the Seventh Amendment provides a right to a jury trial on all issues pertinent to an award of statutory damages under § 504(c) of the Copyright Act, including the amount itself.” Feltner v. Columbia Pictures Television, 523 U.S. 340, 355 (1998).
  7. Ninth Circuit Manual of Model Civil Jury Instructions § 17.25 (2007), available at www.akd.uscourts.gov/docs/general/model_jury_civil.pdf.
  8. Sony BMG Music Entm’t v. Tenenbaum, No. 12-2146, 2013 WL 3185436, at *1 (1st Cir. June 25, 2013).
  9. Federal Civil Jury Instructions of the Seventh Circuit § 12.8.4 (2009), available at www.ca7.uscourts.gov/Pattern_Jury_Instr/7th_civ_instruc_2009.pdf.
  10. See, e.g., Johnson v. Jones, 149 F. 3d 494, 504 (quoting F.W. Woolworth Co. v. Contemporary Arts Inc., 344 U.S. 228, 233 (1952)).
  11. Tenenbaum, 2013 WL 3185436, at *1.
  12. St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 66-67 (1919).
  13. Tenenbaum, 2013 WL 3185436, at *2.
  14. Id. (quoting Williams, 251 U.S. at 66-67).
  15. Williams, 251 U.S. at 64.
  16. Id.
  17. Id. at 66.
  18. Tenenbaum, 2013 WL 3185436, at *2 (citing F.W. Woolworth Co., 344 U.S. 228, 233 (1952)).
  19. BMW of N. Am. Inc. v. Gore, 517 U.S. 559 (1996).
  20. Tenenbaum, 2013 WL 3185436, at *2.
  21. Id.
  22. Capitol Records Inc. v. Thomas-Rasset, 692 F. 3d 899, 908 (8th Cir. 2012).
  23. Thomas-Rasset, 692 F. 3d at 901.
  24. Id.
  25. Id. at 902.
  26. Id. at 907 (quoting St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 66 (1919)).
  27. Id.
  28. Id. (citing Zomba Enters. Inc. v. Panorama Records Inc., 491 F. 3d 574, 586-88 (6th Cir. 2007)).
  29. Zomba Enters. Inc., 491 F. 3d at 588.
  30. Id. at 580.
  31. Id.
  32. Id. at 586.
  33. Id. (quoting Browning-Ferris Indus. of Vermont Inc. v. Kelco Disposal Inc., 492 U.S. 257, 264 (1989)).
  34. State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003).
  35. Zomba Enters. Inc., 491 F. 3d at 588.
  36. King Records Inc. v. Bennett, 438 F. Supp. 2d 812, 866 (M.D. Tenn. 2006).
  37. Id. at 852-864.
  38. Id. at 863.
  39. Id. at 863-864.
  40. F.W. Woolworth Co. v. Contemporary Arts Inc., 344 U.S. 228, 233 (1952).
  41. PeerMusic III, Ltd. v. Liveuniverse Inc., No. CV 09-6160-GW, 2012 WL 4840803, at *4 (C.D. Cal. Oct. 9, 2012).
  42. Id. at *3.
  43. Thomas-Rasset, 692 F. 3d at 908-9.
  44. Psihoyos v. John Wiley & Sons Inc., No. 11 Civ. 1416, 2012 WL 5506121, at *7-8 (S.D.N.Y. Nov. 7, 2012) (internal citation omitted).
  45. Trial courts, however, often analyze the relationship between the harm and the award of statutory damage. See, e.g., Archlightz and Films Pvt. Ltd. v. Video Palace Inc., 303 F. Supp. 2d 356, 363 (S.D.N.Y. 2003); New Line Cinema Corp. v. Russ Berrie & Co. Inc., 161 F. Supp. 2d 293, 303 (S.D.N.Y. 2001) (“New Line’s statutory damages should be commensurate with the actual damages incurred.”); RSO Records Inc. v. Peri, 596 F. Supp. 849, 862 (S.D.N.Y. 1984) (“Undoubtedly assessed statutory damages should bear some relation to the actual damages suffered.”).

Tim Warnock TIM WARNOCK is a member of Riley Warnock & Jacobson PLC in Nashville. 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 and Sports and Entertainment sections of the Tennessee Bar Association and served as a member of the Steering Committee for the Tennessee Bar Association’s Leadership Law Program.