By Salvatore Angotti*
Introduction
Recently, the USPTO in cooperation with the Department of Commerce’s Internet Policy Task Force released its White Paper on Remixes, First Sale, and Statutory Damages. The Task Force was formed in 2010 to conduct a review of the nexus between privacy policy, copyright, the global free flow of information, and innovation in the Internet economy. For their review, the Task Force brought in a diverse group of stakeholders from across the country which included musicians, librarians, technology companies, and public interest advocates.
The White Paper discusses three issues: 1) the legal framework for the creation of remixes; 2) the relevance and scope of the “first sale doctrine” in the digital environment; and 3) the appropriate calibration of statutory damages in the contexts of individual file sharers and secondary liability for large-scale infringement. For now, we will focus on the issue of statutory damages, and begin by describing the problem according to the stakeholders, as well as the USPTO proposal to amend the Copyright Act to provide greater clarity as to how these damages should be calculated.
Statutory Damages: Fair Deterrent or Innovation Destroyer?
17 U.S.C. §504 sets out the guidelines for damages in copyright suits. It reads:
(a) In General.— Except as otherwise provided by this title, an infringer of copyright is liable for either—
(1) the copyright owner’s actual damages and any additional profits of the infringer, as provided by subsection (b); or
(2) statutory damages, as provided by subsection (c).
(b) Actual Damages and Profits.— The copyright owner is entitled to recover the actual damages suffered by him or her as a result of the infringement, and any profits of the infringer that are attributable to the infringement and are not taken into account in computing the actual damages. In establishing the infringer’s profits, the copyright owner is required to present proof only of the infringer’s gross revenue, and the infringer is required to prove his or her deductible expenses and the elements of profit attributable to factors other than the copyrighted work.
(c) Statutory Damages.—
(1) 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 purposes of this subsection, all the parts of a compilation or derivative work constitute one work.
(2) In a case where the copyright owner sustains the burden of proving, and the court finds, that infringement was committed willfully, the court in its discretion may increase the award of statutory damages to a sum of not more than $150,000. In a case where the infringer sustains the burden of proving, and the court finds, that such infringer was not aware and had no reason to believe that his or her acts constituted an infringement of copyright, the court in its discretion may reduce the award of statutory damages to a sum of not less than $200.
The USPTO sought, in the White Paper, to find a way to find a balance in the award of statutory damages for copyright infringement. With the advent of file sharing and online works, infringement and copying of copyrighted material has become easier and more frequent than ever before. Copyright holders would like harsh penalties for those who infringe on their content, which under current law could reach up to $150,000, even for non-commercial infringers. Content creators fear these sharp penalties, as they could deter future artists and authors from innovating due to the fear of penalties if they use another copyrighted work inappropriately. During deliberations across the country, stakeholders brought up the only two reported trial verdicts, both of which resulted in high statutory damages awards. One case in the First Circuit Court of Appeals, Sony BMG Music Entm’t v. Tenenbaum, 660 F.3d 487 (1st Cir. 2011), had a jury award of $675,000 ($22,500 for each of 30 infringed works). Seeing a number that high for one of the few cases that makes it to trial for a copyright infringement case can be a strong incentive for someone who is accused of infringement to settle out of court, or to altogether avoid acts that may even fall anywhere near dispute (even where there may be plausible arguments for fair use, for example).
Stakeholders suggested that with extremely high statutory damages, it is easy for “copyright trolls” to go after individual file sharers online and intimidate them into settling. Through subpoena power, trolls can get the names of these online sharers, send a letter informing them that they are being sued and mention very high statutory damages, and then settle out of court for a smaller amount, avoiding trial. These high statutory damages are intended to be a deterrent for infringers, but it can also be used as a weapon for copyright trolls to make quick, easy money through settlements.
A number of stakeholders also raised concerns about the inconsistencies in the application of these damages, as there are no specific set of factors or guidelines to be used in calculating statutory damages award.
Nine Factors to Provide Clarity
The Task Force brought forth a few recommendations to amend the Copyright Act in regards to statutory damages and the issues raised by stakeholders. The Task Force considered proposing federal model jury instructions to provide clarity as to how statutory damages should be calculated, but concluded that a statutory set of factors would be preferable since they will be binding on all courts. They believe that litigants and courts would be well-served by requiring consideration of a uniform set of factors designed to result in an appropriate award based upon the facts of each case. The nine factors listed below are those that will most often be applicable in a statutory damages determination. The Task Force proposed a new clause in subsection Section 504(c) as follows:
In making any award under this subsection, a court shall consider the following nonexclusive factors in determining the appropriate amount of the award: 1) The plaintiff’s revenues lost and the difficulty of proving damages; 2) The defendant’s expenses saved, profits reaped, and other benefits from the infringement; 3) The need to deter future infringements; 4) The defendant’s financial situation; 5) The value or nature of the work infringed; 6) The circumstances, duration, and scope of the infringement, including whether it was commercial in nature; 7) In cases involving infringement of multiple works, whether the total sum of damages, taking into account the number of works infringed and number of awards made, is commensurate with the overall harm caused by the infringement; 8) The defendant’s state of mind, including whether the defendant was a willful or innocent infringer; 9) In the case of willful infringement, whether it is appropriate to punish the defendant and if so, the amount of damages that would result in an appropriate punishment. When calculating the total award, all of these factors should be weighed holistically, in the context of the entire case, to ensure that the overall award is appropriate.
These factors are likely to help juries to have a better understanding of the actual damages that have been suffered by the plaintiff, and allows for a more informed enforcement of statutory damages on online infringers.
The first five factors help to quell concerns from both sides of the debate about being able to more effectively tie statutory damages to actual harm. This could help to both protect individual file-sharers from not having to pay exorbitant sums of money in damages, and also could allow creators who have their work infringed on by a large, wealthy entity who profited heavily off the infringement to pay a much higher amount in damages. A fan on YouTube who makes a video should not be paying nearly the same in damages as a large corporation who infringes on someone’s creation.
The remaining factors also deal with two of the main concerns of the Task Force: removing a bar to eligibility for the lower “innocent infringement” statutory damages award, and giving the court more discretion to look at actual damages compared to statutory damages on a strict per-work basis. These factors allow the court to look at the number of works being infringed upon, and the type of works that are being created by these infringements.
One of the other recommendations discussed in the White Paper was the creation of a tribunal by the Copyright Office to be a centralized location for smaller claims to be dealt with, including a cap of damages with limited discovery and proceedings. In allowing smaller cases to be taken by tribunal, one of the White Paper’s recommendations, these smaller cases would be adjudicated by a court more accustomed to their cases while larger cases to be taken by the court, and allow the courts to not become cluttered with numerous small claims. The Copyright Office recommended such a tribunal for low-value infringement claims, with a $15,000 per work cap on statutory damages and a $30,000 cap on all damages in a single action.
* 2L at American University Washington College of Law.