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November 15, 2011 / screwvala

Sticker Shock

The RIAA strategy of instigating civil suits against individuals engaged in illegal downloads has resulted in some extremely large damage awards. Some courts have expressed concern at the size of the awards and are taking steps to scale back awards.

FIrst, some background. To relieve copyright owners of the burden of proving actual damages, which may be difficult in many cases, the Copyright Act provides for the imposition of statutory damages.  17 U.S.C. §504(c). Each act of infringement is subject to a minimum of $750 and a maximum of $30,000. 17 U.S.C. §504(c)(1). If the copyright owner proves that the infringement was willful, the maximum damage award increases to $150,000. Since each act carries a separate damage award, it’s pretty easy to see how online piracy cases can result in huge damage awards.

Two examples. In Massachusetts, a jury held a student liable for infringing on the copyrights of thirty recordings through illegal file sharing. A jury award of $22,500 per recording results in a total verdict of $675,000. In Minnesota, a jury awarded a whopping $1.92 Million in a case involving twenty four recordings. That’s $80,000 per recording. Both juries found the defendants acted willfully in infringing the copyrights, but only the Minnesota jury chose to award damages in excess of $30,000 as permitted in cases of willful infringement. In both cases, the juries awarded damages consistent with the Copyright Act and based upon their collective judgments about the defendants’ willful conduct. That said, it is safe to assume that neither defendant has the ability to satisfy the judgments rendered.

In each case, the trial judge believed that the jury verdicts were clearly excessive. But what could they do about it? Turns out, there are two options.

First, courts have long had the power to alter jury awards that they find grossly excessive or shocking to the conscience. Under this procedure, known as remittitur, the trial judge reduces the jury award to an amount she deems reasonable and offers the prevailing plaintiff a choice: accept the reduced award or face a retrial solely on the issue of damages. Although the labels have argued that remittitur is not available in a case of statutory damages, there does not appear to be any merit in this argument. See, Capital Records v. Thomas-Rasset, 680 F. Supp. 2d 1045 (D. Minn.  2010).

Where remittitur fails, due process may provide a fallback option. The Supreme Court in St. Louis v. Williams, 251 U.S. 63 (1919) established a standard to determine whether a statutory award satisfies due process. Under Williams, a statutory award satisfies due process if it is not “so severe and oppressive as to be wholly disproportioned to the offense or obviously unreasonable.”  Id., 251 U.S. at 67. The Williams Court identified three broad standards for courts to consider when deciding the due process implications of a statutory damages award: 1) the public interest; 2) the opportunity for numberless opportunities to commit the offense; and 3) the need for uniform adherence.

In Capital Records, Minnesota District Court, our Minnesota example, looked at whether a $1.5 Million award in a new trial following an order of remittitur against an individual violated due process under the Williams standard. Applying the Williams factors in this case seemed to favor the record labels. It’s pretty easy to conclude that there is a public interest in preventing widespread copyright infringement through illegal downloads and the very nature of the file sharing sites provided countless opportunities for continued infringement and call for the need of a uniform adherence. The Court also recognized the need for deterrence against future widespread copyright infringement.

Despite that, the Court in Capital Records still reduced the award from $1.5 Million to $54,000. The Court seems moved by two factors. First, this individual is one of millions of people who have committed copyright infringement through file sharing. The $1.5 Million verdict would have the affect of holding one individual responsible for the acts of many others. Second, this was an individual, not a corporation, and thus without the means to satisfy such a large verdict.

So, how do you get to $54,000? The Court determined that the appropriate measure of damages per act was $2,250 or three times the minimum statutory award of $750. $2,250 x 24 = $54,000/ There is nothing in the Copyright Act that sanctions treble damages, but as the Court cited, treble damages are frequently used in other legal contexts, such as a measure of punitive damages or willful conduct.

The Capital Records Court was also influenced by Sony BMG Music Entertainment v. Tenenbaum, 721 F.Supp. 2d 85 (D. Mass. 2010), which was the Massachusetts example above. The District Court in that case also held that $2,250 was the maximum amount a jury could award against an individual consistent with due process. That decision, however, was reversed by the First Circuit because the District Court failed to first order remittitur.  Sony BMG Music Entertainment v. Tenenbaum, Nos. 10-1883, 10-1947, 10-2052 (1st Cir., September 16, 2011).

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