Copyright Owners Upset Over Two Recent Court Rulings that Cap Statutory Damages

When the Supreme Court capped punitive damages, the business community cheered vociferously. But when two recent court rulings capped statutory damages, the reaction was quite different. Many copyrights owners cried foul.

In Sony BMG Music Entertainment v. Tenenbaum and Capitol Records, Inc. v. Thomas-Rasset, juries imposed large statutory damages against file-sharers who had downloaded music without authorization. Joel Tenenbaum, a graduate student, was found to have infringed the copyrights in 30 songs and was slapped with damages of $675,000. Jammie Thomas-Rasset, a single mother of four, was found to have infringed the copyrights in 24 songs and was hit with damages of $1.92 million. These awards were well within the range of statutory damages set by Congress, but the federal district courts struck them down, ruling that the damage awards were, respectively, "grossly excessive" and "simply shocking."

If upheld, these two rulings will hinder copyright owners' ability to go after infringers, according to experts. Plaintiffs will need to spend significantly more time and money on their lawsuits in order to provide evidence of their actual damages. And the amount of their damage awards may be much smaller going forward.

The rulings could seriously undermine efforts by the music and movie industries to sue file-sharers. "The litigation strategy that the RIAA and the MPAA have undertaken becomes very problematic," says David Post, professor at Temple University School of Law in Philadelphia.

File-sharers may not be the only benefactors. All types of accused infringers--even large-scale commercial defendants--may benefit from the hurdle that these cases put in the way of obtaining large damage awards, experts warn.

Damage Control

Under the Copyright Act, an infringer is liable for either statutory damages or the copyright owner's actual damages plus the infringer's profits. Statutory damages can be hefty, running anywhere between $750 and $30,000 for each infringed work. If a defendant willfully infringed, statutory damages can rise to $150,000 per infringed work.

In Thomas-Rasset, the jury found Thomas-Rasset willfully infringed and imposed statutory damages of $80,000 for each of the 24 songs she had wrongfully downloaded. That totaled $1.92 million.

That was too much for Judge Michael J. Davis of the U.S. District Court for the District of Minnesota. Davis recognized that statutory damages are intended to outweigh actual damages--including an additional component aimed at deterring future infringements. But this goal of deterrence does not give juries unfettered license to grant sky-high damage awards, he held. "[S]tatutory damages must still bear some relation to actual damages," Davis wrote.

The common law doctrine of remittitur allows a judge to reduce a jury's award of damages if the award is "so grossly excessive as to shock the conscience of the court." Davis wrote the
"$2 million [award] for stealing 24 songs for personal use is simply shocking. No matter how unremorseful Thomas-Rasset may be, assessing a $2 million award against an individual consumer ... is unjust."

He reduced the damages to $2,250 per song, three times the minimum amount of statutory damages. This "significant and harsh" award, he stated, was "the maximum amount a jury could reasonably award" in order to both compensate the plaintiffs and deter individuals from future file-sharing.

Undue Process

The judge in Tenenbaum also reduced the jury award to $2,250 per infringed song but used a very different legal rationale. Judge Nancy Gertner, of the U.S. District Court for the District of Massachusetts, ruled that the statutory damages imposed by the jury imposed on Tenenbaum were so excessive they violated the Due Process Clause of the Constitution.

In 1919, the Supreme Court held that a jury award within the limits of a statutorily prescribed range could violate the Due Process Clause--if the award is "so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable." Applying this standard, the court in St. Louis, I.M. & S. Railway Co. v. Williams upheld statutory damages of $75, approximately 114 times greater than the plaintiffs' actual damage of 66 cents.

The statutory damages in Tenenbaum were far more egregious, according to Gertner: "The plaintiffs here may have suffered approximately $1 in actual damages for each song that Tenenbaum illegally downloaded, but the jury awarded the plaintiffs $22,500 per song, for a statutory-to-actual-damages ratio of approximately 22,500:1." If one compares the statutory damages with the benefit Tenenbaum received from freely accessing music for years, the ratio drops to 450:1, according to Gertner. This still greatly exceeds the 114:1 ratio upheld by the Supreme Court in Williams. The Tenenbaum award is "obviously unreasonable" and violates due process, the judge concluded.

Gertner buttressed her conclusion with Supreme Court rulings on punitive damages. Starting with the seminal 1996 decision in BMW v. Gore, the Supreme Court has repeatedly found some punitive damage awards to be so large they violate Due Process. This line of cases set out guidelines for determining when an award is too large to be constitutional, and the award in Tenenbaum failed to satisfy those guidelines, Gertner stated.

Punitive vs. Statutory

Many experts question Gertner's reliance on the Supreme Court's punitive damage cases. "The difference between punitive and statutory damages is pretty significant," says Eric Goldman, associate professor at Santa Clara University School of Law (see "Finding Fairness").

Many experts also question the holding in Tenenbaum and Thomas-Rasset that statutory damages for copyright infringement must bear some relationship to actual damages. Such a rule "doesn't tell us a whole lot when we don't know what the actual damages are," says Aaron Moss, a partner at Greenberg Glusker Fields Claman & Machtinger.

Actual damages arising from copyright infringement are often hard to calculate or prove. That's why Congress created statutory damages and why so many copyright owners rely on them. "People hardly ever bring copyright actions based on actual damages because those damages are so difficult to prove and are often very low," Post says.

Requiring copyright owners to prove actual damages--even to obtain substantial statutory damages--could alter copyright litigation dramatically. "It would make at least some copyright litigation significantly more complicated and expensive," says Ben Sheffner, senior counsel for the NBC Universal Television Group.

Copyright owners are challenging the Thomas-Rasset and Tenenbaum rulings. The plaintiffs in Thomas-Rasset rejected the remitted award and obtained a new trial on damages. The plaintiffs in Tenebaum are appealing the decision to the 1st Circuit, where the precedent-setting ruling may not receive a warm welcome. Gertner "wrote a pretty persuasive opinion," says Post, but "she went out on a limb."

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