IP: Statutory damages and constitutional limits

Examining the decision in Sony BMG Music Entertainment v. Tenenbaum.

The Copyright Act provides plaintiffs the opportunity to recover statutory damages in lieu of actual damages. The amount of statutory damages that a plaintiff can recover ranges from $750 to $150,000, depending primarily on whether the infringement was innocent or willful. In a situation involving peer-to-peer file sharing where a defendant may have downloaded and shared hundreds and thousands of copyrighted works, a statutory damages award (particularly where it is found that the infringer was acting willfully) can soar into the millions of dollars.

In Sony BMG Music Entertainment v. Tenenbaum,100 U.S.P.Q.2d 1161 (1st Cir. 2011) the 1st Circuit discussed a possible constitutional due process restraint on such an award, but ultimately held that resolution would have to wait for another day.

Sony involved a copyright infringement lawsuit brought by the major record labels against an individual who was engaging in peer-to-peer file sharing of copyrighted musical recordings. Although the evidence showed the defendant had downloaded over a thousand songs, plaintiffs pursued copyright infringement claims on thirty of them. A jury found that the defendant had willfully infringed each work and awarded $22,500 per infringement (well within the statutory range), yielding a total award of $675,000.

The district court rejected common law remittitur arguments and held that the award was unconstitutionally excessive under the standard for reviewing punitive damage awards articulated in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), disregarding the due process standard for statutory damage awards articulated by the Supreme Court in St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 67-68 (1919), and reduced the award to $67,500 without affording plaintiffs the option of a new trial.

The 1st Circuit reversed, finding that the district court had failed to “adhere to the doctrine of constitutional avoidance” and should have ruled on the common law remittitur arguments before turning to constitutional issues. By not choosing remittitur, the district court became “unnecessarily embroiled” in several issues of a constitutional dimension.

The first was whether the due process standard for statutory damage awards articulated by the Supreme Court in Williams was applicable. The second was whether, assuming Williams did not apply, whether Gore, or a combination of Williams and Gore, or something else was the due process standard. The 1st Circuit examined both decisions to point out the nature of the question that the district court could have avoided.

In Williams, the Supreme Court considered a challenge to an Arkansas statute that subjected railroads to penalties within a certain range. A lawsuit resulted in an award within the statutory range. The railroad challenged the statutory award as unconstitutionally excessive in violation of due process.

The Supreme Court held that while due process limits the power of governments to prescribe penalties, they have wide discretion in the matter. Given this latitude, the 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.”

Gore, on the other hand, related to punitive damages and identified three factors to guide a court's consideration of whether a punitive damage award violates due process:

1. The degree of reprehensibility of the defendant's conduct;

2. The ratio of the punitive award to the actual or potential harm suffered by the plaintiff;

3. The disparity between the punitive award issued by the jury and the civil or criminal penalties authorized in comparable cases.

The 1st Circuit noted that in a copyright infringement case, “there are many questions regarding the relationship between Gore’s guideposts for reviewing punitive damage awards and the Williams standard for reviewing statutory damage awards.”

First, there is or may be a material difference between the purposes of statutory damages under the Copyright Act as opposed to the purpose of punitive damages. 

Second, there may be a difference in the “limits or contours of possible ranges of awards under the different standards.” 

Third, Williams and Gore involved limitations on state-authorized awards of damages, whereas statutory damages in a copyright case are set by Congress pursuant to its Article I powers and thus setting a damages limitation may be an “intrusion into Congress's power under Article 1, Section 8 of the Constitution.”   

The 1st Circuit further noted that the Supreme Court did not overrule Williams when it decided Gore. Moreover, the Supreme Court has never suggested that the Gore standards should be extended to the review of statutory damage awards.

Indeed, the 1st Circuit pointed out that the “concerns regarding fair notice to the parties of the range of possible punitive damage awards present in Gore are simply not present in a statutory damages case where the statute itself provides notice of the scope of the potential award.”

The 1st Circuit also held that the district court's decision may have violated plaintiffs' Seventh Amendment rights, noting that although some cases hold that punitive damages may be reduced without affording a new trial option, no cases have addressed the issue of whether a statutory damages award can be reduced, without affording the plaintiff a new trial, and not violate the 7th Amendment.

On the other hand, the 1st Circuit rejected plaintiffs’ contention that the district court properly rejected a consideration of remittitur because remittitur is never available when an award falls within a prescribed statutory range. The 1st Circuit rejected the argument “that in enacting the Copyright Act, Congress intended to eliminate the common law power of the courts to consider remittitur,” which is a doctrine that “has roots deep in English and American jurisprudence.”

Thus, the 1st Circuit reinstated the jury's award of damages and remanded for consideration of plaintiff's motion for common law remittitur based on excessiveness, leaving for another day the issue of what standard will be applied when it is argued that the amount of a statutory damages violates the due process protections of the U.S. Constitution. 

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