United States: The Department Of Commerce Internet Policy Task Force White Paper On Remixes, First Sale, And Statutory Damages

In January 2016, the U.S. Department of Commerce's Internet Policy Task Force issued its "White Paper on Remixes, First Sale, and Statutory Damages." Spearheaded by the U.S. Patent and Trademark Office and the National Telecommunications and Information Administration, the Task Force received public comments on and examined key topics in copyright law, including the application of statutory damages in the context of individual file-sharers and secondary liability for large-scale online infringement. This article focuses on the Task Force's analysis of statutory damages under the Copyright Act and its recommendations for amending the statute.

Criticisms of the Current Regime for Statutory Damages

The Task Force highlights several concerns about the current statutory damages framework in § 504(c) of the Copyright Act. These include: the potential "chilling effect" that the prospect of a massive damages award has on innovations and new technologies, especially for Internet service providers, technology companies, and others that face secondary liability for the directly infringing acts of their customers and users; copyright "trolls" who leverage the threat of maximum statutory damages per work to coerce settlements from individuals they accuse of file-sharing; copyright plaintiffs who use statutory damages to obtain windfall profits; and inconsistencies in the application of statutory damages, leading to disparate and unpredictable awards in similar cases. And although service providers do not control the number of works individual users may directly infringe, they are nonetheless still held liable for damages on a per-work basis. In cases where tens of thousands of works are at issue, even a minimum of $750 per work leads to a massive award that is disproportionate to the service provider's conduct.

Section 504(c) also lacks specificity. Unlike other federal laws, which provide specific factors to guide a statutory damages award (i.e., the Truth in Lending Act, 15 U.S.C. § 1640(a)), the Copyright Act offers no statutory factors or guidelines for courts and juries to consider in reaching a statutory damages award.

The Task Force's Recommendations for Amending the Copyright Act

The Task Force recommends three amendments to statutory damages provisions of the Copyright Act, noting that "effective enforcement tools" against online piracy must be reconciled with "excessive and inconsistent awards" that chill innovation and incentivize litigation abuse.

The first recommendation is to amend § 504 to add nine specific, non-exclusive factors that courts and juries must consider in determining a statutory damages 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 the 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.

Drawn from model jury instructions and case law, the Task Force does not intend these factors to be exclusive, allowing consideration of other factors relevant to a particular case.

Second, the Task Force recommends an amendment to the notice provisions of the Copyright Act, embodied in §§ 401 (d) and 402 (d). Under the current statute, the presence of a notice of copyright protection prevents a defendant from asserting an innocent infringement defense. The proposed amendment would permit an infringer to still assert the innocent infringer "defense," making the appearance of a copyright notice relevant, but not a bar to, an innocent infringement defense.

The third and final recommendation is arguably the most important. In cases involving non-willful secondary liability by "online services" involving large numbers of infringed works, courts should have discretion to fashion an award other than through a strict "per-work multiplier" calculation. In other words, courts would not be bound to the minimum statutory per-work amounts. As the Task Force notes, the "per-work multiplier" makes less sense where secondary liability is concerned, because there is an attenuated connection between the service provider's actions and the direct infringement by customers and users. Without this change, "[w]hen a court must multiply this minimum by a very large number of copyrighted works, it may not be possible to avoid an excessive outcome."

Benefits of the Task Force's Recommendations: Taking Facts into Account

The recommendations are an improvement over the current statute, providing guidance, specificity, and greater predictability. The statutory damage factors help tie awards to the "facts on the ground." The first, fifth, and seventh factors codify the rule recognized by several courts that statutory damages should bear a relationship to actual damages plaintiff suffered. New Line Cinema Corp. v. Russ Berrie & Co., 161 F. Supp. 2d 293 (S.D.N.Y. 2001) ("New Line's statutory damages should be commensurate with the actual damages incurred"); Dae Han Video Prod., Inc. v. Chun, No. 1:89-01470, 1990 WL 265976 (E.D. Va., June 18, 1990) ("When awarded, statutory damages should bear some relation to the actual damages suffered."); Bait Prods. Pty Ltd. v. Murray, No. 8:13-CV-0169-T-33AEP, 2013 WL 4506408 (M.D. Fla. Aug. 23, 2013) ("'Statutory damages are not intended to provide a plaintiff with a windfall recovery'; they should bear some relationship to the actual damages suffered."). This prevents windfalls for copyright plaintiffs, and provides an incentive for parties to use civil discovery tools to calculate actual harm. And a claim that damages are difficult or impossible to demonstrate is less likely to go unchallenged.

The sixth factor also ties awards to the "facts on the ground" by making the circumstances, duration, and scope of the infringements relevant considerations. For instance, "when the infringed work is of minimal commercial value, a lower award may be appropriate." And where a large number of works are at issue, courts can take a "holistic" approach and adjust awards for each work so that the overall award is commensurate to harm, rather than engage in a mechanical exercise of multiplying a random amount by the number of works at issue. This will nudge courts and juries to consider the value of works at issue and to recognize that works should not be treated the same as a default.

Finally, permitting courts in their discretion to depart from the per-work calculus in cases of non-willful infringement is a crucial, common sense amendment. While courts would still retain discretion to revert to the "per-work multiplier" approach, this change could in some instances help prevent the exorbitant awards that otherwise would inevitably result.

Drawbacks of the Task Force's Recommendations

A step in the right direction, the recommendations nonetheless may promote confusion and inconsistency. The addition of certain mandatory factors suggests that other factors are less important. Missing from the proposed statutory factors is consideration of a plaintiff's own conduct. Courts have held that the "conduct of the parties," including that of the plaintiff, is a relevant consideration in crafting an award. Warner Bros. Inc. v. Dae Rim Trading, Inc., 877 F.2d 1120 (2d Cir. 1989) (holding that a court may take into account the attitude and conduct of the parties, and finding that district court did not abuse its discretion in awarding low amount of statutory damages where plaintiff's own conduct was "vexatious [and] oppressive."); Bryant v. Media Right Prods., Inc., 603 F.3d 135 (2d Cir. 2010) (courts should consider the conduct and attitude of the parties in determining the amount of statutory damages to award for copyright infringement); Oppenheimer v. Holt, No. 1:14-CV-000208-MR, 2015 WL 2062189 (W.D.N.C. May 4, 2015) (same). Consideration of plaintiff or its agent's own conduct would help to address abusive tactics by copyright trolls. Also missing from the proposed statutory factors is consideration of a plaintiff's failure to mitigate its actual damages. Though this factor may be limited to assertion of a failure to mitigate defense, some courts have held this is a relevant consideration, even where a plaintiff seeks statutory damages. See, e.g., Malibu Media, LLC v. Julien, No. 1:12-CV-01730-TWP, 2013 WL 5274262 (S.D. Ind. Sept. 17, 2013) ("current law allows the court to consider actual damages [in making determination of statutory damages], and failure to mitigate is relevant in considering actual damages... "); Malibu Media, LLC v. Guastaferro, No. 1:14-CV-1544, 2015 WL 4603065 (E.D. Va. July 28, 2015) ("Although typically only applied to claims for actual damages, the defense may be relevant to claim requesting statutory damages because 'one purpose of statutory damages is to approximate actual damages that are difficult to prove.'").

Additionally, the first factor references the "difficulty of proving damages," but there is no mention of whether plaintiff has the burden of proof, what steps, if any, a plaintiff must take to meet this burden, or the consequences of failing to do so. Moreover, the fourth factor concerning a defendant's financial situation is vague and open-ended. Though intended to address the reality that the amount needed to deter an infringer depends on the circumstances, such as whether the infringer is an individual or a corporation, the factor as phrased does not make this clear. Indeed, profitable corporations may unfairly become the target of higher awards simply because the company is seen as profitable and able to afford paying large awards.

The amendment allowing courts to depart from the "per-work multiplier" calculus also has limited benefit in the secondary liability context, because it would not apply in cases of willful infringement. But even where the infringement is willful, the acts of the service provider are likely to be so attenuated from and not related to the number of works infringed, and calculation of damages on a per-work basis may nonetheless remain overkill.

Finally, the Task Force does not address litigation abuse by copyright trolls, and rejects recalibrating the range of damages available in the case of awards against individual defendants. Such a step could address the use of threats of maximum statutory damages by trolls to extract settlements from unwitting consumers. Instead, the Task Force notes that "courts are well-positioned" to evaluate abusive enforcement activities. But this misses the point; indeed, the issue is that copyright trolls use threats to extract settlements outside the purview of the court.

Conclusion

The Task Force's recommendations for amending the statutory damages provision of the Copyright Act are a mixed bag. While a step in the right direction because they offer greater clarity and recognize the different nature of secondary liability, there are some serious drawbacks and glaring omissions in the proposed amendments. If the Copyright Act is to be amended, it should be done in a comprehensive manner and should dispel as much confusion and inconsistency as possible.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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