Statutory Damages: Quelling Innovation and Enabling Injustice
Statutory Damages: Quelling Innovation and Enabling Injustice
Statutory Damages: Quelling Innovation and Enabling Injustice

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    Last week, the jury in the retrial of Ms. Jammie Thomas-Rasset found that the willful infringement of the copyrights of 24 songs–about 2 CDs worth–warrants the awarding of statutory damages of $1.92 million. That is $80,000 per song, a huge increase over the $220,000 awarded in the original Thomas trial. Given the massive sum awarded by the jury, Ms. Thomas-Rasset, a mother of two with modest means, will now likely spend the rest of her life in debt. At present, it seems that her only hope is a constitutional challenge to the damages award, which her legal team has already filed. The sheer magnitude of these damages has started a debate over statutory damages and whether they are just as currently applied by the courts. In this blog post, I will discuss two situations where these damages are currently being unjustly applied: suits against private citizens and suits against businesses.

    Before delving into these two examples we should take a minute and explain a little more about statutory damages. The jury award in this case was not for actual damages that the record labels sustained. In fact, the labels didn't even have to demonstrate any harm in this case. Instead, the labels qualified for what are called “statutory damages”–preset damages that are built into the statute. The theory is that in copyright cases, it is sometimes difficult for plaintiffs to determine the appropriate size for infringement damages, so “statutory damages” were set out in Title 17, Section 504 of the copyright act. These damages can range from $750 to $30,000 per work and can be as high as $150,000 per work for willful infringement. Statutory damages under the 1909 copyright act were specifically designed to “not be regarded as a penalty” (Section 101(b)). The legislative history of the 1976 Copyright Act states that statutory damages are for “exceptional cases” only (p. 10) Today statutory damages are being used in all types of infringement cases, as a means to threaten and punish those who share content online, as well as those who try to create new and innovative business models. Many of the folks in this latter category believe that their actions do not violate the law.

    When determining statutory damages, a court has a lot of latitude in choosing how to apply them. Of course, this latitude could have led to the creation of reasonable guidance for applying these damages. Unfortunately, the courts have done little to develop meaningful guidelines, resulting in damage awards that are frequently arbitrary, inconsistent, unprincipled, and occasionally, grossly excessive.

    When I was a kid, I shared mixtapes with my friends. My father taught me how to create a mixtape and I gave mixtapes to all of my girlfriends. I even used an old-school equalizer and an archaic click and pop filter to improve the sound quality of my father’s older records. While my father and I both enjoyed this activity, neither of us ever dreamed that we could be liable for a few million dollars in statutory damages as a result of making mixtapes. With ASCAP's recent claim that cellphone ringtones played in public infringe ASCAP's public performance rights, we could each be on the hook for $150,000 the next time our cellphone rings as well. Just like Wall-e and John Tehranian, we all living in an infringement nation where mundane activities like forwarding emails or reading a book out loud could make us a target for the extraction of statutory damages.

    During the last 20 years, we have seen several cases where statutory damages have been used as a blunt instrument to try harm new businesses. One example is UMG Recordings v., where a court found that had infringed copyrights by creating a database of music using CDs that the operators of the site had legally purchased. This prompted the judge to announce that he intended to award statutory damages of $25,000 per infringed CD. With about 4,500 CDs at issue in the case, the damages would have totaled more then $112 million. Given that had a decent fair use argument, these damages were excessive. The use of statutory damages like this chills innovation and discourages investment in new businesses.

    Unsurprisingly, the Thomas case has captured the headlines. This gives us an opportunity to address the larger issues related to statutory damages. In most cases outside of copyright, we do not take a one-size-fits-all approach to the law. We treat criminal enterprises that run rackets and break windows to extort protection money differently from kids who unintentionally hit baseballs through windows. We should do the same with copyright infringement. The law needs to consider a number of factors when awarding statutory damages, including the defendant's size (are they a private party or a small start up as opposed to a giant corporation?), the intent of the party and any reasonable defenses provided by that party. When the law and justice find themselves at odds, it is a clear that we must change the law.