Practice Tip: Discovery into record companies' lost profits: rulings in UMG v. Lindor hold plaintiffs' revenues & expenses are discoverable

An inflamed jury's $9250-per-song-file jury verdict, totalling $222,000 for 24 song files, in Capitol v. Thomas, underscores the importance of defendant's establishing the plaintiffs' actual damages, which is their lost profits. The lost profits would be the revenue (~70 cents) less the expenses for each downloaded song (guessing 30 cents), or 40 cents per song.

So $750 would be 1875 times the actual damages.

And $9250 (the amount awarded in the Jammie Thomas case) would be 23,125 times the actual damages.

Needless to say an award of 1875 times the actual damages, let alone an award for 23,125 times the actual damages, would be subject to a challenge on due process grounds. See UMG v. Lindor, 2006 WL 3335048 (E.D.N.Y. 2006). See also Parker v. Timer Warner Entertainment Co., 331 F.3d 13, 22 (2d Cir. 2003); In re Napster Inc., 2005 WL 1287611 at 10-11, 77 U.S.P.Q. 2d 1833, 2005 Copr. L. Dec. P 29,020 (N.D. Cal. June 1, 2005); "Grossly Excessive Penalties In The Battle Against Illegal File-Sharing: The Troubling Effects Of Aggregating Minimum Statutory Damages For Copyright Infringement", 83 Tex. L. Rev. 525, 527 (2004); "Due Process in Statutory Damages", 3 Geo. J.L. & Pub. Pol’y 601, 618 (2005); "Judge Grants Marie Lindor's Motion to Amend Answer to Add Affirmative Defense of Unconstitutionality of Damages", Recording Industry vs. The People, November 9, 2006.

In UMG v. Lindor, when it came time for discovery into the 'actual damages' figures, the Magistrate Judge ordered the RIAA to produce a deposition witness and to turn over all relevant documents to Ms. Lindor concerning the lost revenues. The deposition and document production were eventually dispensed with through a stipulation.

However, when defendant served an interrogatory inquiring into the expenses, so that the lost profits per download could be computed, the RIAA refused to provide any expense information at all, forcing her to make a motion to compel, which the RIAA vehemently resisted.

Magistrate Judge Robert M. Levy granted the motion in part, and also directed the plaintiffs to appear for telephone depositions if needed, ruling as follows:

Defendant Marie Lindor moves to compel plaintiffs to respond to Interrogatory 1 of her Third Interrogatories, seeking a listing of "all expenses" plaintiffs incurred in connection with the thirty-eight song recordings at issue in this litigation. She seeks this information in support of her Ninth Affirmative Defense, which contends that the statutory damages plaintiffs seek are unconstitutionally excessive in violation of due process. Plaintiffs oppose, arguing, inter alia, that the interrogatory is vague, burdensome, costly and irrelevant and asserting that, in any event, they are currently unable to determine the expenses they incurred per song file downloaded. First, I find the interrogatory relevant under Rule 26, FRCP, as it is reasonably calculated to lead to the discovery of admissible evidence as to a claim or a defense of a party. In this instance, Judge Trager has ruled that the Ninth Affirmative Defense is not frivolous, and has allowed defendant to amend her answer to add this defense. See Memorandum and Order, dated November 9, 2006 at p.3. Second, plaintiffs shall supplement their answer within two weeks of the date of this Order and shall set forth with more specificity the categories of expenses they incurred in making the song recordings, such as, for example, royalties. Plaintiffs shall also state with specificity which categories of expenses, if any, (a) they are unable to quantify or (b) they cannot quantify without unreasonable burden or expense--and in the latter event, they shall explain why. If the explanation requires an in camera submission, a copy of plaintiffs' in camera submission shall also be sent to defendant. After the steps listed above have been taken, defendant may, if she chooses, notice a telephone deposition of a person with personal knowledge. (Italics supplied)

Judge Levy's July 28, 2006, order directing disclosure into the plaintiffs' pricing, and his November 25, 2007, order directing disclosure into the plaintiffs' per-download expenses, stand as clear authority for what should be an obvious proposition, that the revenues and expenses for authorized downloads are relevant and discoverable in connection with the due process defense that the damages being sought by the RIAA are unconstitutionally disproportionate to the damages actually sustained.

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