Friday, May 02, 2008

"Statutory Damages" transcript from March 28th Fordham Law School IP Law Conference

The following is an informal preliminary transcript of the "Making Available" panel from the Fordham IP Law Conference which took place on March 28, 2008.

Friday, March 28, 2008

Part C: The Role, Effectiveness and Issues in Infringement Actions against Individual P2P
Downloaders; Recent Legislative Initiatives
Aimed at Downloaders
2. Should new limits be placed upon statutory damages? Did the supporters of P2P software and the individual defendants miscalculate the reaction of juries? A review of case law, e.g., Capitol Records v. Thomas
(D. Minn. 2007)

Prof. Hugh C. Hansen
Fordham University School of Law, New York

Kenneth Doroshow
Senior Vice President of Litigation and Legal Affairs,
Recording Industry of America, Washington, D.C.

Ray Beckerman
Vandenberg & Feliu LLP

Prof. Peter Black
Queensland University of Technology Law School,
Brisbane, Australia

Prof. Pamela Samuelson
University of California, Berkeley

Ted Shapiro
Deputy Managing Director, VP & General Counsel Europe,
Music Publishers Association, European Office, Brussels

PROF. HANSEN: We are going to start the second segment now. We are basically looking at the strategy, the damages, juries, the whole thing about suing individual downloaders.
We have another excellent panel. Kenneth Doroshow is Senior Vice President of Litigation and Legal Affairs, the Recording Industry of America.
Our commentator will be Ray Beckerman, whom you’ve just heard.
Then we have Peter Black, Professor at Queensland University of Technology in Brisbane — we use “professor” here for anyone who teaches because that’s what happens in the United States; if you even walk into a building, you are a professor. I think he might be actually what they call a lecturer. I’m not sure.
Professor Pamela Samuelson, University of California, Berkeley. It used to be called Boalt Hall, but I don’t think they use it too much anymore.
PROF. SAMUELSON: We are Berkeley Law School now.
PROF. HANSEN: We are very happy to have her here.
Ted Shapiro, Deputy Managing Director, Vice President, and General Counsel–Europe, Motion Picture Association, in the office in Brussels.
We are going to start off with Ken.
PROF. HANSEN: Ken, what are you going to do about collecting that money? Are you trying to collect the money? What’s going on?
MR. DOROSHOW: Well, the case is still pending. Ms. Thomas has a motion for a new trial or for remittitur.
PROF. HANSEN: But at the end of the case, would you be seeking the full extent of damages and attorney’s fees from Ms. Thomas?
MS. DOROSHOW: I hope you’ll forgive me for not commenting on legal strategy on a pending case, as much as I would like to answer that question.
PROF. HANSEN: Well, let’s say it wasn’t the Thomas case but was a hypothetical case.
Ray, you have five minutes for comments.
MR. BECKERMAN: Well, in the first place, Mr. Doroshow’s comment on why statutory damages should not be subject to constitutional scrutiny is interesting. The law is in flux. Unfortunately, when his lawyers made that argument in November 2006, it was rejected in the Eastern District of Brooklyn on the strength of a decision of the Court of Appeals for the Second Circuit and a decision of the Northern District of California and two excellent law review articles.
The judge said: “How can you say that this constitutionality argument has no merit and doesn’t belong in statutory damages when Ms. Lindor [phonetic] has two cases saying that it does and two law review articles saying that it does and you don’t have a single authority saying it doesn’t?” As of this date, Mr. Doroshow still has no authority for it.
Now, as to the principle that he is arguing, that a jury trial is different than statutory damages, I agree with that idea. It certainly is different. However, if you were to look at the decisions of the United States Supreme Court which evolved the principle of constitutional evaluation of punitive damages awards of juries, the primary basis for their reasoning was statutes. The Supreme Court did a survey of statutes. It found that statutes often penalize someone two or three or even four times the amount of the actual damages but rarely go beyond that. So they said: If the jury is going to come in with something that is more than nine times the amount of the actual damages, that is going to trigger constitutional scrutiny.
So it’s a question that remains open. It hasn’t been decided. Does anybody really think that it’s okay that a verdict in Minnesota was returned against a woman for twenty-four song files that had a retail price collectively of $23.76, that the wholesale price to Mr. Doroshow’s clients was about $16.00, and when you take out the royalties that they would have had to pay for those files, the actual damages were about $8.00? If there’s anybody who thinks that $220,000 is okay against $8.00 in actual damages sustained by the plaintiff and that’s constitutional, I really have no basis for dialogue, because it’s a personal feeling. You have to have a sense of outrage of disproportionality. We’re a laughingstock to the rest of the world because of that jury verdict.
Mr. Doroshow has the temerity to go into Congress and say, “Well, 23,000 times the actual damages was within a range. The range was $150,000 per song file, so that would be 450,000 times the actual damages. We now want to say to Congress for record companies that 450,000 times the actual damages is not enough to deter copyright infringement.” That’s the kind of integrity that Mr. Doroshow’s clients have.
PROF. HANSEN: Ray, is everyone against you just a scumbag or what? Is that the bottom line of this?
MR. BECKERMAN: No. But the Recording Industry Association of America, yes. I wouldn’t have said that, but you asked the question and you put it in those terms. Absolutely, yes.
Now, as far as Mr. Doroshow’s statement about actual dissemination, that is a very misleading statement he made, because he failed to tell you to whom it was disseminated. It was disseminated to the Recording Industry Association’s own agent. I’m sure that any of you who have litigated copyright cases are familiar with the principle that you cannot rely on an infringement where the copy goes to your own agent. They actually had no proof whatsoever that the defendant disseminated a file to anyone other than their own agent, and that just doesn’t count.
As to the facts of that case, obviously Mr. Doroshow knows more about the facts than I do. I wasn’t there. I don’t know. I can tell you that they sent in a huge team of lawyers and they smelled blood in Duluth, Minnesota. The woman was from out of town. She was a Native American.
PROF. HANSEN: Time’s up. We’re going to have description too.
What if she downloaded and did 1,700 songs? Would you feel any different about it?
MR. BECKERMAN: Well, if they could prove that she downloaded 1,700 songs without permission, I would say that’s a violation of reproduction right, and that it’s actionable, and that she could be liable for statutory damages up to about $10 a song, $17,000. Go for it. They couldn’t prove 1,700. They arguably proved twenty-four.
PROF. HANSEN: Actually, in punitive damages you’re allowed to do things that would deter future activity, which isn’t actually tied to economic harm. If you are going to use constitutional punitive damages type of theory, you can’t just say at 70 cents or at 90 cents or anything else. It is what does it take to deter someone like this from doing it in the future.
MR. BECKERMAN: Right. The Supreme Court has said ten times the actual damages is about the cutoff. But they didn’t say it’s absolutely impossible, so an argument could be made that maybe with 99-cent songs it has to be twelve times or fifteen times.
PROF. HANSEN: So you’re pretty confident.
MR. BECKERMAN: But I’m sure it’s not 23,000 times.
PROF. HANSEN: How much would you like to bet that all these theories of yours are actually going to win, if you were a betting man?
MR. BECKERMAN: On all my theories?
PROF. HANSEN: Almost anything you said today.
MR. BECKERMAN: On the making-available right, I would definitely bet that we will win on that.
PROF. HANSEN: By the way, I think you’re the only one to ask this question: Of these six pending cases, what do you think is going to happen?
MR. BECKERMAN: Well, there aren’t six pending. There are two pending that have been fully briefed, Warner v. Cassin and Elektra v. Barker. Those are both in the Southern District of New York, both my firm. I’m certain that the judges will rule that there is no making-available right under the U.S. Copyright Act.
PROF. HANSEN: Did I just completely mishear? Where did I get the six from?
MR. BECKERMAN: No. I said that there were six cases in which the issue was fully briefed and the judges did not decide the question. In the first one the judge ignored it. In five of them they said they couldn’t decide it at this time. And not all of them are pending. I don’t know if any of them are pending.
PROF. HANSEN: All right. So we don’t have six. Okay.
MR. BECKERMAN: In the two that are fully briefed and that we’re awaiting decision, I do believe those cases —
PROF. HANSEN: What is your prediction in the Eighth Circuit appeal? I think Minnesota is in the Eighth Circuit.
MR. BECKERMAN: There may not be an Eighth Circuit appeal, because if the motion for remittitur is granted and the verdict is set aside and a new trial is ordered, there may never be an appeal.
PROF. HANSEN: What is your prediction on whether that remittitur and new trial will be granted?
MR. BECKERMAN: I think the motion for remittitur will be granted. But there’s a wide variety of shapes that that could take, some that would leave her still wanting to appeal and able to appeal.
PROF. HANSEN: So you think the future looks good for your side legally? I’m just asking.
MR. BECKERMAN: Well, of course. The lawsuits — when you say “my side,” I’m on the side of copyright law, of the law being followed as it is written. If you talk about the RIAA-versus-consumer cases, they are going to end. They are going to end when the shareholders realize they have been taken for a ride. That’s when it’s going to end.
PROF. HANSEN: So you’re not philosophically committed one way or the other in this case? You’re just a gunslinger, Ray.
MR. BECKERMAN: I think these cases are a blight on our judicial system.
PROF. HANSEN: All right.
PROF. SAMUELSON: I honestly think that you asked us to talk about statutory damages, and I think we have ended up with you fighting with this other person. I think that, if not today, then at another time we could have a serious conversation about statutory damages.
When statutory damages were put in the 1976 Act, they did not have in contemplation the kind of situation that we are dealing with right now. At least the research that I have been able to find suggests that statutory damages were really intended to be compensatory, they were intended to be adopted when it was difficult to prove what the actual damages really were, and it was an effort to provide some measure of relief in cases where it is difficult to prove or where it is too expensive to prove how difficult it is. It was not supposed to be a penalty, except in situations where there is willfulness.
Now, I have to say that what the courts have been doing since then has actually been to add more punitive, punitive, punitive aspects to statutory damages, even in cases where there is not a finding of willful infringement. I do think that there is a serious due process question posed here.
I suggest to all of you, if you haven’t taken a look at Bridgeport Music v. Justin Combs, you might want to do that. The Sixth Circuit Court of Appeals relatively recently struck down a $3.5 million punitive damage award as unconstitutional under Gore and the like for a common-law copyright infringement. The actual damages in the case were $43,000. There was a compensatory award under federal copyright law for $366,000. The court basically looked at the guidepost in the Gore decision and asked “How reprehensible was the conduct here?” and found only one reprehensible thing, which was willfulness. The court said that would allow a range of one-to-one or two-to-one, that’s all that due process would allow; 9.5-to-one was too much, which is what was here.
When we’re talking about the multiples in the Jammie Thomas case, you’ve got to actually understand the United States is way out of whack with the whole rest of the world on the extent of statutory damages. I think that the Gore principles really will apply.
The disparity between the harm to the plaintiff and the actual award is another factor again in the Combs case. The compensatory award already included some punitive element. So putting a punitive on top of a punitive seemed excessive. A comparison of the award to ordinary civil penalties also is to be taken into account.
PROF. HANSEN: Pam, let me say one thing.
PROF. SAMUELSON: Let me finish. I think that you’ve been unfair about this, Hugh.
PROF. HANSEN: Of course you would, Pam.
Pam, let me say one thing. Our jury damages are way out of whack with the rest of the world. So I guess you’re going to be consistent and say we have to hone personal injury awards in because they’re way out of whack with the rest of the world. Is that the standard?
PROF. SAMUELSON: I am only getting started in this, but I think that statutory damages along with other kinds of damages should comply with due process limitations and that it is time for a real serious conversation, because the notion that a jury could go in and say, “Anything between $750 per infringed work to $150,000 per infringed work” — no guidelines, no criteria — I think that’s actually not due process.
I don’t care whether Congress passed it. They intended for it to be compensatory. They didn’t intend for it to essentially turn into the biggest kind of punitive damage award. There’s nothing elsewhere that’s excessive in the way that this is.
PROF. HANSEN: Do you actually think there’s any real chance that she will pay anything?
PROF. SAMUELSON: I don’t know. If I were her lawyer, I would try to settle this now. If she gets a new trial, I’d try to settle this and just get over it.
But I think you’ve done a great job in scaring the bejesus — not out of file sharers, by the way — out of documentary filmmakers and other people who say, “I go into any kind of case and I feel like I can’t take three clips from these little things because the next thing I know I can’t get errors and omissions insurance, even though it’s totally a fair use. But I’m a good guy, I’m trying to make use of this, and I am deterred by those outrageous and unpredictable kinds of awards.” That’s the person who’s getting chilled, not the file sharers.
PROF. HANSEN: Would you say, Pam, that this was the correct jury verdict?
PROF. SAMUELSON: For sure. In terms of liability, I have no problem. I think file sharers are infringers.
PROF. HANSEN: Ray, what do you think about the jury verdict on just liability?
MR. BECKERMAN: They were given an instruction that allowed them to take away any burden of proof the plaintiffs had.
PROF. HANSEN: On your instructions, whatever they would be, should she have been held liable in this case?
MR. BECKERMAN: No. There was a failure of proof.
PROF. HANSEN: Peter, what do you have to say about these things?
PROF. BLACK: The comment has been made a few times that America is out of whack and you are a laughingstock in the rest of the world. As the only non-American on the panel, that’s true. We do see the cases like Thomas in our newspapers, and we think: “Wow, those crazy Americans, what are they up to now?”
This whole notion of statutory damages is not something that we have within our Copyright Act. You actually have to be able to prove damage for you to be able to be compensated for that. So this whole sort of notion —
PROF. HANSEN: So you’re against the whole idea of statutory damages?
PROF. BLACK: Absolutely.
PROF. HANSEN: How do you prove copyright damages in Australia? Give me an idea how you do it.
PROF. BLACK: You either can get damages or an account of profits.
PROF. HANSEN: No, not account of profits, damages. How do you prove damages? Tell me exactly what proof you do in Australia to do that?
PARTICIPANT [Prof. Anne Fitzgerald, Queensland University of Technology, Brisbane]: It’s [inaudible] various ways [inaudible].
PROF. BLACK: There’s not one set way that is going to fit every case where you are going to have to prove damages.
PARTICIPANT [Prof. Anne Fitzgerald]: It’s set by the judge, not by the jury.
PROF. HANSEN: I would think most of the types of proof would be speculative and very difficult to prove in copyright. That’s why we have statutory damages.
I think Pam is absolutely right why. There are two reasons why. It is expensive; and usually the plaintiffs are small, can’t afford an expert, let alone an expert that goes through depositions and everything else; and then, if you have those, it’s very speculative, and we are against speculative damages in this country. So basically the copyright plaintiff is not going to get damages. So statutory damages was the solution to that situation.
PROF. BLACK: But as Pam said, the idea behind it was for it to be compensatory.
PROF. HANSEN: Well, the willful is not compensatory.
PROF. BLACK: No. But as a general rule, statutory damages seems to be being used really to punish and to deter. I wonder if it is even being successful when you’re doing that.
PROF. HANSEN: Well, would you think twice about this activity if you actually thought the RIAA and their nefarious agents were going to get you, or possibly get you without a damage award?
PROF. BLACK: I might, but it doesn’t seem to be deterring people generally.
MR. DOROSHOW: Can I ask a question: For those who would have us prove our actual damages, rather than statutory damages — and I gather you’re saying license fees and such would be a good proxy — I wonder what people think a license would go for that permits the user to take a copyrighted work and distribute it to tens of millions of people.
We’re talking about the actual damages here. We’re not talking about a single song download for 99 cents. We’re talking about the distribution that is impossible to prove. That’s the whole point of the statutory damages. It’s impossible to prove, unless we had wiretap authority on the entire U.S. network, which I suppose you would not want us to have.
PARTICIPANT [Prof. Brian Fitzgerald]: [inaudible] either.
PROF. HANSEN: Brian, what is this, sort of like a call-in show? Come on.
It’s Ted’s time.
MR. SHAPIRO: I just want to draw the contrast. Where I operate in Europe, we are dealing with a lot of very complex cases and we are operating largely without a statutory damages regime. I think the Lithuanians have them. The chance to adopt them in some form was not taken up in the Enforcement Directive. You can see the relevant provision in Article 13.
We are dealing with cases of large-scale facilitation, not just end-users. It’s an unreasonable burden on the rights holder to prove actual losses, prejudice. It’s really hard, particularly for infringements that are occurring online that are often viral.
In the film sector, how do we estimate the impact of something that is not yet out in the cinemas somewhere? Are we looking at the DVD window? Do we look at video-on-demand? Do we look at electronic sell-through? We also have the problem of later impact on TV by cannibalizing.
So it’s an unfair apportionment of the burden of proof. I’m talking about largely willful cases, so there should be some kind of deterrent effect.
So maybe there is a happier medium, but in the place where there is none, we have a real problem in dealing with cases. I’m not just talking about end-users. I’m talking about facilitators that are making a lot of money.
PROF. HANSEN: In this case, what would be wrong with actually RIAA agreeing to a remittitur? First of all, you’re not going to get anything, number one. But why wouldn’t you agree to remittitur? I happen to think it’s pretty darn high myself. What do you lose by that in this particular case, what would be a reasonable remittitur? Why would that hurt you, hypothetically?
MR. DOROSHOW: I’d rather not comment on a pending case.
PROF. HANSEN: I understand.
MR. BECKERMAN: Can I comment on it?
PROF. HANSEN: Ray, you know what it is. Thanks, Pam, for speaking up here, because I was getting out of control. Damn Ray was driving me crazy. I am trying to control myself, Ray, but you’ve got to keep calm.
I think it’s a good idea. Think about it.
MR. DOROSHOW: We’ll take it under advisement.
PROF. HANSEN: Peter, is your total contribution going to be that you’re anti-American, or are you going to say anything else?
PROF. BLACK: I’m happy just to leave it at that.
PROF. HANSEN: All right. Questions from the audience?
QUESTION: Thank you. I can’t resist, because Kenneth asked a question. He asked: What do you think a license to put a song available for billions of people to download would go for? In my answer I also want to bridge that with Ted’s point.
There is a huge difference in my mind between somebody who takes a camcorded copy of a movie that is still in theaters and puts it on the Internet for everybody to download — and that might very well be something that is worth thousands of dollars or tens of thousands of dollars in damages. But the answer to the other question is if the work is otherwise available on legal servers, the answer is about 60 cents per song. That’s what the license goes for.
MR. DOROSHOW: Why not 60 cents per copy?
QUESTIONER: What I’m saying is it seems to me that you are all talking about statutory damages like there’s one type of damage that happens. It seems to me the damage is very different between the case that Ted explained and the situation of somebody who makes a song available.
Now, if you can prove that this song has been downloaded 500 times — I agree that’s the evidentiary issue that Pam was referring to. But there has got to be a difference in the order of magnitude of the damage, it seems to me, between the two cases — or am I missing something? — between something that’s officially, legally available for download somewhere already, as opposed to something that undercuts an entire series of markets.
PROF. HANSEN: Time’s up. One answer?
MR. DOROSHOW: I think the difference is that these works that you are talking about are available for individual purchase. We sell each one of them.
MR. DOROSHOW: If the copy is made 10 million times and we are not compensated for that, then we are out 10 million sales. Of course, the difficulty of proving this is why we have a statutory damages regime as a proxy.
PROF. HANSEN: Let’s leave it at that. Time is up. We have one more session.

Commentary & discussion:


Keywords: digital copyright law online internet law legal download upload peer to peer p2p file sharing filesharing music movies indie independent label freeculture creative commons pop/rock artists riaa independent mp3 cd favorite songs intellectual property


Shane said...

I gotta say I"m surprised at how hostile Prof. Hugh Hansen seemed towards you.

But, it is a great read. It's always fun to see reason and rationality trump ignorance, in this case in the form of Kenneth Doroshow.

Ray Beckerman said...

I don't think he's hostile towards me personally. Just towards the law, which he apparently feels doesn't adequately protect the large content holders.

Justin Olbrantz (Quantam) said...

"The Supreme Court did a survey of statutes. It found that statutes often penalize someone two or three or even four times the amount of the actual damages but rarely go beyond that. So they said: If the jury is going to come in with something that is more than nine times the amount of the actual damages, that is going to trigger constitutional scrutiny."

That's damning.

My personal position is that I'd be okay with as high as 25x retail value in the case of file sharing. The reason that's so high is because with the actual value is so low (e.g. $15 for a CD), even 10x wouldn't provide much of a deterrent effect. I wouldn't think 25x would be appropriate if the actual damages were significantly higher.

This is in contrast to the RIAA's standard settlement of 200x retail value ($3000), and 9250x in the Thomas case.

Justin Olbrantz (Quantam) said...

After somebody pointed it out on Slashdot, I did the calculation for myself and found that with my internet connection (pretty typical home broadband connection) it would take 24.35 years for me to upload a single song 10,000,000 times if I was using my full upload bandwidth 24/7/365. That guy lied to everyone's faces; wish somebody would have pointed that out at the conference :P

dts said...

Also of note is his statement that if a song was copied 10 million times, 10 million sales would have been lost. If not for the lack of time, someone should have requested that Mr. Doroshow substantiate his argument of a copy made equalling a lost sale. Various independent studies have shown that filesharing itself has negligible negative effects on sales, and the recording industry has yet to properly prove otherwise.