Wednesday, November 28, 2007

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.

Keywords: digital copyright online 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


Timothy Durnan said...

While I agree with your assessment that $0.40/song is close to accurate, I do question your validity of the statement that "$750 would be 1875 times the actual" lost profit.

Wouldn't this $0.40/song then be multiplied by how many people could have downloaded the song from P2P from that person's machine instead of buying it? So if 23,125 people downloaded the song instead of buying it, the RIAA's actual lost profits would be $0.40 * 23,125 = $9,250.

Am I missing something?

raybeckerman said...

Of course you're missing something, Timothy. There is no evidence in the record that anybody downloaded a copy, let alone that 23,125 people did.

Are you Timothy Reynolds?

raybeckerman said...

I have a hunch that was a troll, folks.

raybeckerman said...

Timothy has his profile blocked.

Unknown said...

Even if 23,125 people downloaded a copy of the song, you still can't prove that 23,125 would have bought the song, justifying the damages. You'd have to assume 2 things:

1. This file was not available anywhere else. This is highly unlikely given the number of different p2p networks.
2. If this file was not available on anywhere else, the downloader would have given up and paid money for the song.

Neither of these make much sense. Is this how logic works in the Law world?

Igor said...

timothy makes no sense what so ever...

Even though there's no proof that even 1 person downloaded let hypothetically assume that 23,125 downloaded that song from that one machine. Also for the sake of argument lets assume that one song is about 4 megabytes.

This would mean that computer uploaded 4*23,125 megabytes or 90 gigabytes for that one song. For 24 songs that comes out to 216.8 gb... This means that this person would have to upload at 35k/second for over two years to upload that many songs. anyone who uses the cheapest level of cable internet knows that 35k/second is just about how the limit for uploading which means this person would doing nothing else on the internet but uploading for 2 years! I bet if you look at the time stamps on the files and the date of the lawsuit the defendant did not have the files for anywhere long enough to have it download even a small fraction of the 23,125 per file timothy alleges.

On another note if lets say there are a total of 23,125 TOTAL people who've ever allegedly used p2p software to download this particular song why are the damages limited to one person and not to 23,125. Since each person is only responsible for their damages not for everyone else's. This would limit the damages each person caused only to the number of uploads they have...which in this case seems to be 0 since no uploads were proven in court.

Nohwhere Man said...

[KB-kilobyte, kb-kilobit]
Iggy brings up an interesting point, upload speed. My DSL has an upload speed of 256kbps (at add'l cost), which is 8KBps. With the usual overhead, I'm lucky to get 6KBps. Taking 4MB as an average MP3 size, since I use decent encoding, that's 11+ minutes to upload. In the best of circumstances, I could upload that about 3925 times per month. By Timothy's assertion and my numbers, that's almost 6 months of continuous uploading. (BTW, as far as I know, most cable modems are locked to upload at 256kbps or 128kbps, so the numbers are still valid.)

Further math is left to the reader :-).

raybeckerman said...

I just deleted a comment I made about Timothy Reynolds because it violated my own comment policies.

Sometimes my disdain for these people gets the best of me.

Anonymous said...

Iggy that kind of values are not hard to archive :-P

Total Uploaded: 577 GB
Total Downloaded: 624 GB
Total Ratio: 0.924
Total Running Time: 13670:03:47
Number of files added: 2416
Program started: 499 times
# incoming conns since start: 361675
# outgoing conns since start: 90578
# handshake: 483785
# connections: 4
# half-open: 0

Igor said...

Riaa in 13670 min or 569.8 days you uploaded 577 GB. Which comes out to 12.3069296 kilobytes per second of upload if your computer is on 24/7 during that time. Those numbers do seem reasonable...

...but you completely miss the point. What timothy was claiming was that it was the SAME 24 MUSIC files uploaded 23,125 each not 2,416 files less than ONCE as in your case (and also I bet your files were videos given that the average file size is about 350 megs in your case...which means you need to share a lot fewer files to reach that limit). Basically they are claiming her share ratio was 23,125:1 and not 0.924:1 as in your case.

Also, and this is a huge also, you are using bit torrent. It is much easier to find files using bit torrent as trackers keep track of all seeds and leechers for each file. That means you download the .torrent file that points to a tracker and you don't have to do any keeps track of all locations of the file. In Kazaa or Limewire you need to search for a particular file and the order your search results are returned depends heavily on the peers that are next to you. So it's highly dubious that 23,125 people would even be able to find the files on this one person's computer much less then continuously download them from this person.

Timothy Durnan said...

First, I didn't realize that my profile was blocked, so I apologize for that.

Second, I didn't expect that large of a response for my simple question. Looking back at it, I can see that I didn't word it correctly for what I was intending -- I was attempting to play "Devil's Advocate" and show how someone could attempt to justify the $9250 damages amount. I myself, working in IT, can see that the math doesn't add up correctly (a share ratio of 23,000:1 is an incredibly generous person!), but I still must admit that it is *possible.*

Thanks for the vigorous discussion!

raybeckerman said...

Actually it's not even theoretically possible, under Kazaa technology, where usually the number of people that can access a shared folder is in the hundreds. See expert witness declaration in Foundation v. UPC Nederland.