August 8, 2009 / 1:03 AM / in 8 years

Piracy verdicts may violate U.S. Constitution

LOS ANGELES (Billboard) - It’s been a good summer for the major labels’ litigators in their battle against individuals charged with copyright infringement.

In June, a Minnesota jury awarded the four majors $1.9 million in damages, finding that single mom Jammie Thomas-Rasset had used the peer-to-peer file-sharing network Kazaa to illegally download and share 24 songs.

And at the end of July, a federal jury in Boston ordered college student Joel Tenenbaum to pay the majors $675,000 for sharing 30 songs, after hearing evidence that he used at least six different P2P networks for nearly a decade, continuing to infringe even after receiving multiple warnings.

But with the defendants challenging the damage awards and likely appealing the verdicts, these cases are far from over. And the courts will now have to confront a difficult and unresolved question in copyright law: Can awards in cases like this be so big that they violate the U.S. Constitution’s guarantee of due process?

First, some background. Copyright owners have two options as to the type of damages they may seek at trial: actual or statutory. Actual damages compensate copyright owners for their losses stemming from, say, an unearned license fee or royalty, a diminishment in the value of their work or profits earned by an infringer. But actual copyright damages are often difficult or impossible to prove. Exactly how much financial harm did Tenenbaum cause the labels? As they admit, no one knows; not even a $500-an-hour economist testifying on behalf of the majors was willing to swear to a specific number on the witness stand.

Thankfully for copyright owners like record labels, the law provides another option: statutory damages. Assuming a copyright owner has registered its works, it can avoid the sometimes arduous task of proving actual damages and instead seek statutory damages. Under the U.S. Copyright Act, statutory damages can range from $750 to $30,000 per work in the case of “regular” infringement. The upper limit soars to $150,000 in the case of “willful” infringement -- committed “with knowledge of or reckless disregard for the plaintiff’s copyrights.”

Jurors have wide discretion in determining where within the statutory range an award should fall. They may consider factors including the nature of the infringement, the defendant’s purpose and intent, and the value of the copyright. Statutory damages do compensate the copyright owner for its losses, but they’re also intended to punish the infringer and to deter future infringement by the defendant and others. As the Thomas-Rasset and Tenenbaum verdicts demonstrate, awards of statutory damages involving multiple works can reach astronomical heights.

Those huge numbers have sent industry critics crying foul and arguing to the courts that such large verdicts violate the Constitution’s guarantee of due process of the law, and even the Eighth Amendment’s prohibition on “excessive fines.” Just as the Constitution imposes limits on punitive damages -- in a landmark 1999 case, the Supreme Court tossed a $2 million award over a $4,000 botched car paint job -- they say it should also limit awards of copyright statutory damages, which may include a punitive element.

No court has yet accepted the argument that the Constitution limits awards of copyright statutory damages. But labels and publishers should be worried that the recent P2P verdicts may result in just that, for at least two reasons.

First, such a ruling could force statutory damages trials to deal with the burdensome new requirement that copyright owners prove actual damages, as reformers insist that statutory damages must be limited to some “reasonable” multiple of actual damages. Such a rule would seriously undermine one of the main advantages of statutory damages: the relief from the difficult or sometimes impossible task of proving actual damages.

And second, limits on statutory damages would reduce their effectiveness as a club to hold over the heads of alleged infringers, to force them into settlements and deter them from future infringement. Rarely does a copyright owner’s cease-and-desist letter fail to remind the recipient of the maximum possible statutory damages of $150,000 per work.

It may take years before we know whether statutory damages will survive constitutional attack. Should the issue reach the Supreme Court -- a real possibility -- copyright owners could well find an ally in incoming justice Sonia Sotomayor, who, as a lower-court judge, once increased an award of statutory damages, opining that they “must be sufficient enough to deter future infringements and should not be calibrated to favor a defendant by merely awarding minimum estimated losses to a plaintiff.”

Wise words, indeed.

(Ben Sheffner -- www.twitter.com/bensheffner -- is a copyright attorney who has represented movie studios, TV networks and record labels. He is the author of the Copyrights & Campaigns blog, here.

Editing by DGoodman at Reuters

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