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Tuesday, September 21, 2010

Statutory Damage Awards in Peer-to-Peer File Sharing Cases Involving Copyrighted Sound Recordings: Recent Legal Developments

Brian T. Yeh
Legislative Attorney

Peer-to-peer (P2P) file sharing networks permit computer users to “share” with others digital files that are stored on their computers’ hard drives. While P2P file sharing technology could be used for legitimate purposes, P2P users most often copy and distribute digital files that contain copyrighted sound recordings, television shows, and motion pictures, without the permission of (or payment to) the copyright holders; as such, it is a violation of the copyright holders’ exclusive rights to control the reproduction and distribution of their works. P2P networks such as Napster, Grokster, Morpheus, Kazaa, and LimeWire have all been sued for copyright infringement or for inducing their users to commit copyright infringement, and most have shut down or changed their business models as a consequence of their adjudged legal liability. In addition, many users of P2P networks have been subjected to copyright infringement lawsuits filed by the motion picture and music recording industry associations that represent movie and sound recording copyright holders, respectively. The vast majority of these lawsuits have settled, with the file sharer agreeing to pay compensation to the copyright holders. However, a few of these cases have gone to trial, and two cases in particular resulted in substantial jury awards to the plaintiffs. These awards were based on the Copyright Act’s allowance of statutory damages of between $750 to $30,000 for each act of infringement, and up to $150,000 in cases where the infringement is committed willfully. Congress granted the copyright owner the power to choose to recover either statutory damages or the owner’s actual damages plus additional profits of the infringer at any time before final judgment is rendered. Statutory damages serve both compensatory and deterrent purposes: they provide the copyright owner with restitution of profit and reparation for the harm suffered by the owner in situations where it may be difficult or impossible to submit evidence of actual damages (such as lost profits), and they also punish the infringer and discourage that individual, and others, from further infringement.

In 2009, in Capitol Records Inc. v. Jammie Thomas-Rasset, the jury found the defendant guilty of willful copyright infringement with respect to 24 sound recordings that she had downloaded and distributed using the P2P file sharing software Kazaa, and awarded $1.92 million in statutory damages to the plaintiff ($80,000 per infringed song). Also in 2009, the jury in Sony BMG Music Entertainment v. Tenenbaum found the defendant guilty of willful infringement for downloading and distributing 30 sound recordings using Kazaa, and awarded to the plaintiff $675,000 in statutory damages ($22,500 per infringed song). The defendants in these cases asked their judges to alter or amend the jury award of statutory damages, arguing that the Copyright Act’s statutory damages provision, as applied to them, violates the Due Process Clause of the U.S. Constitution. In early 2010, the judge in the Thomas-Rasset case reduced the award to $54,000 ($2,250 per song) using his power under the common law doctrine of remittitur; the court did not reach the question of the constitutionality of the jury’s damages award. The judge opined that the original award of nearly $2 million was “monstrous,” “simply shocking,” and “unjust,” and argued that “statutory damages must still bear some relation to actual damages.” However, the plaintiffs in Thomas-Rasset refused to accept the remittitur; thus, a new trial on the issue of damages is to be held on October 4, 2010. On July 9, 2010, the judge in the Tenenbaum case ruled that the $675,000 award was “unconstitutionally excessive” and reduced the award to $67,500 ($2,250 per song). Both judges admitted that they were drawing arbitrary lines when setting the award amount at $2,250 per infringed work (three times the statutory minimum for copyright infringement); however, they viewed treble damages to be a “most reasoned solution” that would compensate the plaintiffs, deter illegal file sharing, and ensure that the total award is not grossly excessive. The plaintiffs in the Tenenbaum case have appealed the judgment to the United States Court of Appeals for the First Circuit.

Date of Report: September 16, 2010
Number of Pages: 17
Order Number: R41415
Price: $29.95

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