Repairing Damages: The Commerce Department’s Copyright White Paper

Written by Erik Stallman

Yesterday, the Department of Commerce released its “White Paper on Remixes, First Sale, and Statutory Damages.” The paper is the culmination of more than five years of work by the Department’s Internet Policy Task Force. Among its many recommendations, the paper plots a course for significant progress on calibrating statutory damages for copyright infringement.

In July 2013, Commerce published its Green Paper on “Copyright Policy, Creativity, and Innovation in the Digital Economy.” The Green Paper teed up a number of issues ripe for further inquiry and possible reform. Among them: remixes, the continued relevance of the first sale doctrine in the digital environment, and the application of statutory damages to the context of individual file-sharers and secondary liability for online services. Commerce sought written comment on these issues and held public meetings to explore them further. The White Paper reflects the Department’s distillation of the input received in response to these efforts.

On the issues of remixes and first sale, the White Paper proposes further initiatives – such as negotiated guidelines on fair use and efforts to clearly inform users of the terms and conditions of content licenses – but no legislative reforms. One could have hoped for bolder action, particularly on issues such as licensing restrictions that inhibit limitations and exceptions available under copyright law. But the White Paper’s wait-and-see approach is understandable.

The most significant and very commendable action in the paper is in the area of statutory damages. Currently, the range of statutory damages for infringement of a single work is between $200 (where the infringer proves that she had no reason to believe that her actions constituted infringement) and $150,000 (where the copyright owner proves that the infringement was willful). Even where neither burden of proof is carried, the Copyright Act prescribes damages in the broad range of $750 to $30,000 per work.

After surveying the comments it received, the paper recommends concrete changes to the assessment of damages to curb the potential arbitrariness and excessiveness of damages awards with a delta of $149,800 per work infringed. Statutory damages can fall particularly hard on individual file sharers, such as the defendants in BMG Music Entertainment v. Tenenbaum and Capitol Records v. Thomas-Rasset, who were ordered to pay judgments of $675,000 and $1.5 million, respectively.

Statutory damages can also fall hard on online intermediaries held to be copyright infringers under theories of secondary liability. The paper notes that some innovative companies have been bankrupted by copyright litigation under theories of secondary liability although their activities ultimately were found to be non-infringing. Oftentimes, online services exposed to copyright liability on the basis of secondary liability have little control over the frequency with which their services are used to engage in activity deemed infringing. In such circumstances, per-work statutory damages can leave a startup with only the potential of going a little bankrupt or extremely bankrupt. Faced with those prospects, companies may elect to not even bring new services online, resulting in a net drag on innovation and the digital economy.

The paper addresses the dilemma faced by individual infringers and online services by proposing two common-sense changes to the Copyright Act. One would require judges and juries to consider nine specific factors in assessing damages for copyright infringement. The proposed factors take into account circumstances such as the plaintiff’s loss and difficulty in proving damages (the main rationale for statutory damages), the defendant’s circumstances, the nature and value of the infringed work, the nature of the infringement (such as whether it was commercial or noncommercial), and the need for deterrence. These factors would bring statutory damages in copyright cases closer in line with the goals of compensating the rightsholder and deterring future infringement without deterring legitimate activity or resulting in damage awards so beyond the pale that they undermine respect for our copyright system.

For online intermediaries, the Task Force recommends one additional and very important amendment to the Act:

We recommend that section 504 [the statutory damages provision of the Act] be amended to provide that, in cases of nonwillful secondary liability by online services involving large numbers of infringing works, courts shall have the discretion to depart from the strict “per work” calculus and adjust the overall award to an amount that appropriately reflects the purposes in the [above] statutory factors . . .

This proposal makes abundant sense. Theories of non-willful secondary liability, such as vicarious or contributory liability, are fact-specific and uncertain. Given the pace of innovation, many online services have found themselves setting new precedents in this area even when they were trying to color within the lines of existing law. Moreover, there is little sense in assessing damages against such services on a per-work basis when they have little control over how often their services are used to infringe. Particularly in cases where the service may be used for non-infringing activity, a per-work assessment of damages is disproportionate and inconsistent with the Copyright Act’s general approach of not requiring online services to monitor their users. Courts should be allowed to depart from a per-work assessment of statutory damages where justice so requires.

Congress should carefully consider – and implement – the White Paper’s proposals on statutory damages (including the additional recommendation to expand the innocent infringer defense). These proposals will go a long ways toward a statutory damages regime that still achieves goals of compensation and deterrence, without overly encouraging “copyright trolling” or unduly interfering with legitimate innovation and free expression. The recommendations are targeted and well supported in the record carefully developed by the Task Force.

A final note on that record – the Center for Democracy & Technology is moving to a new office next week. In preparation for that move, I have been going through a lot of paper. In doing so, I came across the November 2013 testimony of my predecessor, David Sohn, before the House Judiciary Subcommittee on Courts, Intellectual Property, and the Internet. On the issue of statutory damages, he had this to say:

The current statutory damages framework is a massive risk-multiplier for any company or individual trying to navigate the often unsettled contours of copyright law . . . As digital technology enables the public to interact with content in new ways, the statutory damages regime threatens the possibility of disproportionate sanctions for behavior that seems far removed from anything that one might call “piracy.”

David’s assessment is as accurate now as it was in 2013. The often-disproportionate measure of statutory damages casts a long shadow over substantive copyright issues that are already difficult to grapple with, such as fair use, orphan works, and secondary liability. Injecting more reason into statutory damage awards for infringement will not resolve all of these issues. But it will sharpen our focus on their substance and hopefully prevent near-indefensible outcomes from driving the debate.

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