Back in April, we went through the entire appeals court hearing concerning the appeal of Judge Nancy Gertner's reduction of the jury award in the Joel Tenenbaum case as "constitutionally excessive." The jury had awarded $675,000 or $22,500 per song. Gertner reduced it to $67,500, or $2,250, and argued that the higher rate was just ridiculous. Unlike Judge Michael Davis, who did something similar in the Jammie Thomas case, Gertner did not use the "remittitur" process.
As happens often enough in such things, almost nothing that was heard during the oral hearings really mattered in the decision. The question of due process and remittitur didn't even make it into the hearing -- or if it did, it was a very minor part that didn't make an impact. And yet, that issue was central to the court reinstating the original $675,000 award.
The key points here are really procedural. The court notes that Gertner jumped to the constitutional question, which judges are supposed to avoid if they can. The court also suggests that Gertner should have used the remittitur process, like Judge Davis, allowing the record labels to (as they would have) reject the lower amount and redo the trial. Of course, as we've seen in the Jammie Thomas situation, that seems to lead to a series of wasteful cases.
To summarize: the court here basically avoided the big questions and sent the ruling back, and reinstating the jury award because Judge Gertner jumped the gun, and went straight to the Constitutional questions, when there were still other steps in the process that needed to be taken. This seems disappointing and wasteful in terms of resources, but such are the rules.
Separately, the court, as pretty much everyone not named Tenenbaum or Nesson suspected, didn't give any weight at all to Tenenbaum's separate appeal arguing that the Copyright Act itself was unconstitutional. These arguments were never going to persuade the court, and seemed more like (wasteful) academic exercises all along. In particular, the court eviscerates the idea that mere "consumers" should be treated differently by copyright law than those who are doing more than consuming. It notes that such a distinction is not mentioned by Congress anywhere, and if it wanted to amend copyright law to fix that, it's had plenty of time.
So, for the most part, this ruling is procedural... though it does go out of its way to note that "this case raises concerns about application of the Copyright Act which Congress may wish to examine." Of course, by now we know that if Congress opened up the Copyright Act to tinker, the end result would almost certainly be worse.
Either way, I'm assuming this case is far from over, and Tenenbaum, Nesson and some other Harvard Law students will keep banging the drum -- though, to date, it hasn't been all that successful. This is definitely a disappointing ruling, but hardly a surprising one.
The latest in the ongoing trial of Joel Tenenbaum, the student who was found guilty of sharing 30 songs online, and told to pay $675,000 for it, until the judge unilaterraly reduced the amount to $67,500. As we noted at the time, it really seemed like Tenenbaum had horrifically bad legal counsel, in the form of Harvard law professor Charlie Nesson, who still seems more focused on making the case a circus, rather than focusing in on the key issues. That does not, however, mean there aren't key issues here, with the big one being the appropriate standards for determining how much one should have to pay if found guilty of file sharing.
The appeal was just heard on Monday, and you can listen to the oral arguments (mp3) from the court's website. It's definitely an interesting hearing and worth listening to. As with most appeals court situations, the bulk of the work is done in the briefs that were filed prior to the hearing, and which everyone is familiar with. The oral hearings get right to the point and drill down on where the panel of judges has questions.
The hearing opens with a representative of the US Department of Justice, which stepped in on the case, because it was concerned that the court might rule that the statutory rates for copyright infringement (which, of course, can go up to $150,000 per infringement in cases of willful infringement) were not meant for cases like a person sharing copyrighted music for their own pleasure, rather than any commercial purpose. The Justice Department sides with the RIAA (of course), in saying that it's just fine to apply copyright law -- which really was designed for commercial cases of infringement -- to kids sharing files. At least one of the judges appears skeptical of this, asking directly:
Was file sharing in existence at the time the statute was passed?
The Justice Department tries to get around this by pointing to the legislative record from the last time the statutory damage rates were changed, but the judge is not buying it. He immediately points out that if this is what Congress intended, it's quite odd that no such cases (or perhaps one other case -- by which they're referring to the Jammie Thomas case) have been tried, involving file sharing for non-commercial means. The judge clearly seems skeptical that copyright law was intended for such cases. While the lawyer tries to explain all of this away, with some claim about how everyone makes choices in who they sue, another judge chimes in and points out that for all the claims that Congress meant for these damages to cover non-commercial file sharing, wouldn't Congress also know that the law had never been used that way.
The lawyer again goes on to insist that since file sharing "greatly multiplies the harm" to the copyright holder (um... citation needed on that one...), Congress must have meant for such ridiculous statutory rates to cover file sharing as well. Again, the judges seem skeptical, pointing out that in this particular case, the only evidence was that Joel Tenenbaum downloaded 30 songs, and the RIAA presented no evidence that anyone else copied from him. In other words, they immediately push back on the claims of "harm." The lawyer, again says that there's lots of other evidence, even though the labels chose not to bring it.
Once again, the court is skeptical. They ask the DoJ lawyer: if Tenenbaum had sat down in a single setting and downloaded 1,000 songs, would it be appropriate under the law to claim he owed $75,000 for each download. And the lawyer says, effectively, yes, after going through the specific statutory rates ($750 to $30,000 for non-willful, and up to $150,000 for willful). Realizing how ridiculous this sounds, the lawyer tries to focus on the fact that the judge can tell the jury about mitigating factors and be specific in the jury instructions.
From there, the lawyer for the record labels, Paul Clement, steps in, and claims that the ridiculously high damages are fine because Congress wanted to send a message about the harm of "willful" infringement. He then goes on to rail about how Tenenbaum's downloading destroyed "the value of the copyright," and complains about how the district court judge likened downloading to public performance rights. At that point, another judge interrupts, and says that he basically doesn't understand "the mechanics" of infringement, and would like more specific info.
After explaining (somewhat misleadingly, but carefully) how file sharing works, Clement goes on to rail against file sharing as being incredibly damaging, because it pushes people who download to also upload... and immediately a judge cuts to the heart of one of the key legal questions:
Is "making available" the same as distribution?
Clement sidesteps this, by noting that while the RIAA obviously thinks it is, that's "not an issue in this case." The judge doesn't want to give up, though, and asks him if the record labels "have the technological capacity to determine if distribution was actually effectuated?" Again, Clement tries to get around this, by saying it doesn't matter in this case.
Another judge asks a pertinent question about damages, wondering if the actual damage to the record labels was just "the lost sales" from people not buying the music, and Clement, quite ridiculously, then tries to pin the entire demise of copyright law on Tenenbaum:
"It's more than that, your honor. It's really the complete undermining of the copyright. What I mean by that is you can't just isolate what's going on here as if it's an individual's, by copying it, has not gone and bought the work on iTunes or not bought the work in a record store when we used to have record stores. What happens is, by distributing it to others, there are... the viral nature of this technology, really has a substantial impact on the value of the work. And the way I'd ask you to think about it is this: one, I think, relevant question in a statutory damages case is, what would it cost to get a license for what the defendant has done. And, if all the defendant had done was making a copy and that was it, then maybe an analogy to just getting a copy off of iTunes would be appropriate. But here, by distributing it... if someone wanted to go to one of the record companies and say 'we'd like to do what the defendant did in this case,' the value of that license would be essentially the value of the entire copyrighted work. Because the effect of putting this work up on peer-to-peer technology is essentially you take a copyrighted work, and put it in the public domain."
He goes on to blame the poor financial state of the record labels on file sharing, and seems to indicate that we should blame Tenenbaum for this.
After a brief, and somewhat inconsequential, discussion by Julie Ahrens, representing the EFF (which the judges clearly didn't have much interest in, pointing out that any of the issues raised should have been raised to the jury, not to them -- even though that would have raised questions by the RIAA folks of an attempt at jury nullification...), we move on to Tenenbaum's own defense, which was handled (with permission) by a Harvard Law student, Jason Harrow. He kicks off his talk by pointing out that the Justice Department's claim that companies didn't bring such lawsuits for non-commercial infringement in the past because it wasn't cost effective, is on its face ridiculous. After all, if you can get $150,000 per infringement for someone infringing on a $1 work, how is it not cost effective to bring that lawsuit over and over again (just ask the various mass file sharing lawsuit filers...). Instead, he notes that the better explanation is that "no one thought that the statute would apply to such consumer usage."
One of the judges immediately jumps in and says that Congress could have made an exception, but didn't. Harrow points out that perhaps it didn't because the result would naturally be absurd: the idea that someone sitting at home, listening to music, would suddenly be liable for billions of dollars, doesn't make any sense. The judges' questioning of Harrow seems focused on the specific standards and jury instructions, rather than on the larger issue.
Finally, Charlie Nesson presents, and goes through the history of copyright law, and how statutory damages were clearly, originally intended for commercial infringement, not non-commercial. One of the judges points out that the RIAA began these lawsuits in 2003, and if Congress was upset about them, it's had eight years to amend the statute to specify that statutory damages don't apply to non-commercial use. Of course, that ignores the reality, which is that it's effectively impossible for Congress to change copyright law in a manner that benefits consumers, since the entertainment industry would go ballistic. The court also chides Nesson a bit for "pushing the bubble" very far in some of his arguments.
Clement then comes back for a brief rebuttal, trying to claim that the very first Congress put in place statutory damages for copyright... which is immediately shot down by one of the judges, who notes that the Congress felt that statutory damages should not be punitive, which Clement tries to sidestep around (not very successfully, in my opinion).
And that's about it. If you had asked me prior to the oral hearing, I would have said that the court would almost certainly uphold the statutory damage rates as being perfectly reasonable. It just seems like the sort of question that the courts don't want to touch -- especially (as mentioned by one of the judges in the case) noting that Congress has said nothing on the issue in the last decade. However, I have to admit that I was surprised at how (I believe) two of the judges really seemed to dig in against both the Justice Department lawyer and the RIAA/labels lawyer, on the big key questions, and suggested, repeatedly, that they're not buying the overall claim. I'm still guessing that the court won't say that the award was unconstitutionally excessive, but I'm not nearly as certain after listening to the hearing as I was before it...
"Plaintiffs are suggesting an award that is more money than the entire music recording industry has made since Edison's invention of the phonograph in 1877," Wood wrote, citing a Lime Group court filing referring to the inventor Thomas Edison. She called this an "absurd result."
In the past, we've mocked the popular "25% rule," which many patent system supporters have used in legal cases going back decades. The basic gist of this rule is that, in calculating "damages" for infringement, the patent holder should be entitled to 25% of the profits as an approximation of what a "reasonable license fee" would have been, while the company, who actually took on all the risk, should get the remaining amount. Patent system supporters have often pointed to this as being a generous solution, since it leaves 75% of the profits to the company who supposedly infringed. Of course, it leaves out the fact that any modern technology product today probably involves hundreds, or even thousands, of things that someone else will claim patents on. Still, the 25% rule is brought up regularly,and is rarely questioned by courts... until now.
In a ruling in a patent infringement lawsuit between Uniloc and Microsoft, the appeals court for the Federal Circuit (CAFC) finally pointed out just how ridiculous the 25% rule really is and suggested that it should die a quick death. The court noted how the 25% rule is widely used, and even how the district court was troubled by such a "rule of thumb" rather than any actual look into damages, but that since it was so widely used, the lower court effectively shrugged its shoulders, and let the 25% rule remain. The appeals court rejected this commonly used tool, however, noting serious problems with it. CAFC admits that it has been just as guilty in accepting the 25% rule in the past and many other courts have simply used it just because everyone else is using it -- but no one's ever really asked a court if it's legitimate. But, no longer:
This court now holds as a matter of Federal Circuit law that the 25 percent rule of thumb is a fundamentally flawed tool for determining a baseline royalty rate in a hypothetical negotiation. Evidence relying on the 25 percent rule of thumb is thus inadmissible under Daubert and the Federal Rules of Evidence, because it fails to tie a reasonable royalty base to the facts of the case at issue.
The court then points out that the patent holder has the responsibility for demonstrating what the actual damages are and they must sufficiently tie the damages estimates to the facts of the case -- without doing that, and just using a rule of thumb, means that "the testimony must be excluded." The court doesn't beat around the bush here:
The meaning of these cases is clear: there must be a basis in fact to associate the royalty rates used in prior licenses to the particular hypothetical negotiation at issue in the case. The 25 percent rule of thumb as an abstract and largely theoretical construct fails to satisfy this fundamental requirement. The rule does not say any-thing about a particular hypothetical negotiation or reasonable royalty involving any particular technology, industry, or party. Relying on the 25 percent rule of thumb in a reasonable royalty calculation is far more unreliable and irrelevant than reliance on parties’ unre-lated licenses, which we rejected in ResQNet and Lucent Technologies....
.... Beginning from a fundamentally flawed premise and adjusting it based on legitimate considerations spe-cific to the facts of the case nevertheless results in a fundamentally flawed conclusion....
Separately, CAFC also rejected the idea of using the "entire market value rule," in determining a reasonable royalty rate. Again, the court dismisses this commonly used rule as not being tied to the specifics of the situation. This rule involves a patent holder trying to determine the reasonable royalty rate on the overall market value of a product, rather than figuring out the actual market value of the invention in question. This trick is useful for patent holders because they can toss out some huge number, to make any (otherwise huge) number sound reasonable. For example, in this case, the patent holder pointed out that Microsoft had made "approximately $20 billion" selling "the infringing product." When you use an amount that large, then a few hundred million dollars seems "small." The full market value is misleading, and CAFC makes that clear:
This case provides a good example of the danger of admitting consideration of the entire market value of the accused where the patented component does not create the basis for customer demand.... The disclosure that a company has made $19 billion dollars in revenue from an infringing product cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue.
The court highlights how the patent holder's lawyers played up the "approximately $20 billion," and mocked a proposed $7 million royalty as only being "an effective royalty of approximately .000035%," which ignored, of course, that the patent in question was a very, very, very minor part of the larger product. In fact, Uniloc's lawyer specifically asked a witness:
And at the end of the day, the in-fringer, Microsoft, who violated the patent law, they get to keep 99.9999% of the box and the inventor, whose patent they in-fringed, he gets the privilege of keeping .00003%?
It's not hard to see how that clearly biases the jury. But CAFC is thankfully rejecting that too. While I often find that CAFC sides too strongly with patent holders, it's nice to see it pushing back a bit on some of the more ridiculous "rules of thumb" used for damages that are way out of scale with reality.
With Limewire officially shutting down following its (totally expected) legal loss earlier this year, you might have though the case was totally over. However, the record labels quickly claimed that with the loss, Limewire should have to pay a billion dollars, which seemed a bit extreme. In typical RIAA fashion, the labels didn't feel like they should have to prove any damages at all, but that the judge should just order statutory rates. However, Limewire asked the judge to have the record labels actually prove their losses -- and, somewhat stunningly -- it appears the judge has agreed, despite the record labels' claim that trying to prove damages would represent a "crushing burden":
On Tuesday, Judge Freeman said tough noogies, with some interesting language written in the margins of a court-endorsed memo to the parties. She scribbled -- barely legible -- that Lime Wire should enjoy enough discovery to mount a defense on the damages issue. Both Lime Wire and the labels must pick 100 works -- 80 songs and 20 albums -- that each believes to be representative of the damage (real or not) that file-sharing has on the record companies. In addition, 100 more works -- another 80 songs and 20 albums -- will be selected at random.
It's not entirely clear, from there, how each side will go about showing damages, but it is interesting that the plan seems to be to look for empirical evidence to determine actual damages. I'm really surprised by this -- since my understanding was that with statutory rates, the whole idea was that the copyright holder never had to bother proving any actual damage (something I disagree with -- but it's what I thought the law said...). Either way, it certainly would be nice if there were some reasonable data to work with, so this should be worth following.
The farce that is the Jammie Thomas-Rasset legal battle with the RIAA continues. In the third in a series of jury decisions, Thomas-Rasset has been hit with a $1.5 million verdict for sharing the same 24 songs, or $62,500 for each song. That is just slightly less than the last time around. From very early on, we had believed that Jammie Thomas' case was always a bad test case, and one where she likely would have been better off settling. There are important legal questions in these fights, but Thomas-Rasset's own actions greatly weakened her own case and served to distract from the important issues. However, she pushed forward. In the first trial, the jury awarded the RIAA (technically Capitol Records) $222,000, or $9,250 per song.
The judge then realized that he had made a mistake in issuing instructions to the jury and declared a mistrial. The second trial, apparently with proper jury instructions but lots more problems for Thomas-Rasset, resulted in a whopping $1.92 million verdict, or $80,000 per song. The judge then made the somewhat surprising move of unilaterally lowering the verdict down to (a still extreme) $2,250 per song. Neither side was particularly happy about this, and now the third trial is over and the jury has come close to that last award anyway. So, now what? One assumes the judge will reduce the award for the same reason he did last time and the case will finally move up a level for appeal.
The RIAA will, once again, gloat about this ruling, falsely implying that this is more evidence that "ordinary people" find such actions reprehensible, but that, again, is pure spin and ignores the reality of the situation. To be honest, this particular trial has become such a farce, that it's really not worth paying much attention to it until we get to dig into the real issues at the appeals court.
Well, as was expected, the latest draft text of ACTA has been released (pdf). Let's bulletpoint a few things up top, and then we'll discuss things in more detail down below:
This version is not final, and despite suggestions to the press to the contrary, there are still some pretty substantial differences between negotiating parties. Some of those differences are pretty big deals, as they could require changes to laws (if the countries want to be seen as complying) from countries who have insisted, repeatedly and publicly, that ACTA will require no such law changes.
While much of the worst of the document has been removed, the process by which this happened was hardly reasonable and open. Instead, it involved secrecy, misleading statements, ignoring important stakeholders until copies were leaked and concerned stakeholders shouted loud enough to be heard. As La Quadrature Du Net points out, this whole process was a counterfeit of democracy. Furthermore, this shows why all of the ACTA supporters, who insisted that people were making too big a deal about this, were flat-out wrong. There were some really, really bad things in ACTA initially, that appear to have only been removed due to loud protests from people who, otherwise, weren't supposed to even know what was in ACTA.
The document still has many, many problems. It's way too broad at points. It still would require changes to US law (contrary to claims by the negotiators). It also includes exports enforcement without consumer rights or protections and some troubling language with no legal basis. It's better than what was in the initial documents, but it's still pretty bad in some places, as detailed below.
So... what's in the actual document? We'll go through a few different reviews that highlight some of the differences in the document, and where many of the problem areas are. Michael Geist points out that the anti-circumvention stuff that sought to effectively export the US's draconian DMCA anti-circumvention clause has been greatly watered down and provides much more flexibility in how countries set their anti-circumvention plans. It's still ridiculous that anti-circumvention is in this thing, but at least it's not as bad as it was, and it leaves open the possibility of setting up anti-circumvention rules that recognize fair use (unlike the DMCA currently). This seems like a clear case where the US caved to other parties.
On injunctions and damages, there still appear to be serious problems with the text, and seem to go beyond current TRIPS requirements, and at certain points appear contrary to US law (despite claims from US officials that no changes to US law will be required). Once again, it's a case where ACTA tries to export the enforcement side but ignores the safe harbors and consumer protections. On injunctions, for example, TRIPS has some key protections for those who infringe unknowingly or for totally non-commercial use. Those are missing in ACTA. As KEI notes:
The ACTA does not permit the elimination of injunctive relief in cases where there is no remuneration paid. This is contrary to the provisions in U.S. law eliminating injunctions and damages against certain health care workers, or for manufacturers of biosimiliar drugs, in cases involving patents not previously disclosed by the incumbent drug company. ACTA seems to eliminate the limitation on the TRIPS, which concerns injunctions in cases where a person does not have prior "reasonable grounds to know that dealing in such subject matter would entail the infringement of an intellectual property right." This makes the ACTA contrary to current U.S. laws concerning infringement of trademarks by newspapers and online publications, among other things.
On damages, the situation appears even worse. KEI highlights the following extremely troubling text:
In determining the amount of damages for infringement of intellectual property rights, its judicial authorities shall have the authority to consider, inter alia, any legitimate measure of value submitted by the right holder, which may include the lost profits, the value of the infringed good or service, measured by the market price, the suggested retail price.
This is, frankly, ridiculous. As has been discussed for years, the various industries have a long history of totally making up these numbers of "lost profits" that have absolutely nothing to do with reality. And, I'm still waiting for someone to show me how one "loses" profits. In the real world, you don't "lose" profits -- there is no such line on your income statement. You lose to competition and it's your responsibility to fix your business model when you do. As KEI says, this setup is "not based upon national laws in any country," and "clearly contrary to laws in several countries."
Sean Flynn's analysis notes that there are still substantial differences in what's actually covered by ACTA. The US has been fighting hard to remove patents from ACTA entirely, because it knows that it would have to change US patent laws to be in compliance (and it has said publicly many times that ACTA won't require changes to US laws). Unfortunately, everyone else seems to want to include patents:
The US has proposed that patents should be clearly carved out of the Civil Enforcement Chapter (fn 2). But as of now there are no other countries indicated as supporting this position. This is a major advocacy point for access to medicines groups. If the US does not carry the day, the claims of negotiators that the agreement will not limit important TRIPS tools to promote access to medicines will ring hallow.
Along those lines, there are still serious concerns that ACTA will allow border seizure of legitimate drugs in transit (something that has been a big problem). Legitimate generic drugs are seized in transit because a country that it ships through may have a pharmaceutical-lobbied law that blocks the sale of such drugs. Even if the drugs are not intended for that country (i.e., drugs made in India that ship via Europe to South America), European border guards are confiscating and destroying them. It appears that whether or not ACTA will deal with this is still in dispute:
As currently worded, and in contradiction to many public statements by the negotiators, the border measures section still extends to patents and to in-transit seizures. In fn 6 on page 9, there is proposed language carving out patents. But that language is proposed by the US and is not joined by any other party according to the text as released.
As for copyright issues... again, there are problems with the document:
The damages section contains many provisions that will encourage the over-enforcement and excessive punishment of copyright infringers. The text requires that countries to maintain a system of "pre-established" damages, as well as "additional damages," which means damages not based on any actual proof of harm. Such a system will over-deter the making of copies of copyrighted works where the copyright owner does not adequately serve the market on reasonable terms and conditions, and therefore does not actually suffer significant damage from the copy.
And, despite rumors to the contrary, this could apply to individual users:
The ACTA language is not limited to commercial scale infringement. So individual downloaders and copiers for personal non-commercial purposes could be subject to massive "deterrent" fines without proof of any market harm to the copyright owner.
As for fair use? What fair use?
The negotiators have failed to adequately protect the most important "fair use" and other rights of users with respect to copyright. The definition of copyright piracy does not include the reasonable suggestion to add language making clear that it "does not extend to copies that are lawfully made, without the permission of the right owners."
All in all, what we have here is a travesty of process. You had a bunch of industry stakeholders, who drove the process from the beginning, putting in extreme language and extreme ideas. Rather than having an open and honest discussion about these issues, and looking for consensus, negotiators chose to obfuscate, obscure and abstain from discussion. In the end, thanks to widespread public pressure and outcry -- including from elected officials around the world, negotiators clearly backed off many of the absolutely worst aspects of ACTA. But, remember, they started at one extreme, basically granting everything the industry stakeholders wanted, and then caved on pieces there, moving slowly back. So, the document still is based on the stakeholder's positions, with the changes being an attempt to appease everyone else. At no point was there an effort to build a document that actually recognized the rather legitimate interests of the public. And this is a shame.
Michael Geist points us to an amusing ruling in a Canadian lawsuit over copyright infringement, where the plaintiff demanded $27 million in damages... and ended up with $500. Yes, $500 period. Not $500 thousand. Just $500. One would imagine that the plaintiff spent a hell of a lot more than that on legal fees. The judge seemed to waste no opportunities to point out how ridiculous the case was, even if the plaintiff's copyright was, actually, infringed upon. Some key quotes:
Generally speaking, the evidence adduced concerning infringement of copyright suggests that the Plaintiff's claims are disproportionate and opportunistic....
In relation to breach of copyright, the Plaintiff entered the trial seeking $27,000,000.00 (CD) as compensation for acts that, even if proved, would be fairly contained and/or inconsequential forms of infringement....
The Plaintiff speculates that further use was made of the Report but there is no evidence before me to support anything more than the limited uses outlined above.... Also, I can find no evidence that multiple copies of the Report were made and disseminated.... The only action that could have resulted in broader dissemmation occurred when Re-defining Water placed the original version of the Report on its website, but there is no evidence before me, apart from Mr. Reif's downloading of a single copy for purposes of this lawsuit, that anyone either viewed the Report on the website or downloaded it.
I can find no evidence that any of the Defendants made any money, or gained any other advantage, from either copying or using the Report or any modified version of the Report, or that they have deprived, or could deprive, the Plaintiff of any profits that the Plaintiff might earn from the Report. In fact, the Plaintiff does not even allege that the Defendants sold copies of the Report or that the conduct of the Defendants prevented him from selling or otherwise exploiting the Report with someone else, and it is difficult to see how the Plaintiff might make money from any such activities given the limited purpose of the Report and the context in which it was produced.
It goes on and on in this nature and finally concludes by awarding $500 in statutory damages, noting that the defendant did a good job defending themselves "as best they can in the face of an obviously dubious claim for a substantial sum of money" and then defends the small sum by noting:
I say this because there is no evidence here that the Plaintiff has suffered any damages or that the Defendants have made any profit as a result of the infringing act. This is simply a technical breach and does not warrant the Plaintiff receiving a substantial windfall . Statutory damages require an assessment of the reality of the case and a just result.
That last line is interesting, though (obviously) meaningless in the context of the US cases involving Jammie Thomas and Joel Tenenbaum over that very same question.
Last Friday, we quickly covered the news that Judge Nancy Gertner had declared the original jury award of $675,000 against Joel Tenenbaum for downloading and sharing some songs unconstitutionally excessive. Over the weekend, however, I had some more time to read the full ruling (posted by Eric Goldman) and get a sense of what Gertner's full argument meant. You can read the ruling here, and I highly recommend taking the time to read the whole thing:
In it, she clearly explains why the Constitutional analysis was necessary (she could have just reduced the award using the remittitur process, but noted that the RIAA made it clear they would challenge such a ruling, and thus it would eventually come around to the Constitutional questions no matter what.
So with that in mind, she clearly gave a lot of thought to the Constitutional questions, and goes back to the key point, that if the punishment is seriously out of line with any sort of "harm" caused, then it's unconstitutional. She notes that she must give deference to Congress' intent with the statutory rates it set for copyright infringement, as well as to the jury's verdict. But, even so, she suggests that the jury's award was way out of line with reasonable awards in other copyright lawsuits... and (more importantly) way out of line with Congress' intent of using statutory rates to deter infringement:
This award is far greater than necessary to serve the government's
legitimate interests in compensating copyright owners and deterring infringement. In fact, it
bears no meaningful relationship to these objectives.
In attacking the Constitutional questions, Judge Gertner spent a lot of time highlighting the case law on the Due Process Clause, noting many, many cases where the Supreme Court has made it clear that there are limits to what should be considered Constitutional when it comes to jury awards -- even in the case of statutory awards (even if the courts often seem to rule that in the cases they're looking at, the line has not been crossed).
Defenders of both the original Jammie Thomas award and the Joel Tenenbaum award have frequently claimed that the case law (mainly the BMW v. Gore case) doesn't apply since that was not for statutory damages, where the rates are clear and already set. That's going to be a key point made in the inevitable challenge to this ruling. But Gertner aptly explains why it's reasonable to explore whether or not the award is unconstitutionally excessive, even when it's within the statutory rates, and even suggests that both the government and the RIAA are misreading other precedents -- with the key one being the Williams case, which found a damages award acceptable because it fell within statutory rates. Gertner points out that the RIAA and the government are taking that ruling out of context, and only looking at the result, rather than the actual reasoning.
At their root, the standards articulated in Williams, BMW,
and State Farm all aim at providing defendants with some protection against arbitrary government
action in the form of damages awards that are grossly excessive in relation to the objectives that
the awards are designed to achieve. Indeed, early twentieth century cases such as Williams were
the seedlings from which the Supreme Court's recent punitive damages jurisprudence sprouted.
She also notes that even in the Congressional record in efforts to increase the statutory rates, Congressional members suggested that courts would make sure the actual awards were reasonable and not excessive:
In fact, Senator Orrin Hatch, a sponsor of the Digital
Theft Deterrence and Copyright Damages Improvement Act of 1999, which increased section
504(c)'s statutory damages ranges to their current levels, stated in remarks regarding a
predecessor of that bill, "In most cases, courts attempt to do justice by fixing the statutory
damages at a level that approximates actual damages and defendant's profits."
That line right there might be pretty damaging to the RIAA's typical claim that courts are just supposed to assume that Congress knows best in setting the rates, and shouldn't try to approximate actual damages with statutory rates.
From there, Judge Gertner applies the test found in the BMW case, and points out that (contrary to some of the silliest claims from copyright system defenders), Congress clearly did not expect lawsuits against individuals sharing files for personal use when it set such high rates:
Later statements by Senators Orrin Hatch and Patrick Leahy, two sponsors of
the Digital Theft Deterrence Act, strongly suggest that Tenenbaum is correct; they did not
anticipate that individuals such as Tenenbaum who engaged in noncommercial file-sharing
would be subjected to liability for statutory damages under section 504(c). Hatch and Leahy
presided over a Senate Judiciary Committee hearing titled "Music on the Internet: Is There an
Upside to Downloading?" on July 11, 2000.... During the
hearing, the committee members demonstrated how the peer-to-peer system Gnutella is used by
downloading and then playing a song by the band Creed. ... As the committee was
downloading the Creed song, Senator Leahy proudly proclaimed that he was doing some of his
own downloading on his laptop. ... When one of the developers of Gnutella pointed
out to the committee members that they might be engaging in copyright infringement, Senator
Hatch responded that their downloading and public performance of the Creed song qualified as
"fair use" since it was carried out for "educational and governmental purposes." ...
Nevertheless, the senators' willingness to download copyrighted sound recordings through a
peer-to-peer network during a committee hearing suggests, at the very least, that they did not
view such downloading as particularly reprehensible.
And this inference from the senators' conduct is largely confirmed by their words. Although Senator Hatch noted that peer-to-peer technology had the capacity, "if misused, to rob [artists] of their livelihood," ... he also praised the development of Gnutella as "quite an
accomplishment," ... And Senator Leahy added:
[W]hen I go on college campuses, as many of us do, to talk and
everybody is talking about what they have downloaded, how they
share, and so on, and when my kids pick up a "Black Muddy
River," which happens to be one of my favorites of the Dead, and
send it to me -- they have heard a new version -- and I log on in the
morning while I am having my breakfast and there it is, I mean this
is a whole different world, and I think we have to recognize that on
where we go.
Senator Hatch's tolerance of, if not admiration for, peer-to-peer networks was even more
on display at a special Judiciary Committee hearing held on October 9, 2000, at Brigham Young
University ("BYU"). ...
Shawn Fanning, the founder of Napster, was the star witness at this hearing, and Senator Hatch
repeatedly praised Fanning, expressing how "proud" he was of Fanning and even suggesting that
Fanning should become a professor at BYU or run for political office. ...
Obviously, Senator Hatch's comments should be taken with a large grain of salt... But his comments nevertheless suggest that he did
not anticipate that the statutory damages scheme over which his committee had jurisdiction
would be applied to users of Napster and other peer-to-peer networks.
I have to admit that I was unaware of these quotes from Senators Hatch and Leahy -- both of whom are normally seen as being very strongly in favor of strict copyright laws (Hatch, famously, once suggested coming up with a way to destroy the computers of file sharers).
On top of that, Judge Gertner compares the fines for Tenenbaum with restaurants and bars that have not paid their licenses, noting that those are clear cases of infringement for commercial reasons, yet the fines are a small multiple of the cost of a license. She points out that this seems like a much more egregious case, yet the awards are much lower:
The jury's award in this case also appears egregious in light of the damages typically
imposed on restaurants, bars, and other businesses that play copyrighted songs in their
establishments without first acquiring the appropriate licenses. These defendants are arguably
more culpable than Tenenbaum. Unlike Tenenbaum, who did not receive any direct pecuniary
gain from his file-sharing, defendants in these cases play copyrighted music to create a more
pleasurable atmosphere for their customers, thus generating more business and, consequently,
more revenue.... In addition, defendants accused of unlicensed public performances
often receive several notices that their conduct is unlawful before they are sued. Thus, like
Tenenbaum's file-sharing, their infringing conduct is generally willful. .... Nevertheless, the awards in such cases are generally no more than "two to six times the license fees defendants 'saved' by not obeying the Copyright Act"--a ratio of
statutory to actual damages far lower than the ratio present in this case.
Clearly, this case is nowhere close to over, but it is still interesting to read through the details of the ruling. Obviously, Gertner knows this is going to be appealed, and she put a lot of effort into making the case for why this ruling was excessive, in hopes of having her reasoning help carry the later appeals.
It seems like the Joel Tenenbaum case is simply an echo on the Jammie Thomas case. Both lawsuits involved very flawed defendants who probably shouldn't have gone through with their fights against the RIAA. In both cases, juries awarded huge statutory damages awards to the record labels. In Thomas' case it was $1.92 million or $80,000 per song. In the Tenenbaum case, it was $675,000 or $22,500 per song. Even though both cases were what I considered to be "bad" cases (too much evidence that both Thomas and Tenenbaum were actually heavily involved in file sharing), both have used the rulings to challenge the statutory damages awards as being unconstitutional.. and now the judges in both cases have agreed.
As you probably recall, the judge in the Thomas case reduced the $1.92 million award to $54,000 (or $2,250 per song) and today comes the news that Judge Gertner in the Tenenbaum case has declared the original damages award to be "unconstitutionally excessive" and slashed the total by 90% down to $67,500. In both cases, the judges actually set the per song damages award down to $2,250. There were lots of questions when Judge Davis did this in the Jammie Thomas case if a judge could actually do that, and that's still being fought to some extent. It seems likely that, as with the Thomas case, the RIAA will appeal this particular ruling because it most certainly does not want a precedent on the books that can lower the statutory damages rate for copyright.
This could start to get very interesting. Both judges are clearly taking a stand that the actual statutory rates set by Congress are ridiculously high and totally out of proportion with the actions done by the defendants. There is definitely some precedent for ridiculously high damages awards being thrown out as unconstitutionally excessive... but not when it comes to statutory rates, where the courts have generally said Congress has great leeway to determine what is and what is not excessive. However, with two judges pointing out that a number within the range provided by Congress is excessive, it's setting up a potentially very important legal battle about the statutory damages associated with copyright.
The industry has always pushed for higher and higher damages, somehow believing that will act as a disincentive for infringing. Yet, there doesn't appear to be any evidence at all that it's working. Instead, such high damages have actually done the opposite. They've convinced many, many people of just how ridiculously unfair and out of touch copyright laws are. The general public can recognize that sharing a single file shouldn't lead to a fine of tens of thousands of dollars. It's so out of proportion with reality that they begin to question the overall setup of copyright law itself. The industry's focus on higher and higher copyright damages has been a major strategic mistake that has backfired. These rulings -- which the industry will fight tooth and nail -- might actually be a blessing in disguise for the industry. If the actual damages weren't so ridiculous, people probably wouldn't be so up in arms over copyright issues.