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Testing the Limits of Damage Awards in Mass Infringement Copyright Litigation

By Kent A. Lambert, Litigation News Associate Editor – May 3, 2011

Two recent decisions by U.S. District Judge Kimba M. Wood of the Southern District of New York in Arista Records LLC v. Lime Group LLC set the stage for a compelling showdown over damages in mass infringement Internet copyright disputes. Both decisions come in a long-running suit between the online file-sharing service “LimeWire” and 13 record companies over allegations that LimeWire assisted and encouraged its users to infringe copyrights on thousands of digitized songs.


The Opening Acts
A year ago, Judge Wood granted summary judgment as to liability against LimeWire, finding that LimeWire and its chairman, Mark Gordon, were liable for inducing users’ illegal file-sharing activities over the provider’s network. The decision is one of several to impose liability for such conduct since the Supreme Court’s controversial 2005 decision in Metro-Goldwyn-Mayer Studios v. Grokster, Ltd. In Grokster, the court held that Internet file-sharing networks can be held accountable when their users illegally download music and films if the networks are culpable of a “clear expression or other affirmative steps taken to foster infringement.” Some commentators saw this holding as a dangerous retreat from the court’s 1984 decision in the so-called Sony Betamax case that refused to impose liability on VCR manufacturers for purchasers’ copyright infringements.


Judge Wood’s two recent decisions, rendered in March and April of this year, wrestle with the scope of statutory damages that may be available for the millions of illegal song downloads completed by LimeWire’s users.


Battle of the Bands: “Per-Work” versus “Per-Infringer”
The first of Judge Wood’s two decisions, rendered March 10, 2011 [PDF], rejected the record companies’ argument that section 504(c)(1) of the Copyright Act authorizes statutory damages based on the total number of individual infringers that illegally downloaded a particular copyrighted work on LimeWire’s site. Given the large number of both infringers and infringed works implicated in the case, such an approach could have netted the plaintiffs as much as $75 trillion in statutory damages. The court concluded that section 504(c) authorizes “only a single statutory damage award per work against a secondarily liable defendant,” “regardless of how many individual users directly infringed that particular work.”


After conceding that interpretation of the pertinent statutory language “presents an especially close question,” Judge Wood ultimately based her decision upon the overwhelming size of the damages that could result from a per-infringer approach. “If plaintiffs were able to pursue a statutory damage theory predicated on the number of direct infringers per work, Defendants’ damages could reach into the trillions,” wrote Judge Wood, “suggesting an award that is ‘more money than the entire music recording industry has made since Edison’s invention of the phonograph in 1877.’”


“The decision is consistent with what other courts have done when faced with large-scale online infringements,” notes Erick C. Howard, San Francisco, cochair of the ABA Section of Litigation’s Intellectual Property Litigation Committee. According to Howard, “the court's discussion of ‘absurd’ results demonstrates a legitimate concern with allowing massive statutory damage awards that have no relationship whatsoever to the damages actually suffered” by the copyright holder.


While cognizant of the due process concern raised by Howard, Andrew Berger, New York City, cochair of the Copyright Subcommittee of the Section of Litigation’s Intellectual Property Litigation Committee, wonders if the court may have gone too far in trying to reign in the outer limits of the defendants’ potential exposure. “The court stated that a per-work statutory award will take into consideration the number of direct infringers and the revenue loss the plaintiff thereby suffers,” notes Berger, “but this is incorrect where a secondarily liable defendant has enabled countless individuals to infringe a single work.”


With LimeWire claiming four million users a day at the outset of the lawsuit, Berger wonders if limiting statutory damages to a per-work formula invites mass infringement activities. “As Judge Wood already held in granting summary judgment on liability, LimeWire spent years successfully assisting millions of users to engage in mass copyright infringement,” he notes. For Berger, the critical question is and should remain simply “whether or not LimeWire should be held responsible for the consequences of its conduct, so long as the statutory award falls within the statutory range set by Congress.”


Due process considerations aside, Howard acknowledges that Judge Wood’s decision may create as much uncertainty as it dispels by inviting “a different result depending on whether there is a ‘large’ or ‘small’ number of individual direct infringers.” Howard notes that such a distinction lacks any textual basis in the applicable statutory language.


Tributes, Medleys, and Compilations: When a Song Is Just a Song
Judge Wood tempered her March 10, 2011, decision by ruling on April 4, 2011 [PDF], that statutory damages based on the infringement of a copyrighted “work” could be imposed on a per-song basis, versus a per-album basis, if the song was released as a single prior to the infringement. The ruling navigates existing Second Circuit case law holding that “compilations,” which would include albums, should be considered a single work for purposes of calculating statutory damages.


For Berger, this ruling gets it right, in the process helping to mitigate a glaring problem inherent in earlier Second Circuit jurisprudence, including one decision where Judge Wood sat by designation. Those earlier appellate decisions, Berger suggests, “created a perverse incentive to infringe because defendants can easily break apart large plaintiff-copyrighted compilations of separately copyrighted works and infringe them, knowing they will only be exposed to one grant of statutory damages.” “There is no reason to limit a plaintiff to a single grant of statutory damages where the labels offer consumers a choice of listening to their favorite songs as a single or as part of an album,” he adds.


The decision may have broader application for other businesses dealing in compilations of digitized works. “This decision makes it clear that an e-book compilation of six of James Patterson’s best-selling novels will not limit the copyright holder to one grant of statutory damages if one of those books is then infringed,” Berger explains.


Editor’s Note:  After this article was published, LimeWire agreed to pay record companies $105 million as part of an out-of-court settlement.


Keywords: litigation, copyright infringement, file-sharing, Kimba Wood, LimeWire, statutory damages, compilations


 
Related Resources

  • » Metro-Goldwyn-Mayer Studios v. Grokster, Ltd., 545 U.S. 913, 125 S. Ct. 2764, 162 L. Ed. 2d 781 (2005).
  • » Sony Corp. of Am. v. Universal City Studios, Inc., 464 U.S. 417, 104 S. Ct. 774, 78 L. Ed. 2d 574 (1984).
  • » Bryant v. Media Rights Productions, Inc., No. 09-2600-cv, 2010 U.S. App. LEXIS 8657 (2d Cir. Apr. 27, 2010) (Wood, J., sitting by designation).

 

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