The audio recording of this morning’s oral argument in Sony v. Tenenbaum is now available through the First Circuit’s RSS feed. Click on the link and scroll down to find the recording. Enjoy!
YouTube filed its brief Second Circuit brief today in Viacom v. YouTube, in which Viacom and others have sued YouTube for copyright infringement resulting from third parties’ uploading of videos to the YouTube service. See my earlier posts on the District Court opinion here and here; you can find the parties’ District Court briefs here. I haven’t had the opportunity to digest these filings yet, but I will post my thoughts when I get a chance.
Viacom’s Opening Brief
Amicus Brief American Federation of Musicians et al.
Amicus Brief Advance Publications et al.
Amicus Brief BMI et al.
Amicus Brief Stuart Brotman et al.
Amicus Brief Business Software Alliance
Amicus Brief CBS Corporation
Amicus Brief International Intellectual Property Institute
Amicus Brief Microsoft Corporation and Electronic Arts, Inc.
Amicus Brief Matthew Spitzer et al.
Amicus Brief Washington Legal Foundation
Amicus Brief Intellectual Property Law Professors
On April 4, the First Circuit Court of Appeals will hear oral argument in Sony v. Tenenbaum, the first constitutional challenge to a statutory damages award to reach the appellate level. The case pits the recording industry against Joel Tenenbaum, who, as a college student, downloaded and made available for distribution thousands of songs using multiple filesharing services over a period of years. A group of recording companies sued Tenenbaum for infringing 30 of those songs. The trial court rejected Tenenbaum’s fair use defense and directed verdict against him. The plaintiffs elected statutory damages and the parties proceeded to a jury trial. The jury found that Tenenbaum had acted willfully and awarded the plaintiffs $22,500 per song, for a total verdict of $675,000.
Tenenbaum moved for a new trial, arguing that the statutory damages award was unconstitutionally excessive as applied. Alternatively, he sought remittitur, a common-law procedure allowing the judge to reduce an award that “shocks the conscience.” If a judge grants the request and reduces the award, the plaintiff may elect either to accept the remitted award or proceed to a new trial. The recording industry plaintiffs, however, indicated to the judge that they would not accept any remitted award. As a result, the Court felt constrained to address the constitutional issues, despite courts’ usual preference for avoiding ruling on constitutional questions if a dispute can be resolved on other grounds.
Before reaching the merits of the constitutional issue, the Court addressed two dueling standards for assessing the appropriateness of damages awards: St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63, 67-68 (1919) and BMW v. Gore, 517 U.S. 559, 568 (1996). In Williams, the Supreme Court upheld a $75 statutory damages award against a railroad that had overcharged passengers by 66 cents per ticket, which amounted to 114 times the amount of the plaintiffs’ actual damages. The Supreme Court upheld the award because it was not “so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.” In reaching this conclusion, the Supreme Court took into account the following factors: the ratio of the award to the plaintiffs’ actual damages; the interests of the public; the “numberless opportunities” for the railroad to commit the offense; and the need for securing uniform adherence to established passenger rates.
Gore, in contrast to Williams, involved punitive, not statutory, damages. In Gore, the jury awarded $4,000 in compensatory and $4,000,000 in punitive damages for BMW’s failure to disclose that the plaintiff’s “new” car had been repainted before it was sold to him. The Supreme Court struck the award under the Due Process Clause, following three “guideposts”: the degreee of reprehensibility of the defendant’s conduct; the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and the difference betwen the jury’s punitive award and civil penalties authorized in comparable cases.
The Tenenbaum court found little distinction between the two approaches, reasoning that both cases seek to protect defendants from damages awards that are “grossly excessive in relation to the objectives that the awards are designed to achieve.” The court ultimately applied the three Gore guideposts to the jury’s award, while noting two factors that distinguish the award from typical punitive damages awards: the award fell within the statutory range authorized by Congress; and the statute clearly sets forth the maximum and minimum allowable amounts.
Degree of reprehensibility of defendant’s conduct
This is “perhaps the most important” indicator of the reasonableness of a punitive award. The court characterized filesharing as “relatively low on the totem pole of reprehensible conduct.” Tenenbaum caused economic, not physical, harm. He displayed no indifference or reckless disregard of the health or safety of others. The recording companies were not financially vulnerable. On the other hand, the court acknowledged that Tenenbaum’s conduct was willful, and that he had lied under oath and tried to shift blame. Thus, “among this group of comparatively venial offenders, Tenenbaum is one of the most blameworthy.”
Disparity between plaintiffs’ actual harm and the award
The court reasoned that the Copyright Act requires at least some relationship between the actual harm suffered and the statutory damages award. It focused solely on Tenenbaum’s individual conduct, refusing to take into account the activities of other filesharers because “the jury was not permitted to punish Tenenbaum for harm caused by other infringers.” Using the $0.70 wholesale iTunes price for music as a “rough proxy” for the plaintiffs’ profits, Tenenbaum’s unauthorized sharing of 30 songs cost the plaintiffs $21 in profits, resulting in a ratio of statuory to actual damages of 32,143:1. The court also noted that services like Rhapsody charge $15 per month for access to millions of songs. The court dismissed the plaintifsf’ contention that the harm was much greater by virtue of Tenenbaum’s having distributed the songs to countless filesharers, resulting in immeasurable lost sales. The court found it “hard to believe that Tenenbaum’s conduct, when viewed in isolation, had a significant impact on plaintiffs’ profits” because he would not have purchased the music if they were not available for free, and the filesharers who downloaded the songs that Tenenbaum made available would simply have gotten them from a free alterntaive source. This reasoning is fairly remarkable; it is comparable to saying that if Tenenbaum had walked out of Barnes and Noble with a backpack full of stolen CD’s and given those CD’s to his friends, Barnes and Noble would have suffered little harm because Tenenbaum and his friends would simply have stolen the CD’s elsewhere.
Difference between the award and comparable civil penalties
The court found this to be the most troublesome factor for Tenenbaum, as the award was well within the range authorized by Congress. But the court concluded that Congress likely did not foresee that such awards would be imposed on noncommercial infringers like filesharers. The court cited a number of facts in support of this theory. First, Congress’s most recent enactment affecting the amount of allowable statutory damages, which increased the maximum potential penalty for willful infringement from $100,000 to $150,000, occurred before peer-to-peer filesharing became prominent. Napster, however, had been in existence for at least six months at that time. Moreover, Congress passed this increase specifically in response to the illegal sharing of software over the Internet. More remarkably, the court cited statements and conduct of various members of Congress outside the context of statutory damages legislation in concluding that Congress did not intend statutory damages to be awarded against individual filesharers. For example, the court noted that during the course of a Senate Judiciary Committee hearing in July, 2000 on music downloading, committee members demonstrated how peer-to-peer filesharing works by downloading songs, and one Senator admitted that he had downloaded songs on his own laptop. Incredibly, the court also cited remarks made by Senator Hatch at a talk at Brigham Young University in which he praised Shawn Fanning, the founder of Napster. Such events hardly rise to the level of legislative history which can be relied upon to illuminate Congressional intent (Justice Scalia would likely spontaneously combust at the very idea).
Finally, the court compared the jury award with the results in other filesharing cases and concluded that it was “especially excessive.” The court noted that the court in the case involving Jammie Thomas-Rasset, the only other filesharer to go to trial, remitted a verdict of $80,000 per song (for a total award of $1.92 million) to $2,250 per song, which amounted to three times the minimum statutory damages award. The court concluded that Tenenbaum’s cuilpability was “roughly comparable” to Thomas Rasset’s, and ultimately concluded that the 3-times statutory damages figure was the “outer limit of what a jury could reasonably (and constitutionally) impose in this case.” Accordingly, the court reduced the award to $2,250 per song, for a toal award of $67,500.
Both sides have appealed. The plaintiffs argue that Williams, not Gore, is the appropriate standard, and that the jury’s award is constitutional under either approach. They (properly) fault the judge’s questionable reliance on the post-hoc colloquy of a handful of memberes of Congress as “a textbook illustration of misuse of legislative history to avoid giving due deference to Congress’s determinations . . . manufactur[ing] ambiguity where none exists.” The United States submitted a brief arguing that the lower court should have exercised its power of remittitur before reaching the constitutional issues; it also argues that Congress intended the full range of statutory damages to apply to peer-to-peer filesharing. Tenenbaum argues in favor of the Gore standard, but complains that the court improperly instructed the jury on the entire range of statutory damages without “context,” and that statutory damages were never meant to apply to consumer copies. Links to the parties’ briefs appear below.
The court is scheduled to hear oral argument in just over two weeks, on April 4, 2011. I will post the link to the audio recording of the argument when and if it becomes available.
Ascending to the appellate level is a game-changer in more than one respect. Tenenbaum benefited at the trial level from an extraordinarily friendly judge. Indeed, as I described more fully in my post on the fair use ruling, Judge Gertner actively and overtly searched for reasons to rule in Tenenbaum’s favor. He may not find such a warm welcome at the First Circuit.
A few weeks ago, I gave a talk on secondary liability to the Copyright Subcommittee of the Intellectual Property Litigation Section of the ABA. I examined the impact of the DMCA on traditional doctrines of secondary liability and discussed two significant cases pending at the Circuit level which present knotty questions at the intersection of the statute and common law. These two cases – Viacom v. YouTube, 2d Circuit Case No. 10-3270, and UMG v. Veoh, 9th Circuit Case No. 09-5677 – offer the opportunity for meaningful development of the jurisprudence in this area.
Andy Berger, on his excellent IP In Brief blog, has posted the outline of my talk here. He has also posted his own take on “some of the noteworthy changes to secondary liability” resulting from the passage of the DMCA. Having once squared off in the courtroom against Andy, I can personally attest to the depth and sophistication of his knowledge of copyright. His posts are always worthwhile to read.
When I sat down to read the parties’ moving briefs in Viacom v. YouTube back in the spring, I was reminded powerfully of something I have come to think of as the Mildred Rule (in honor of my late grandmother, pictured above with me in 1971). Though the Mildred Rule did not come into play in the summary judgment opinion that just issued, the opinion seemed to present an opportune moment for a post on the subject.
Among other things, Viacom argued that YouTube (1) intended to create a haven for massive copyright infringement, (2) knew that rampant infringement was occurring on the site, and (3) deliberately exploited infringing content in order to increase user traffic to the site. In support of these arguments, Viacom introduced rafts of internal YouTube emails which, in florid and sometimes sarcastic language, exposed YouTube’s struggle to address the issue of infringing videos on the site. In the emails, YouTube employees referred to content owners as “copyright bastards” and “a-holes.” They made flippant comments such as, “save your meal money for some lawsuits!” and “steal it! . . . haha ya.” And they suggested that “one of the co-founders is blatantly stealing content from other sites,” and “we’re just trying to cover our asses so we don’t get sued.”
Fortunately for YouTube, Judge Stanton ruled on a purely legal issue and did not need to reach the evidence of YouTube’s knowledge in the emails. (And incidentally, I thought YouTube’s counsel did a stellar job in their opposition papers of countering this evidence.) Judge Stanton could, however, have ruled differently; for example, he could have found that the conflicting evidence submitted by both parties created a genuine issue of material fact about the state of YouTube’s knowledge, requiring the case to go before a jury. To a jury, this kind of raw, emotional, unexpurgated email evidence could have a devastating effect on YouTube’s defense. Indeed, Judge Stanton noted, “a jury could find that the defendants not only were generally aware of, but welcomed, copyright-infringing material being placed on their website.”
Which brings me to the Mildred Rule. In its initial formulation, the Mildred Rule exhorted, “If you don’t want your grandmother to see it on the front page of the New York Times, don’t put it in an email.” But that was not long after I graduated from law school (back in, roughly, the Pleistocene era); today, the Mildred Rule might be amended to read, “If you don’t want your grandmother to see it on nytimes.com (or huffingtonpost.com, or widely-disseminated-.com-of-your-choice), don’t put it in an email.”
I am continually amazed at the statements people commit to email. When I was a new lawyer, email was just beginning to take hold in the business environment. When I worked on my first litigation that involved reviewing email (back then, we printed them out – on paper! – to review and produce them), I remember thinking that in the future, as people caught on to the fact that email really is permanent and can be discovered to a party’s significant detriment in litigation, we wouldn’t get so many juicy tidbits in discovery anymore, because people would learn to exercise more restraint before hitting the “send” button. The opposite has happened. The proliferation, and now ubiquity, of different forms of electronic communication has resulted in a steadily increasing degree of comfort with the medium, culminating in a generation of “digital natives” for whom email comes as naturally as breathing.
From the standpoint of lawyers who advise clients, and litigate on their behalf, this evolution presents a significant challenge. Our role as counselor is to guide clients’ decisionmaking processes without unduly hampering the conduct of their affairs. Email (like its progeny, instant messaging and texting) is not going away; nor should it. And possibly, in view of society’s increasing digital exhibitionism on the social networking frontier, the notion that one might be embarrassed to have one’s grandmother read anything, however scurrilous, is hopelessly antiquated. But the email evidence submitted in Viacom v. YouTube demonstrates a continuing need to educate clients about the potential pitfalls of email as a communication tool in the business environment. So when the opportunity next presents itself, remember Mildred and help your clients keep their emails out of the spotlight before litigation hits the fan.
I realize that this post is not, strictly speaking, a copyright post. The Mildred Rule, however, is an equal opportunity rule which does not discriminate based on practice area; copyright litigants run afoul of it as often as parties to any other kind of dispute, as demonstrated so aptly in Viacom v. YouTube.
In sharp contrast to the voluminous materials submitted by the parties in support of their cross-motions for summary judgment in the Viacom v. YouTube litigation, the court’s opinion granting judgment in favor of YouTube is surprisingly lean. Indeed, a third of the 30-page opinion is devoted to verbatim quotes of the statute and legislative history. The opinion represents a resounding victory for YouTube and, by extension, the rest of the user-generated content industry (for the time being, anyway – Viacom, not surprisingly, has indicated that it will appeal the decision). But – leaving the merits of the dispute aside for a moment – it also represents a lost opportunity for a thoughtful contribution to the jurisprudence in this developing area of law.
Copyright Act Section 512(c) creates a “safe harbor” for internet service providers who allow users to upload copyrighted content to their services. The “safe harbor” shields ISPs from liability for copyright infringement “by reason of the storage at the direction of a user” of infringing material if the service provider meets certain criteria. The ISP must follow prescribed “notice and takedown” procedures to remove materials identified by copyright owners as infringing. Moreover, the ISP must neither have “actual knowledge” that material on the system is infringing nor be aware of “facts or circumstances from which infringing activity is apparent.”
The court’s opinion centers on construing these knowledge provisions. Specifically, “the critical question is whether the statutory phrases . . . mean a general awareness that there are infringements . . . or rather mean actual or constructive knowledge of specific and identifiable infringements of individual items.”
Actual vs. “red flag” knowledge
In my initial post on this decision, I stated that the court “analyzes the Section 512 safe harbor for ISPs and corresponding legislative history.” Upon a closer reading of the opinion, this turned out to be something of an overstatement. Rather, after reciting Sections 512(c) and (m) verbatim, as well as lengthy passages from the legislative history, the court simply concluded, with no discussion whatsoever, “The tenor of the foregoing provisions is that the phrases ‘actual knowledge that the material or an activity’ is infringing, and ‘facts or circumstances’ indicating infringing activity, describe knowledge of specific and identifiable infringements of particular individual items. Mere knowledge of the prevalence of such activity in general is not enough.” Given the size of the case (the complaint sought $1 billion in damages), the significance of the legal issues, and the need for a well-developed body of jurisprudence to guide the ongoing development of new business models and to create settled expectations among copyright owners and users of content, it would have been nice to see a little closer parsing of the language in the statute and legislative history. Clients, in my experience, are never thrilled to be advised on the tenor of the law – they want to know what the law is, so they can act accordingly.
The one comment that the court made on the actual statutory language was in connection with subsection (m), which “explicit[ly]” states that the DMCA “shall not be construed to condition ‘safe harbor’ protection on ‘a service provider monitoring its service or affirmatively seeking facts indicating infringing activity . . .” Seizing on that language, the court noted, as a policy matter, that letting “knowledge of a generalized practice of infringement in the industry, or of a proclivity of users to post infringing materials, impose responsibility on service providers to discover which of their users’ postings infringe a copyright would contravene the structure and operation fo the DMCA.”
Having thus dispensed with statutory analysis, the court went on to recite the holdings of the Ninth Circuit and two of its district courts in cases where similarly situated defendants were found to be unaware of “facts and circumstances” sufficient to constitute red flags under the DMCA. As with its discussion of the statute itself, the court engaged in no meaningful analysis of these opinions. The court also cited favorably the Second Circuit’s opinion in Tiffany v. eBay, Inc., 600 F.3d 93 (2d Cir. 2010), a trademark case. In eBay, Tiffany sued eBay for contributory trademark infringement because eBay allow sellers of counterfeit goods to continue to operate despite knowing, generally, that counterfeit Tiffany goods were being sold “ubiquitously” on the site. The Second Circuit ruled for eBay, holding that it could not be liable unless it had knowledge of particular listings of counterfeit goods; the Viacom court concluded, “[a]lthough by a different technique, the DMCA applies the same principle. . . .”
Direct financial benefit where the ISP has the right and ability to control the infringing activity
Section 512(c) also prohibits an ISP from receiving “a financial benefit directly attributable to the infringing activity, in a case in which the service provider has the right and ability to control such activity . . .” The parties hotly disputed whether YouTube had the right and ability to control the activity of users who uploaded infringing content, with each side devoting several pages of briefing to the issue. Again, the court’s opinion gave the issue short shrift, holding without citation or elucidation that “[t]he ‘right and ability to control’ the activity requires knowledge of it, which must be item-specific,” and citing back to the sections of the opinion addressing the knowledge requirement.
I was especially disappointed that the court did not address the question whether YouTube received a direct financial benefit from the allegedly infringing activity, though I recognize that the court did not need to reach the issue given its ruling (however cursory) on the right and ability to control the activity. But there is a bothersome discrepancy between the traditional common-law doctrine of vicarious liability and the form of it enacted in the DMCA. Recall that in Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259 (9th Cir. 1996), a flea-market operator was held vicariously liable for the sale of bootleg recordings because it received a “direct financial benefit” from the infringing activity in the form of booth rental fees, admission fees, parking payments, concession stand revenues, and the like. Even though these revenues were not directly tied to the sale of infringing goods, they were held to provide a direct financial benefit because the sale of pirated recordings was a “draw” for customers.
The legislative history of the DMCA, in part, states that the drafters intended to leave “current law in its evolving state” rather than “embarking on a wholesale clarification” of the doctrines of contributory and vicarious liability – suggesting that it did not intend to modify Fonovisa and its progeny. Yet elsewhere, the legislative history states that “a service provider conducting a legitimate business would not be considered to receive a ‘financial benefit directly attributable to the infringing activity’ where the infringer makes the same kind of payment as non-infringing users of the provider’s service.” This statement suggests that the booth rental fees and other revenues not directly tied to bootleg sales in Fonovisa would not constitute a direct financial benefit – setting up a conflict within the legislative history and with Fonovisa.
“Where does this appeal go? It goes up.” (bonus points if you can identify the riff)
It can come as no surprise that Viacom intends to appeal, and it will be very interesting to see what the Second Circuit thinks of this opinion. I will post appeal briefs when they are available.
For those of you feeling nostalgic for the ’80s after seeing the photograph at the beginning of this post, you can view the clip of the original Wendy’s “Where’s the Beef” commercial here, thanks to one laconic judge in the Southern District of New York.
Today Judge Louis Stanton granted YouTube’s motion for summary judgment in the Viacom v. YouTube litigation – an incredibly quick decision in almost any case, but especially here, where the parties filed tremendously dense briefs and supporting declarations with hundreds of pages of exhibits. Viacom v. YouTube, No. 07-2103 (S.D.N.Y. filed June 23, 2010). The opinion is hot off the presses and I have not yet read it in its entirety, but in a significant holding, it analyzes the Section 512 safe harbor for ISPs and corresponding legislative history, concluding that “the phrases ‘actual knowledge that the material or an activity’ is infringing, and ‘facts or circumstances’ indicating infringing activity, describe knowledge of specific and identifiable infringements of particular individual items. Mere knowledge of prevalence of such activity in general is not enough.”
There is more – I will post further thoughts once I’ve had a chance to digest the entire opinion. Hat tip to my colleague, Raffi Zerounian, for spotting this and bringing it to my immediate attention.
Section 504(c) of the Copyright Act allows a plaintiff to elect statutory damages instead of actual damages and profits “for all infringements involved in the action, with respect to any one work . . .” For purposes of that subsection, “all the parts of a compilation or derivative work constitute one work.” The Copyright Act does not define “work,” though it defines a “compilation” as a “work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.” In litigation involving a work with multiple components, then, the question arises whether it is a single “work” or multiple “works” for purposes of assessing statutory damages.
A recent Second Circuit opinion illustrates the problem. Bryant v. Media Right Prodns., __ F.3d __ (2d Cir. 2010). In Bryant, two songwriters created and produced two albums – “Songs for Dogs” and “Songs for Cats” – and registered both the albums and, separately, at least some of the individual songs with the Copyright Office. They then authorized defendant Media Right to market the albums. Media Right in turn granted co-defendant Orchard Enterprises the right to distribute the albums “by any and all means and media,” including by digital download. Initially, Orchard only sold physical copies of the albums. In early 2004, however, Orchard began making the albums and the individual songs available for sale through Internet retailers like iTunes. Orchard recognized $578.91 from downloads of digital copies of the albums and the individual songs on the albums. The songwriters sued, alleging that their initial agreement with Media Right did not include the right to make copies of the albums, which Orchard did in order to enable digital sales.
The district court (ruling on competing summary judgments motions which the parties agreed to treat as a case stated, thus allowing the court rather than a jury to determine statutory damages) held that each album was a compilation and constituted a single work for purposes of computing statutory damages. The court found that Orchard’s infringement was innocent and imposed the minimum amount of statutory damages on Orchard, $200 per album for a total of $400. The court found that Media Right’s conduct was neither innocent nor willful, and imposed statutory damages on the company and its president, jointly and severally, for $1000 per album for a total of $2000. The plaintiffs’ entire award thus amounted to $2400. The court denied the plaintiffs’ request for attorney’s fees.
The Second Circuit affirmed, finding that the plain language of the Act established that the albums were compilations since each album is a “collection of preexisting materials – songs – that are selected and arranged by the author in a way that results in an original work of authorship – the album.” It concluded that the fact that certain songs had been registered separately was irrelevant, relying on the Conference Report that accompanied the final Copyright Act, which explains many of its provisions. The Report states that a “compilation” “results from a process of selecting, bringing together, organizing, and arranging previously existing material of all kinds, regardless of whether . . . the individual items in the material have been or ever could have been subject to copyright.”
Bryant represents the third occasion upon which the Second Circuit has construed Section 504’s one-award restriction. In Twin Peaks Prodns., Inc. v Publ’ns, Int’l Ltd., 996 F.2d 1366 (2d Cir. 1993), the court awarded the plaintiff one statutory damages award for each of 8 episodes of a television series. Rather than explaining why each episode constituted a single work, the court stated its conclusion in the converse: “The author of eight scripts for eight television episodes is not limited to one award of statutory damages just because he or she can continue the plot line from one episode to the next and hold the viewers’ interest without furnishing a resolution. . . . [O]urs is the easy case of infringement of eight separate works that warrants eight statutory awards, whether the registrations apply to the teleplays or the televised episodes.” Though the opinion did not explicitly say so, it appeared to turn on the fact that each television episode aired independently. In WB Music Corp. v. TRV Communication Group, Inc., 445 F.3d 538 (2d Cir. 2006), the court awarded thirteen statutory damages awards for thirteen infringed songs because the songs themselves had been released separately and not as part of an album. The Bryant court thus found its opinion in harmony with both Twin Peaks and WB Music because the plaintiffs’ songs were issued as part of CD compilations and not individually, like the Twin Peaks episodes but unlike the songs in WB Music.
The Second Circuit also rejected the “independent economic value” approach adopted by the First, Ninth, Eleventh and D.C. Circuits. This approach looks at whether each element of a work has “independent economic value” and can live its own copyright life. Following this approach, the First Circuit, for example, allowed multiple statutory damages awards for individual television episodes that were released collectively on videotape as part of a complete series. Gamma Audio & Video, Inc. v. Each-Chea, 11 F.3d 1106 (1st Cir. 1993).
Practice tip: statutory damages and the plaintiff’s choice of forum
Now that the Second Circuit has squarely rejected the “independent economic value” approach, plaintiffs have an additional consideration when deciding where to sue for infringement. If a plaintiff issued the components of a multi-part work as part of a collection and not singly, and is considering seeking statutory damages rather than actual damages and profits, it may be better off suing in a circuit that will look at whether those parts have independent economic value rather than in the Second Circuit.
Attorney’s fees and offers of judgment
An interesting side note to the case involves the court’s denial of the plaintiffs’ request for attorney’s fees. Copyright Act Section 505 allows a court, in its discretion, to award a “reasonable attorney’s fee to the prevailing party” in a copyright case. Though some commentators argue that such awards seem virtually guaranteed to prevailing parties, here the court exercised its discretion to deny the award to the prevailing plaintiffs.
The denial boiled down to the reasonableness of the parties’ conduct in the litigation. The Second Circuit found that the defendants’ arguments were objectively reasonable, and the defendants prevailed on several important issues. Moreover, the defendants “also were reasonable in trying to resolve the case short of trial: [Defendants] made an Offer of Judgment in the amount of $3000, which [Plainitffs] rejected, in favor of continuing to demand over $1 million in damages, notwithstanding the evidence that [Defendants] had received less than $600 in revenues from infringing sales.”
This portion of the opinion, tacked on to the end in just a few sentences, is interesting for a couple of reasons. First, it illustrates that the prevailing party’s conduct in the course of the litigation retains relevance in the attorney’s fees analysis. Second, it highlights a thorny question at the intersection of civil procedure and copyright that remains unresolved.
Federal Rule of Civil Procedure 68 governs offers of judgment, and provides that a party defending against a claim may offer to the opposing party to allow judgment on specified terms. If the opposing party fails to accept the offer within 14 days, and later obtains a judgment that is less favorable than the offer, then “the offeree must pay the [offeror’s] costs incurred after the offer was made.” But “costs,” at least in the sense of true, out-of-pocket costs, are dwarfed by attorney’s fees in typical litigation. Do Rule 68 “costs” include attorney’s fees? In Marek v. Chesney, 473 U.S. 1 (1985), the Supreme Court held that Rule 68 “costs” include attorney’s fees if the underlying statute so prescribes. Because attorney’s fees can amount to substantial sums, the offer of judgment can be a powerful tool in a defendant’s arsenal in settlement negotiations where such fees are included as costs.
If there is no settlement and the parties proceed to judgment in a copyright case, how do Rule 68 and Section 505 interact? Section 505 defines costs as including attorney’s fees, thus bringing Rule 68 into play. The rules differ from each other in important ways, however. While Section 505 allows an award of attorney’s fees to any prevailing party, whether plaintiff or defendant, Rule 68 only shifts costs to a party “defending against a claim” – usually the defendant, though the rule would seem to apply equally to a counterclaim defendant. Moreover, Section 505 gives the court discretion to award attorney’s fees, while Rule 68 is phrased in mandatory terms. Relying on Rule 68’s mandatory language, the Eleventh Circuit, in Jordan v. Time, Inc., 111 F.3d 102 (11th Cir. 1997), awarded costs (including attorney’s fees) to the defendant even though the plaintiff prevailed, because the plaintiff recovered less than the amount of the offer of judgment – a traditional application of Rule 68. In contrast, the Seventh Circuit, in Harbor Motor Co. v. Arnell, 265 F.3d 638 (7th Cir. 2001), held that in copyright cases, only prevailing parties can receive attorney’s fees under Rule 68 because the Supreme Court in Marek tied the award of Rule 68 fees to those costs that are “properly awardable under the substantive statute at issue,” and Section 505 only awards fees to prevailing parties. The Seventh Circuit thus reads Section 505 as a limitation on Rule 68.
The Bryant court makes no reference to a request for attorney’s fees by the defendants. Presumably, the defendants made no such request, and there is nothing in the opinion suggesting how the court might have ruled had they done so. I believe the Eleventh Circuit view is the better one. Marek v. Chesney instructs us to look to the underlying statute to determine whether it defines costs as including fees, not the circumstances under which fees are to be awarded: “where the underlying statute defines ‘costs’ to include attorney’s fees, we are satisfied such fees are to be included as costs for purposes of Rule 68.” Moreover, the Eleventh Circuit approach is consistent with the policy, emphasized by the Supreme Court in Marek, in favor of encouraging settlement of disputes. It will be interesting to see how case law develops in this area.
Wondering whether your contemplated use of copyrighted material is a fair use? Perplexed by the thicket of seemingly contradictory opinions on the four statutory fair use factors? Eager to learn more about transformative uses? Join me on July 12, 2010 for an informative presentation on fair use as part of PLI’s program Understanding Copyright Law 2010.