Eldred Conquers Golan’s Heights
Supreme Court Upholds Copyright Restoration

Last week, the Supreme Court issued its eagerly awaited ruling in Golan v. Holder, holding that Congress acted within its authority in passing legislation that restored copyright in certain foreign works that were previously in the public domain in the United States.  The Court found that its earlier opinion in Eldred v. Ashcroft largely disposed of the petitioners’ claims.  Though reactions to the case seemed muted in contrast to the raging debate over SOPA – which initially overshadowed news of the opinion – it is an important opinion with significant ramifications for those who use content in the public domain. Continue reading »

Statutory Damages Smackdown!
First Circuit Set to Hear Constitutional Challenge to Filesharing Award

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.

The appeal

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.

Sony’s Opening Brief
United States’ Opening Brief
Tenenbaum’s Opening Brief
Sony’s reply brief
United States’ reply brief

Golan’s Heights
Supremes to Hear Constitutional Challenge to Copyright Restoration

On March 7, the Supreme Court granted cert. in Golan v. Holder, taking up the question whether Congress violated the First Amendment when it granted copyright protection to certain foreign works that were previously in the public domain in the United States. The case stems from Section 514 of the Uruguay Round Agreements Act (“URAA”), enacted in 1994 and codified as Sections 104A and 109 of the Copyright Act. Congress passed these provisions to bring the United States into compliance with preexisting international treaty obligations under the Berne Convention, which the United States joined in 1989.

Among other things, the Berne Convention requires its adherents to provide foreign authors with the same degree of copyright protection that they accord to their own nationals. Article 18 of the Berne Conventionrequires joining members to provide copyright protection to foreign works even if those works were previously in the public domain in the joining country. The United States, however, never passed legislation implementing this aspect of Berne.

In 1994, in connection with the Uruguay Round General Agreement on Tariffs and Trade, the United States signed the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs). TRIPs required its signatories to comply with Article 18 of the Berne Convention. Accordingly, the United States enacted Section 514 of the URAA, restoring copyrights in foreign works that had entered the public domain in the United States for any one of three reasons: a failure to comply with formalities (such as placing a copyright notice on published copies of a work); lack of subject matter protection; or lack of national eligibility. Section 514 did not restore copyrights in works whose copyright term had expired.

Clawing these works back from the public domain raised an obvious problem for members of the public who, relying on the fact that the subject works had entered the public domain, were making various uses of those works. One of the Golan plaintiffs, for example, created a derivative work sound recording based on several compositions by Shostakovich which had previously fallen into the public domain in the United States. To address this problem, Section 514 implemented certain protections for “reliance parties,” defined as parties who had exploited or created derivative works based on foreign public-domain works prior to restoration. Section 514 granted reliance parties who exploited foreign public-domain works a 12-month grace period, starting from receipt of notice of restoration from the copyright owner, to sell or otherwise dispose of copies of restored works. Furthermore, Section 514 authorized reliance parties who created derivative works based on restored works to continue exploiting those derivative works upon payment of “reasonable compensation” to the owner of the restored work (also upon receipt of notice of restoration).

The Golan plaintiffs – musicians, performers, educators and other creators – sued because they had exploited foreign works previously in the public domain and, after enactment of the URAA, were either prohibited from continuing to exploit those works or were required to pay cost-prohibitive licensing fees to the restored copyright holders. They argued that the removal of works from the public domain hampered their free speech rights and consequently violated the First Amendment of the Constitution. The District Court agreed and held the statute invalid.

On appeal, the Tenth Circuit reversed. As a threshold matter, the court addressed whether it should subject the statute to heightened scrutiny under the First Amendment. The court found no evidence that the government enacted the statute because of agreement or disagreement with a particular message. To the contrary, Congress passed the law to comply with international obligations and to protect the rights of American authors abroad. Thus, the court found the statute to be a content-neutral regulation subject to “intermediate scrutiny.” Under this test, courts uphold legislation if it (1) advances important governmental interests unrelated to the suppression of free speech and (2) does not burden substantially more speech than necessary to further those interests.

The Tenth Circuit found that the government had demonstrated a substantial interest in protecting American copyright holders’ interests abroad, because “[s]ecuring foreign copyrights for American works preserves the authors’ economic and expressive interests.” The United States’ failure to restore foreign copyrights following its adherence to Berne harmed those interests because other countries were following suit and refusing to restore copyright in American works. Though Section 514’s restoration of foreign copyrights does not guarantee that other countries will reciprocate, the Tenth Circuit reasoned that it owed Congress considerable deference in an area involving foreign relations, and concluded that substantial evidence supported Congress’s judgment.

The court also found that the “burdens imposed on the reliance parties are congruent with the benefits” of restoration. The “United States needed to impose the same burden on American reliance parties that it sought to impose on foreign reliance parties. . . . The burdens on speech are therefore directly focused to the harms that the government sought to alleviate.” As a result, Section 514 was narrowly tailored to achieve its goals. The court rejected the plaintiffs’ argument that Congress could have employed less restrictive means consistent with Berne’s requirements. Though a statute must be “narrowly tailored to serve the government’s legitimate, content-neutral interest,” it “need not be the least restrictive” means of doing so. Thus, the availability of other options to protect reliance parties’ interests did not alter the statute’s viability.

A look back at Eldred v. Ashcroft suggests that the Supreme Court may disagree with the Tenth Circuit’s application of intermediate scrutiny to Section 514. In Eldred, the plaintiffs sought to invalidate the Copyright Term Extension Act (“CTEA”), which increased the term of copyright from 50 years after the author’s death to 70 years after the author’s death. The Eldred plaintiffs argued that the CTEA was a content-neutral regulation of speech subject to heightened judicial review. In her majority opinion, however, Justice Ginsburg rejected the “imposition of uncommonly strict scrutiny on a copyright scheme that incorporates its own speech-protective purposes and safeguards,” finding that “copyright law contains built-in First Amendment accommodations” such as the idea-expression dichotomy and the fair use doctrine. The Court went on to hold that the “First Amendment securely protects the freedom to make–or decline to make–one’s own speech; it bears less heavily when speakers assert the right to make other people’s speeches. To the extent such assertions raise First Amendment concerns, copyright’s built-in free speech safeguards are generally adequate to address them.” Of course, three of the Justices who joined in that majority opinion – Chief Justice Rehnquist, Justice O’Connor and Justice Souter – have since retired.

The Surpreme Court is expected to hear Golan in its next term, which begins in October, 2011. I will post briefs as they are filed. In the meantime, the parties’ Tenth Circuit briefs are posted below.

Opening Brief for the Appellants/Cross-Appellees

Opening and Response Brief for the Appellees/Cross-Appellants

Combined Reply and Responsive Brief for the Appellants/Cross-Appellees

Reply Brief for the Appellees/Cross-Appellants