Wednesday, February 21, 2007

Big Tobacco and Copyright

What might Big Tobacco and copyright have in common? A decision by the Supreme Court on Tuesday, Philip Morris USA v. Estate of Williams, may prove the relationship to be this: where statutory damages are sought for willful infringement and deterrence is one of the purposes for the award, the deterrence better be for the acts of the specific defendant for the conduct in the specific suit, and not a desire to deter others not before the court. In other words, the Philip Morris decision may be the death knell for an approach taken in the first, somewhat infamous suit brought by Universal Music Group against Mp3.com.

In UMG Recordings, Inc. v. MP3. com, Inc., 56 USPQ2d 1376 (S.D.N.Y. 2000), the court adopted a theory of general deterrence:


[W]hile the difficult issue of general deterrence must always be approached with caution, there is no doubt in the Court’s mind that the potential for huge profits in the rapidly expanding world of the Internet is the lure that tempted an otherwise generally responsible company like MP3.com to break the law and that will also tempt others to do so if too low a level is set for the statutory damages in this case. Some of the evidence in this case strongly suggests that some companies operating in the area of the Internet may have a misconception that, because their technology is somewhat novel, they are somehow immune from the ordinary application of the laws of the United States, including copyright law. They need to understand that the law’s domain knows no such limits.


Relying in part on this belief (one made without any admissible or tested evidence concerning the “some companies operating in the area of Internet”), the court awarded $25,000 per CD in statutory damages. (I was involved in the case at a later stage on defendant's behalf). There are numerous serious flaws with this approach, beginning with the fact that in awarding $25,000 per CD, the court did not know how many works had been infringed (or which ones plaintiff owned rights in):

If defendant is right that there are no more than 4,700 CDs for which plaintiffs qualify for statutory damages, the total award will be approximately $118,000,000; but, of course, it could be considerably more or less depending on the number of qualifying CDs determined at the final phase of the trial scheduled for November of this year.

One hundred eighteen million dollars was hardly necessary as a deterrent for a defendant who had not made a penny in profits off its use, and where plaintiff had conceded it could not prove any actual damages (defendant’s service was designed to stream to individual’s CDs they verified they already owned). The court’s acknowledgment that the ultimate amount “could be more or less” than $118 million demonstrates that the $25,000 per CD figure was not directly tied to any real sense of deterrent effect: if defendant proved that plaintiff owned only one work, would that amount ($25,000) have been sufficient for the deterrence goal the court embraced? Would it be an equally effective deterrent at $118 million? The court did not know, and thus its award of $25,000 per CD was without any supportable basis.

Enter Big Tobacco, seeking to overturn a punitive damage award by a jury on behalf of the estate of a heavy smoker. The issue, as framed by Justice Breyer's majority opinion, was "whether the Constitution's Due Process Clause permits a jury to base [an] award in part upon its desire to punish the defendant for harming persons who are not before the court (e.g. victims whom the parties do not represent). We hold that such an award would amount to a taking of 'property' from the defendant without due process."

That sounds to me like what happened in the Mp3.com case. Indeed, in MP3.com, the court went further by punishing Mp3.com for the perceived acts other potential defendants, and not as in Philip Morris to punish defendant for conduct harming other potential plaintiffs.

6 comments:

Anonymous said...

"whether the Constitution's Due Process Clause permits a jury to base [an] award in part upon its desire to punish the defendant for harming persons who are not before the court (e.g. victims whom the parties do not represent). We hold that such an award would amount to a taking of 'property' from the defendant without due process."

It is characteristic of this great blog to have you make connections to copyright law from sources less obvious to the rest of us. It may be a quality born of obsession but we are the happy beneficiaries. The impact here of Phillip Morris could be very substantial. It is customary for copyright aggregators such as large music companies to bring cases on a sample of specific infringements but to argue their harm on the basis of the totality of their holdings. For example, in Grokster, the combined copyright owner plaintiffs reveled in the hundreds of thousands of copyrights they alleged to control and the billions of resulting infringements from which they sought redress. Every ASCAP case is brought using sample infringements with the expectation that the court will extrapolate the harm caused by the defendant and the loss suffered by ASCAP’s entire repertoire. The same can be said for the RIAA sponsored cases against consumers using P2P services. Of course, the work-around would be to allege infringement of each of the hundreds of thousands (and to actually register and perform chain of title review for each and every copyright in issue). Other than feeding the coffers of the Copyright Office with registration fees and lining the pockets of legal assistants and law students, what’s the point? Why can’t a court reach a result that deters infringements, obvious infringements, of works not technically before the court but in circumstance identically situated to the actual infringements before it? Due process as an abstract is offended, I suppose, if you view as “property” the profits from infringements of works not directly before the court. The damage provisions of the Copyright law do not support extrapolated awards covering other copyrighted works; at least not directly. But what would happen if Congress specifically did permit a court to look beyond the specific copyrights before the court? Would there be a due process bar to an award designed to compensate for works not before the court alleged to be controlled by the plaintiff and infringed by the defendant’s conduct? If so, someone better tell that unanimous Supreme Court in Grokster that their inducement theory reaches non-specific copyrighted works - - the whole point of the inducement cause of action, in fact and in application, is to reach infringements not yet in being of works obviously incapable of identification and specification. But if the court in an inducement case awards $150,000 per work alleged to have been infringed as a way to deter by punishment the infringement of other works isn’t the court doing exactly what was expected of it? Presumably the same court would issue a permanent injunction in some form relating to any further inducements. Is that injunction also a due process problem?

Anonymous said...

I love your blog, but don't see a connection between the Phillip Morris case and the MP3.com case (at least as it is described in the post).

"General deterrence" as a justification for punishment seeks to impose a penalty severe enough that it will dissuade third parties similarly situated to the defendant from engaging in like conduct in the future. Based on your description, this was the court's justification (right or wrong) for the statutory damages award in the MP3.com case.

The issue in the Phillip Morris case was whether a jury may impose a penalty based on harm that the defendant already did to individuals not before the court.

These are two different theories of punishment: While general deterrence seeks to avoid future harm, the jury award in Phillip Morris was based on past harm.

Am I missing something?

Max said...

Anonymous, even though I am not a lawyer, lemme take a stab at your question.

The Supreme Court just ruled that it is unfair (under the legal definition of fair) for a court to fine a person or company extra because of damage already done to people who did not join that lawsuit. Those other people haven't had their day in court, and the details around their case haven't been discussed. And the person/company being fined hasn't had a chance to address that.

And if it's not legally fair to fine someone extra because of damages *that have occurred*, it seems pretty clear that it's also unfair to fine someone extra because of damage *someone else might do in the future to other people who haven't been on court (and may not have suffered anything yet).*

William Patry said...

Thanks Anonymous 2 for your very careful reading of the issues. My comments were an attempt to see whether the Court's general language striking down an award based "in part upon its desire to punish the defendant for harming persons who are not before the court (e.g. victims whom the parties do not represent)," could be applied to what you rightly point out was a different situation in MP3.com.

In Mp3.com there was an effort to punish defedant for infringing generally - the court's $25,000 figure, awarded without regard to how many works were infringed I think shows a desire to pick a big number divorced from evern UMG itself, but my other point - the one I think you question - is whether the Philip Morris case can be adapted to a larger theory that there has to be a correlation in the award between the parties before the court. I think Philips say yes. The same award in Philips would likely have been upheld if it was for Philips' conduct for the individual plaintiff. So I was using that to say, well, in MP3.com, the correlation was even more attenuated because the court was punishing Mp3.com for acts of other defendants.

Richard Altman said...

I am representing several defendants in RIAA downloading/filesharing cases, and have asserted as an affirmative defense that the section 504(c) provision for statutory damages of $750 in these cases is unconstitutional, because it is known that the actual cost to the record companies to license songs is about 70 cents. Thus the argument is that the gross disparity amounts to a punishment and thus violates due process.

The Supreme Court's punitive damages case are relevant to this, but at this point there is only a little authority to support the position I have taken (a law review article, and a decision by a district judge permitting an answer to be amended to include the defense).
In the meantime, two district courts have notified the Attorney General of the claims of unconstitutionality, pursuant to 28 USC 2403(a).
If this issue gets anywhere, it could be the death knell of these cases, which in my view are abuses of the judicial system.

iplawyer@earthlink.net

Anonymous said...

Thanks for the interesting comments. The Supreme Court's growing body of law on punitive damages, and its morphing into a SUBSTANTIVE due process issue, has had the attention of copyright litigants for a few years now. Several published cases have suggested that there is no similar limit on statutory damages, other than as set forth in the statute, and the issue was addressed head-on in Lowry's Reports, Inc. v. Legg Mason, Inc., 302 F.Supp.2d 455 (D. Md. 2003). That court held that the punitive damages limitations do NOT apply to "Congress' carefully calibrated and reasonably constrained statute" setting the ranges of statutory damages. I.e., the statute itself provides notice and specific limitations (among other things) that satisfy the alleged infringer's right to due process.

The issue was briefed extensively in the appeal of that case, which included a significantly extended (2-hour) oral argument before the 4th Circuit. The case subsequently was dismissed as a result of settlement, so there was no circuit opinion.

In practice, alleged infringers increasingly are pushing back on plaintiffs' calculations of presumptive 'minimum' or expected statutory damages. It will be interesting to see what subsequent courts do with this argument.
- Scott Bain