Statutory damage awards are controversial in copyright law. To some, statutory damages are indispensable to enable the pursuit of meritorious copyright infringement claims that otherwise are too costly to pursue. Others are convinced that the availability of statutory damages tempts plaintiffs into asserting dubious infringement claims in order to obtain generous settlement concessions from risk averse defendants. In light of these contrasting viewpoints, we face the important policy question whether statutory damages should be redesigned for the digital age or, to the contrary, be retained in their current form, given the difficulties of enforcing copyrights online.
This Article conducts a comprehensive empirical study of copyright statutory damages. An extensive examination of docket entries and case law reveals a widespread practice of overclaiming of remedies in copyright litigation. Although 80 percent of plaintiffs in all disputes claim that they suffered conduct that constitutes willful infringement, courts find willful infringement in just 2 percent of cases where plaintiffs obtain a favorable verdict.
The findings suggest that remedy overclaiming in copyright serves strategic purposes. For instance, by highlighting the outer range of enhanced statutory awards in complaints, plaintiffs leverage the risk aversion of defendants to induce generous settlement concessions. In order to curb opportunistic uses of the statutory damages, I provide policy suggestions that would make remedy overclaiming more costly to plaintiffs and less threatening to defendants.Depoorter argues
In 2008, several major record labels sued a handful of individuals for distributing music on peer-to-peer (P2P) networks. In the ensuing litigation, one file-sharer was ordered to pay $222,000 in statutory damages for sharing twenty-four songs online. In another case, a jury imposed $675,000 in statutory damages for the sharing of thirty songs. A veritable copyright enforcement industry emerged. Targeting hundreds or even thousands of copyright defendants, so-called copyright trolls have obtained quick settlements against users of P2P software.
These lawsuits are enabled by U.S. copyright law’s statutory damages regime. The Copyright Act does not require that a copyright holder provide evidence of harm from infringement in order to recover damages. Once infringement has been established, a copyright holder can elect to receive a statutory damage award.
Conventional wisdom holds that the system of statutory damages is indispensable to protect the interests of copyright holders. By eliminating the burden to prove harm, statutory damages enable the pursuit of meritorious infringement claims that otherwise would be out of reach for cash-strapped plaintiffs. Independent photographers and designers, for instance, rely on the litigation-cost-reducing effect of statutory damages in order to obtain recourse against online infringements of their works by large corporations.
Additionally, by increasing the potential incentives for enforcement of copyright law,statutory awards help sustain the deterrent effect of copyright law. In recent years, however, this traditional perspective on statutory damages has been challenged by a much bleaker outlook. There is a growing understanding that statutory damage awards, as written into the Copyright Act in 1976, are a poor fit for the digital age. Because a statutory damage award is set for each individual infringed work,the total damages can add up significantly for online infringements that involve multiple works. For instance, even at the statutory minimum of $750 for each file, a user of a file-sharing network faces potential statutory damages of $360,000 when sharing forty songs. At the other end of the statutorily provided range, a plaintiff can claim enhanced damages of up to $150,000 against someone who, for example, watched an illegal live stream. Finally, due to the sheer amount of infringed works, digital intermediaries and online platforms face claims for astronomically high statutory damage awards. In one case involving secondary liability for operating a file-sharing network, the plaintiff demanded a statutory damages award of $75 trillion. Similarly, Google’s Book Search project exposed Google to potential liability of at least $4.5 billion. Critics observe that the availability of statutory damages tempts plaintiffs into asserting dubious infringement claims.
These two contrasting viewpoints raise an important question: To what extent are statutory damages applied opportunistically by rent-seeking plaintiffs as opposed to providing cash-strapped copyright holders an avenue to pursue meritorious infringement claims? This controversy goes to the core of copyright enforcement in the digital age: Since 2008, copyright holders face massive amounts of copyright infringements online and have reacted by aggressively enforcing their rights. In response, copyright holders turned to automated enforcement tactics that spit out takedown notices on a massive scale. Statutory damages play a crucial role in this issue. In copyright law, remedies dictate what claims actually get filed and litigated, and how those claims are evaluated by defendants. The familiar ideal is that the remedy should “fit the wrong,” but if the opportunistic narrative on statutory damages is correct, in copyright law the remedies actually create the wrong. As a matter of public policy, we face the important question of whether statutory damages should be redesigned for the digital age or, to the contrary, be retained in their current form, given the difficulties of enforcing copyrights online.
Despite the controversy, systematic and comprehensive information on the use of statutory damage awards by litigants is absent, leaving us with many unanswered questions. We have little to no information on when and how copyright holders turn to statutory damages when challenging copyright infringers. To what extent do plaintiffs use statutory damages in an opportunistic manner? Or do statutory damages mostly serve the beneficial function of increasing access to justice for cash-strapped copyright holders? We also lack comprehensive information on the role of courts in mediating statutory damage claims by plaintiffs. Courts may enhance statutory awards when they deem the defendant’s infringement willful, but what definition or definitions of “willfulness” do courts employ when assigning enhanced statutory awards? Is it possible to distill a reliable set of factors from the pertinent case law? Answers to these questions are essential if the U.S. Congress is to effectively reform and adapt the Copyright Act to the digital age.
This Article examines the role of statutory damages in the copyright arena on the basis of an in-depth empirical analysis of docket records and case law. I conduct a docket study using a publicly available database containing docket entries, complaints, and pertinent documents from approximately one thousand copyright disputes, providing valuable new insights on the types of claims, plaintiffs, and defendants involved in statutory damage litigation. Also, I systematically analyze all judicial decisions on copyright statutory damages by courts over a three-year period. The findings reveal that statutory damages claims are commonplace in virtually all areas of copyright law. Plaintiffs in copyright litigation request statutory damages in 90 percent of pleadings. Instead of seeking compensation forthe actual harm suffered from infringement, a large majority of plaintiffs turn to juries to set a statutory award. Not only that, copyright holders, even in industries that enjoy only weak copyright protection, almost universally claim that they are entitled to enhanced statutory damages due to willful infringement. However, courts rarely grant enhanced damages. Plaintiffs sought enhanced damages for willful infringement in 81 percent of all copyright disputes in the examined period, yet courts awarded enhanced damages in less than 2 percent of all cases that moved to verdict. The striking gap between the demand and supply of statutory damages, as well as several additional factors relating to nature of claims and subject-matter areas, undermine the credibility of the nearly ubiquitous claims of willful infringement by plaintiffs.
These findings suggest that remedy overclaiming in copyright serves strategic purposes. For instance, by highlighting the outer range of enhanced statutory awards in complaints, plaintiffs leverage the risk aversion of defendants to induce generous settlement concessions. First, claims of willful infringement might be deployed by plaintiffs as a “bait-and-switch” tactic: By accusing the defendant of willful infringement, a plaintiff may appear more reasonable to the court and jury when subsequently requesting the application of damage awards in the regular statutory range and may hope to obtain a higher award overall. Second, by highlighting the potential application of enhanced damages for willful infringement, plaintiffs are able to intimidate risk-averse defendants into generous settlements. In doing so, plaintiffs are able to leverage the risk aversion of many defendants, especially individual defendants and small businesses. Plaintiffs might anticipate that accused infringers will prefer to avoid the uncertain outcome in the relief stage and thus settle the dispute out of court. The alternative for these defendants—incurring steep litigation costs to bring a successful defense—is dire. Infringement claims that are strong on the merits but include doubtful damage claims are especially vexing to accused infringers. Although the risk of a steep damage award might be minimal, the plaintiff is likely to win the case on the substantive merits. Because the Copyright Act enables a winning party to recoup his or her litigation costs byway of fee-shifting, the defendant also faces the unpleasant prospect of incurring considerable legal expenses. The anxiety of risk-averse defendants is further amplified by various features of copyright law, including the considerable discretion of juries in setting awards along the statutory range and the uncertainty about litigation outcomes.
I provide several recommendations that would curtail opportunistic applications of enhanced statutory damages. First, Section 505 of the Copyright Act could be revised so that courts are able to take away from prevailing plaintiffs the benefit of fee-shifting if they overstated the damage claim. Second, courts should be enabled to award attorney fees against a prevailing plaintiff who engaged in egregious overclaiming of the damage entitlement. Both approaches would make the abuse of the statutory damage framework costlier and induce more realistic claims for relief by copyright plaintiffs. Third, an alternative tactic could reduce the overall risk of abusive damage claims to defendants. This could be accomplished through various measures, including the formulation of judicial guidelines, reducing the scope of enhanced damages, and making statutory damages unavailable when evidence of the inflicted harm is readily available. By reducing uncertainty about the actual application of statutory awards in courts,these measures, or a combination thereof,would curb the more opportunistic and abusive practices, while retaining statutory damages as a crutch for cash-strapped plaintiffs with meritorious claims.
This Article proceeds as follows. Part I describes the statutory damages framework under federal copyright law. Part II describes the background, motivation, and unintended consequences of statutory damages in copyright law. Parts III and IV describe the empirical studies and present their main findings. More specifically, Part III explores docket and court records, while Part IV looks behind the docket entries to examine the precedents set out in the case law. Together, both studies help to evaluate the credibility of damage claims by plaintiff against the considerations and practices adopted by courts. Part V provides policy recommendations.