Statutory damages in copyright cases

Many copyright owners and litigants, and even quite a few of their lawyers, fail to comprehend how statutory damages are actually to be assessed under the Copyright Act.   Sadly, some judges misunderstand this as well.

As discussed in detail below, statutory damages are, contrary to popular belief, not intended to be a windfall for the lucky holder of an infringed copyright. Rather, they are meant to effect just compensation that bears a reasonable relationship to actual damages that may be difficult or impossible to prove, albeit with an added consideration — added, but not disproportionately dominant — of the need to deter future infringement.

In determining the measure of statutory damages to be awarded, courts consider the following factors:

[E]xpenses saved and profits gained by the defendants in connection with the infringements; revenues lost by plaintiffs as a result of defendants’ conduct; and the infringer’s state of mind, that is, whether willful, knowing, or merely innocent. Moreover, the court should consider the purposes of the Copyright Act, including restitution to prevent unjust enrichment, reparation of injury, and deterrence of further wrongful conduct by the defendants and others.

Walt Disney v. Video, 47, 972 F. Supp. 595, 603 (S.D. Fla. 1996) (citations omitted).   “‘Willful’ refers to conduct that occurs with knowledge that the defendant’s conduct constitutes copyright infringement.’ . . . The determination of willfulness is a question of fact reserved for the jury.” Id. Thus any plaintiff seeking statutory damages will have to proceed to a jury trial, if either side demands a jury, on their claims.

This is not the formula for a blitzkrieg-like achievement of an easy liability judgment and the maximum grant of statutory damages such plaintiffs often envision.Nor does a finding of willfulness mean that a plaintiff is entitled to the maximum statutory damage award – far from it.   Many plaintiffs, believing they needed only “show up and collect” their statutory damages, have been taught a harsh lesson when refusing to submit economic evidence as a factor on which the court could base an award:

In exercising its discretion, the court may consider several factors including the expenses saved and profits reaped by infringer, revenues lost by copyright holder as a result of infringement, and infringer’s state of mind, whether willful, knowing or innocent. . .

Although Plaintiff has suggested in its motion that the “Defendants saved substantial license revenue expenses and reaped enormous profits,” Plaintiff has offered no evidence of the expenses saved by Defendants for licensing fees, etc.  Plaintiff has simply asked this Court for an arbitrary amount of $50,000 per infringement based upon the finding of willful conduct.

The fact that the Defendants acted willfully and knowingly has been established by the evidence presented by Plaintiff.  Defendant Ketchum has pled guilty to criminal charges in North Carolina of knowingly and intentionally disseminating counterfeit cartridges. Defendant Brinson, owner of Superior Video, has admitted his knowledge that Ketchum and Isom were selling and distributing counterfeit cartridges from his store. Thus the existence of culpable conduct is clear.

Taking all of these factors into consideration, along with the purposes of the Copyright Act, this Court finds that the copyright holders are entitled to statutory damages in the amount of $2,000 for each of the twelve infringements, under 17 U.S.C. § 504(c)(2), for a total of $ 24,000.

Nintendo of Am. v. Ketchum, 830 F. Supp. 1443, 1445 (M.D. Fla. 1993) (emphasis added; citations omitted).  See also, Morley Music Co. v. Cafe Continental, Inc., 777 F. Supp. 1579, 1583 (S.D. Fla. 1991) (upon finding of willfulness and repeated infringement of seven works and defendants’ avoidance of “$ 2,582.91 in license fees, the court finds that statutory damages in the amount of $ 1,500 per infringement appropriate”).

A similar treatment of the matter can be seen in a case from the Southern District of New York, even in the face of a defendant’s default.The case involved pirated pay-per-view broadcasts, but the court was unwilling to bring down the wrath of heaven in the form of statutory damages when considering the reality of the economic picture at bar:

Some courts … have concluded that a defendant’s default itself could be viewed as evidence of willfulness [or make similar inferences based on profit motive to infringe]. . . .

[But] the plaintiff has failed to offer credible evidence that an enhanced damages award in the exorbitant amount of $100,000, or something in that range, is necessary to accomplish the goals of the statute, i.e., the use of enhanced damages to alter the economic expectations of prospective violators. Regardless, even in the case of a default judgment, a plaintiff must do more than gesture at an inference to support its request for enhanced damages.Garden City Boxing Club, Inc. v. Ayisah, No. 02-CV-6673, 2004 U.S. Dist. LEXIS 7867, at *5 (S.D.N.Y. April 28, 2004) (“plaintiff must… substantiate a claim  with evidence to prove the extent of damages”).

In addition, the value of deterrence must be balanced against the inequity of imposing heavy financial burdens on small businesses. The sting of an enhanced award should not be greater than deterrence requires and fairness allows. Thus, I award Joe Hand an additional $1,500 in enhanced damages from each defendant. This enhancement is not so large that it will spell financial ruin for the small businesses involved, especially if, as I suggest, Joe Hand allows installment payments over the course of a year or more, but it is large enough to raise the dollar amount of the penalty above the cost of obtaining a commercial license, and, for businesses of this size, should be a sufficient deterrent to avoid future violations.

Joe Hand Promotions, Inc. v. Hernandez, 2004 U.S. Dist. LEXIS 12159 (S.D.N.Y. June 30, 2004) (some citations omitted; emphasis added).  In so ruling the court cited Doehrer v. Caldwell, 1980 U.S. Dist. LEXIS 10713 (N.D. Ill. 1980), which taught as follows:

A mechanical application of the statutory damage provision of the Copyright Act leads to absurd results. While Section 504′s compensatory purpose should not be minimized, its deterrent provisions should not be converted into a windfall where, as a practical matter, the plaintiff has suffered only nominal damages. It is clear from the legislative history of the Copyright Revision Act of 1976 that Section 504 was designed, in part, “to provide the courts with reasonable latitude to adjust recovery to the circumstances of the case, thus avoiding some of the artificial or overly technical awards resulting from the language of the existing statute.” S. Rep. No. 94-473, 94th Cong., 2d Sess., reprinted in CCH Copyright Revision Act of 1976 P2042. . . .

Statutory damages are not to be regarded as penalties. The purpose of statutory damages is to permit a wronged plaintiff to recover where there is insufficient proof of actual damages or profits.Moreover, substantial damages should only be awarded for substantial injury.

Many  plaintiffs are under the mistaken impression that they need not prove they have been injured at all in order to reap a significant statutory damages award.    It would almost appear as if they consider the use of copyright litigation as a method of competition, or a profit center, as opposed to a means of redressing a tortious infringement of their legal rights. This surely is not the purpose of the Copyright Act nor of the statutory damages provisions within it.