IP/Entertainment Law Weekly Case Update for Motion Picture Studios and Television Networks -- September 13, 2012

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Capitol Records Inc. v. Thomas-Rasset, USCA 8th Circuit, September 11, 2012
 Click here for a copy of the full decision.

  • Circuit court reinstates $222,000 statutory damages award against defendant, individual, for willful infringement related to her downloading and making available through peer-to-peer file-sharing service 24 copyrighted sound recordings of plaintiffs, holding that award did not violate due process standards and that plaintiff was entitled to broader injunction.

A unanimous three-judge panel of the 8th Circuit Court of Appeals reinstated a $222,000 jury verdict against defendant Jammie Thomas-Rasset, the first of the successive three jury verdicts awarding statutory damages to plaintiffs, record companies, for defendant’s willful copyright infringement related to her downloading and making available for sharing 24 copyrighted songs through music-sharing site Kazaa. After the first trial, the district court vacated the verdict and granted defendant’s motion for a new trial, finding erroneous jury instructions indicating that the Copyright Act forbids making sound recordings available for distribution on a peer-to-peer network, regardless of whether proof of “actual distribution” of the recordings exists. (Read our summary of the court’s decision here.) Specifically, the district court held in that first decision that simply making a work available to the public is not “distribution” under the Copyright Act.

After a second jury once again returned a verdict against defendant, finding that she had willfully infringed all 24 sound recordings, and awarded statutory damages in the amount of $80,000 per song, for a total verdict of nearly $1,920,000, the district court granted defendant’s motion for remittitur, finding that the jury’s statutory-damages award was shocking and unjust, and reducing the damages award to $2,250 per song—three times the minimum for statutory damages under the Copyright Act—for a total of $54,000. The court also granted plaintiffs’ request to amend the judgment by adding a permanent injunction. (Read our summary of the court’s decision here.) As was their right, plaintiffs opted for a new trial rather than accept the remittitur. At trial on statutory damages only, the third jury awarded damages of $62,500 per work, for a total of $1.5 million, but the district court ruled that the maximum amount permitted by the Due Process Clause of the Fifth Amendment was $2,250 per work, or $54,000 total, and reduced the verdict accordingly. The court also enjoined Thomas-Rasset from taking certain actions with respect to copyrighted recordings owned by the recording companies, but refused to include language prohibiting her from “making available” copyrighted works for distribution to the public. (Read our summary of the court’s decision here.)

Plaintiffs appealed, objecting to the district court’s ruling on damages and seeking an award of $222,000, the amount awarded by the jury in the first trial. They also sought a broader injunction barring defendant from making any of the recordings available to the public. Specifically, the plaintiffs argued that the court should reverse the district court’s order granting a new trial after the first trial, rule that the Copyright Act does protect a right to “making available” sound recordings, reinstate the first jury’s award of $222,000, and direct entry of a broader injunction. Defendant also appealed, arguing that any award of statutory damages is unconstitutional and that the court should vacate the award of damages altogether.

The 8th Circuit agreed with the plaintiffs that they were entitled to statutory damages of $9,250 for each of the 24 recordings, for total damages of $222,000, for defendant’s willful infringement in downloading the 24 copyrighted works, finding that these damages are constitutional and that the district court erred in holding that the Due Process Clause allowed statutory damages of only $54,000.

Noting that the Supreme Court had long ago declared in St. Louis, I.M. & S. Ry. Co. v. Williams that “damages awarded pursuant to a statute violate due process only if they are ‘so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable,’” and that Congress has “wide latitude of discretion” to set statutory damages, the 8th Circuit concluded that the award of $9,250 per work for each of 24 works were not so severe and oppressive, or unreasonable. Congress, exercising its “wide latitude of discretion,” set a statutory damages range for willful copyright infringement of $750 to $150,000 per infringed work, and the award of $9,250 falls toward the lower end of this broad range. In addition, the court, quoting Williams, found that “the interests of the public, the numberless opportunities for committing the offense, and the need for securing uniform adherence to [federal law]” support the constitutionality of the award.

The court noted that the rapid advancement of technology had resulted in copyright infringement through online file sharing becoming a serious problem in the recording industry, adversely impacting revenues as well as jobs and the number of artists represented and the number of albums released. Addressing the assertion made by defendant and adopted by the district court, that statutory damages at that level were severe and oppressive because defendant was a non-commercial infringer who downloaded the copyrighted works for her own use, the 8th Circuit reasoned: “By its terms, the statute plainly encompasses infringers who act without a profit motive, and the statute already provides for a broad range of damages that allows courts and juries to calibrate the award based on the nature of the violation. For those who favor resort to legislative history, the record also suggests that Congress was well aware of the threat of noncommercial copyright infringement when it established the lower end of the range.”

The court rejected defendant’s argument on appeal that any statutory damages award would be unconstitutional in this case, because even the minimum damages award of $750 per violation would be “wholly disproportioned to the offense,” because the damages award was not based on any evidence of harm caused by defendant’s specific infringements, but rather on the harm file sharing in general caused. In vacating the damages award, the district court had likewise concluded that the statutory damages award must bear some resemblance to the actual damages. Noting that the Supreme Court in Williams had expressly disagreed that the constitutional inquiry required a comparison of an award of statutory damages to actual damages caused by the violation, the appeals court reasoned that, because statutory damages under the Copyright Act are imposed as a punishment for the violation of a public law, and a vindication of public interest, Congress may set the amount of damages to the public wrong rather than the private injury, just as if it were going to the state. Statutory damages “by definition” substitute for “unproven or unprovable actual damages,” and are specifically designed to discourage the wrongful conduct prohibited by the statute, as well as to provide “restitution of profit and reparation for injury.”

The appeals court also agreed that the district court could have—and should have—issued the broader injunction after the third trial, enjoining defendant from making the copyrighted sound recordings available for distribution, regardless of whether that conduct by itself violated the Copyright Act. The court declined to decide whether defendant violated the law by making the copyrighted recordings available, on the grounds that the issue was moot.

 

AF Holdings, LLC v. Doe and Hatfield, USDC N.D. California, September 4, 2012
 Click here for a copy of the full decision.

  • District Court dismisses claim alleging negligence against owner of an unsecured Internet connection that was used to commit copyright infringement by a “John Doe” defendant, holding that plaintiff copyright owner could not articulate a special duty defendant owed it and that the Copyright Act preempted the negligence claim.

Plaintiff AF Holdings, Inc., the owner of a copyrighted adult entertainment video, brought suit against John Doe, an unknown individual, for unlawfully downloading and copying the video using BitTorrent technology, and defendant Josh Hatfield, for allegedly failing to secure his residential Internet connection and thereby allowing the downloading to take place. The sole claim against Hatfield was for negligence, not copyright infringement. Hatfield brought motion to dismiss, arguing that AF Holdings failed to state a claim negligence and that, even if it did, the Copyright Act would preempt such a claim. The court granted the motion on both grounds.

The court first found that AF Holdings failed to state a negligence claim because it alleged that Hatfield committed an act of omission - failing to secure his Internet connection. Under California tort law, however, a person’s failure to act can support a negligence claim only where the defendant owes a special duty to the plaintiff. The court held that AF Holdings failed to articulate any basis for the imposition on Hatfield - who apparently maintains an unsecured Internet connection at his residence - of any legal duty to prevent the infringement of copyrighted works.

In the alternative, the court also found the Copyright Act preempted the negligence claim. Applying the traditional two-part test for preemption, the court concluded that the adult entertainment video undisputedly comes within the subject matter of copyright law, that the “extra elements” in the negligence claim, duty and breach of duty, were not viable, and that plaintiff was simply seeking to protect its exclusive rights from copying and sharing.


For more information, please contact Jonathan Zavin at jzavin@loeb.com or at 212.407.4161.

Westlaw decisions are reprinted with permission of Thomson/West. If you wish to check the currency of these cases, you may do so using KeyCite on Westlaw by visiting http://www.westlaw.com/.

Circular 230 Disclosure: To assure compliance with Treasury Department rules governing tax practice, we inform you that any advice (including in any attachment) (1) was not written and is not intended to be used, and cannot be used, for the purpose of avoiding any federal tax penalty that may be imposed on the taxpayer, and (2) may not be used in connection with promoting, marketing or recommending to another person any transaction or matter addressed herein.

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