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Statutory Damages in Copyright Law:
A Remedy in Need of Reform
by
Pamela Samuelson and Tara Wheatland
Abstract
U.S. copyright law gives successful plaintiffs who promptly registered their works the ability to elect to receive an award of statutory damages, which can be granted in any amount between $750 and $150,000 per infringed work. This provision gives scant guidance about where in that range awards should be made, other than to say that the award should be in amount the court “considers just,” and that the upper end of the spectrum, from $30,000 to $150,000 per infringed work, is reserved for awards against “willful” infringers. Courts have largely failed to develop a jurisprudence to guide decision-making about compensatory statutory damage awards in ordinary infringement cases or about strong deterrent or punitive damage awards in willful infringement cases. As a result, awards of statutory damages are frequently arbitrary, inconsistent, unprincipled, and sometimes grossly excessive.
This Article argues that such awards are not only inconsistent with Congressional intent in establishing the statutory damage regime, but also with principles of due process articulated in the Supreme Court’s jurisprudence on punitive damage awards. Drawing upon some cases in which statutory damage awards have been consistent with Congressional intent and with the due process jurisprudence, this Article articulates principles upon which a sound jurisprudence for copyright statutory damage awards could be built. Nevertheless, legislative reform of the U.S. statutory damage rules may be desirable.
Electronic copy available at:
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Statutory Damages in Copyright Law:A Remedy in Need of Reform
by
Pamela Samuelson and Tara Wheatland*
The United States is an outlier in the global copyright community in giving plaintiffs in copyright cases the ability to elect, at any time before final judgment, to receive an award of statutory damages, which can be granted in any amount between $750 and $150,000 per infringed work.1 U.S. copyright law provides scant guidance about where in that range awards should be made, other than to say that the award should be in amount the court “considers just,”2 and the upper end of the spectrum—from $30,000 to $150,000 per infringed work is reserved for “willful” infringers.3 Although Congress intended this designation to apply only in “exceptional cases,”4 courts have interpreted willfulness so broadly that those who merely should have known their conduct was infringing are often treated as willful infringers.5
One might have expected courts to develop a jurisprudence to guide them in accomplishing the compensatory goal that has historically underlain the statutory damage provision,6 or to formulate criteria for awarding enhanced damages in willful infringement cases. Unfortunately, this has not yet happened. Awards of statutory damages are frequently arbitrary, inconsistent, unprincipled, and sometimes grossly excessive.7
* Pamela Samuelson is the Richard M. Sherman Distinguished Professor of Law and Information at the University of California, Berkeley. Tara Wheatland is a Research Fellow for the Copyright Principles Project of the Berkeley Center for Law & Technology. We are grateful to David Marty for excellent research assistance.
1 17 U.S.C. § 504(c). Statutory damages can, however, be reduced as to “innocent” infringers, id.; however, in practice, they virtually never are. See infra Parts I-B, II-B. To qualify for awards of statutory damages, copyright owners must register their works within three months of publication. 17 U.S.C. § 412. See generally MELVILLE B. NIMMER & DAVID NIMMER, NIMMER ON COPYRIGHT, § 14.04[F][2] at 114-15 (2008). In a separate article, we show that few other countries have statutory damages regimes for copyright lawn, and the U.S. is unique in its approach to statutory damages. See Tara Wheatland, Copyright Statutory Damages: A Rarity in the International Arena, Draft of 4/6/09, manuscript on file with the authors.
2 17 U.S.C. § 504(c).
3 Id.
4 See S. Rep. No. 94-473, 94th Cong., 1st Sess. (1975) at 144-45 (enhanced damages should be available in “exceptional cases”); H. Rep. 94-1476, 94th Cong., 1st Sess. (1975) at 162 (same).
5 See, e.g., Island Software & Computer Serv., Inc. v. Microsoft Corp., 413 F.3d 257, 264 (2d Cir. 2005) (constructive knowledge suffices to show willfulness).
6 Part I-A discusses the historical role of statutory damages in compensating copyright owners for infringement when damages are difficult to prove.
7 Part II-C presents numerous examples of arbitrary, inconsistent, and excessive statutory damage awards.
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Electronic copy available at:
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Consider a few examples. In UMG Recordings, Inc. v. MP3.Com, Inc.,8 a court found that defendant had willfully infringed copyrights by developing a database of music “ripped” from CDs the firm had purchased, upon which the judge announced his intent to award statutory damages of $25,000 per infringed CD.9 Approximately 4,700 CDs were at issue in the case, for a potential total award of over $118 million—despite the absence of any evidence of actual harm to the plaintiffs or profits to the defendant.10 In another case, Elvin Feltner was first held liable as a willful infringer for his station’s unauthorized broadcast of television programs for which a court awarded the copyright owner statutory damages of $20,000 per work, for a total award of $8.8 million.11 On appeal, Feltner argued that he had a right to a jury trial on the issue of statutory damages, and the Supreme Court agreed with him.12 On remand, Feltner got his jury trial, but the jury handed down an even larger statutory damage award of $72,000 per work, for a total award of over $31 million.13 In a recent peer-to-peer (p2p) filesharing case, Capitol Records v. Thomas,14 a jury awarded $9,250 per song against an individual file-sharer, for a total award of over $220,000,15 despite the judge’s recognition that actual damages were approximately $50.16 Some jurors in the Thomas case wanted to award $750 per infringed song, while others argued for $150,000 per song; why they compromised on $9250 per song is a mystery.17
In today’s world where the average person in her day-to-day life interacts with many copyrighted works in a way that may implicate copyright law, the dangers posed by the lack of meaningful constraints on statutory damage awards are particularly acute.18
8 UMG Recordings, Inc. v. MP3.com, Inc., 2000 WL 1262568 (S.D.N.Y. 2000).
9 Id. at 1, 6.
10 MP3.com eventually reached a settlement agreement with UMG, and the court entered judgment in the amount of $53.4 million. See Amy Harmon, Deal Settles Suit Against MP3.com, N.Y. TIMES, Nov. 15, 2000, at C1. See also infra notes xx-xx and accompanying text for further discussion of the award in the MP3.com case.
11 Columbia Pictures Television, Inc. v. Krypton Broadcasting of Birmingham, Inc., 106 F.3d 284, 288 (9th Cir. 1997), rev’d, sub nom., Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998).
12 Feltner, 523 U.S. at 342-45.
13 Columbia Pictures Television, Inc. v. Krypton Broad., Inc., 259 F.3d 1186,1189 (9th Cir. 2001).
14 579 F. Supp. 2d 1210 (D. Minn. 2008).
15 Id. at 1213.
16 See id. at 1227 (noting that “Thomas allegedly infringed on the copyrights of 24 songs—the equivalent of approximately three CDs, costing less than $54”). The trial judge vacated the statutory damage award, in part of concern that Congress may not have intended this sort of result. See also J. Cam Barker, Note, Grossly Excessive Penalties in the Battle Against Illegal File-Sharing: The Troubling Effects of Aggregating Minimum Statutory Damages for Copyright Infringement, 83 TEXAS L. REV. 525 (2004).
17 David Kravetz, RIAA Juror: “We Wanted to Send a Message”,
http://blog.wired.com/27bstroke6/2007/10/riaa-juror-we-w.html, Oct. 19, 2007.
18 See, e.g., John Tehranian, Infringement Nation: Copyright Reform and the Law/Norm Gap, 2007 UTAH L. REV. 537, 543-48 (2007) (giving examples of ordinary acts of an ordinary person
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Even a defendant who presents a plausible fair use defense at trial may be subjected to large statutory damage awards.19 Statutory damage awards are particularly likely to be grossly excessive when compared with actual damages in cases of secondary liability, where the number of works infringed is likely to be large.20 In such cases, the potential chilling effect on individuals and technology providers alike is significant.21
In Part I, we review the historical purposes of statutory damages for copyright infringement and demonstrate that Congress intended for statutory damages to be mainly compensatory in nature. The tripartite structure that Congress established for statutory damage awards—very modest damages for the exceptional cases of innocent infringement, a rather broad range of damages for ordinary infringement, and enhanced levels of damages for the exceptional cases of willful infringement—has not been respected in the caselaw. The application of statutory damages has too often strayed from the compensatory impulse underlying statutory damages for the first two categories and has focused too heavily on deterrence and punishment, especially given that too many ordinary infringements are treated as willful infringements. In Part II, we explain that the Supreme Court’s jurisprudence on due process limits to punitive awards has implications for awards of statutory damages.22 We give examples of cases in which copyright statutory damage awards are sometimes consistent with due process principles, as well as cases in which such awards are inconsistent with those principles. In Part III, we show that it is possible, working within the current legal framework, to develop guidelines to ensure that statutory damage awards are properly tailored to achieving the remedy’s goals. Drawing upon cases in which statutory damage awards have been consistent with the Supreme Court’s due process jurisprudence, we articulate principles upon which a sound jurisprudence for copyright statutory damage awards could be built. We also consider whether legislative reform of U.S. statutory damage rules might be desirable.
I. The Evolution of Statutory Damages in U.S. Copyright Law
in an ordinary day that might, under some interpretations of copyright law, be deemed infringing, which could result in daily liability exposure of $12.45 million per day or $4.54 billion annually, even without engaging in any p2p file-sharing).
19 See, e.g., Los Angeles Times v. Free Republic, 2000 WL 1863566 (C.D. Cal. Nov. 16, 2000) ($1 million statutory damage award).
20 See, e.g., Stephanie Berg, Remedying the Statutory Damages Remedy for Secondary Copyright Infringement Liability: Balancing Copyright and Innovation in the Digital Age, 56 J. COPYRIGHT SOC’Y U.S.A. (forthcoming 2009).
21 Id. at [46-58].
22 See, e.g., BMW of North Am. v. Gore, 517 U.S. 559 (1996); State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408 (2003). We are not the only commentators to raise due process concerns about statutory damages in copyright cases. See, e.g., Barker, supra note xx, at 542-54 (expressing due process concerns about statutory damage awards in p2p file sharing cases); Blaine Evanson, Due Process in Statutory Damages, 3 Geo. J. L. & Pub. Pol. 601, 628-37 (2005)(arguing that the due process case law applies to statutory damage awards and giving copyright statutory damage examples).
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Statutory damages in U.S. copyright law began as a relatively modest back-up remedy to ensure that copyright owners could obtain at least some measure of compensation when it was difficult to prove how much damage they had suffered as a result of the defendants’ infringements.23 Although Congress made some effort to cabin statutory damage awards to avoid excessiveness in the Copyright Act of 1976, the presence of the enhanced damage provision as to willful infringements has led to an increasing number of awards that are not only punitive in effect, but punitive in intent. This trend is inconsistent with sound copyright policy and with Congress’ intent in adopting this provision.
A. Statutory Damages Under the 1909 Act
Although the Copyright Act of 1909 continued the long tradition of allowing plaintiffs in copyright cases to recover actual damages (e.g., lost license fees) and defendant’s profits attributable to infringement, 24 it also provided a new remedy for situations in which such damages and profits were difficult to prove by authorizing courts to award statutory damages “in lieu” of actual damages and the defendant’s profits.25
Section 101(b) directed the courts to make such awards in an amount that was “just,” but it also set a range within which statutory damage awards should be made: no less than $250 and up to $5,000 per infringement.26 To aid judges in determining the appropriate amount of compensatory statutory damages within this range, Section 101(b) suggested specific amounts for common types of infringements (e.g., $10 for every infringing copy of a painting, statue or sculpture, $1 per infringing copy of other works, $50 for every infringing performance of a lecture, sermon or address, $10 for every infringing performance of a musical composition, etc.).27 Newspapers and motion picture studios persuaded Congress to cap their potential liability for unwitting
23 There are a number of factors that may contribute to difficulties of proof in copyright cases. The plaintiff may not be operating in the market in which the defendant is exploiting her work; the defendant may not have kept good records about its sales; it may be too expensive to prove damages with particularity in relation to the amount that could be recovered. See generally Report of the Register of Copyrights on the General Revision of the U.S. Copyright Law to the House Judiciary Committee, 87th Cong., 1st Sess. (1961) at 102-03 (explaining some difficulties).
24 For a concise review of the damage provisions of U.S. copyright law prior to 1976, see William S. Strauss, Copyright Office Study No. 22, The Damage Provisions of the Copyright Law, Oct. 1956, 2 GEORGE S. GROSSMAN OMNIBUS COPYRIGHT REVISION LEGISLATIVE HISTORY (2001).
25 17 U.S.C. sec. 101(b) (superseded).
26 See, e.g., Berg, supra note 20, at [13-15](reporting on legislative discussions about statutory damages leading up to enactment of the 1909 Act). What constituted a single “infringement” for purposes of Section 101(b) was the subject of significant debate. Strauss, supra note 24 at 7. It was partly this difficulty and the potential for excessive awards on a “per infringement” basis that caused Congress to shift to a “per-work” model of awarding statutory damages under the 1976 Act. See infra Part I-B.
27 17 U.S.C. sec. 101(b)(superseded). These “yardsticks,” as they were often called, were intended merely as a guide and were not mandatory on the courts. See NIMMER, supra note 1, § 14.04[F][3] 14-117.
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infringements.28 Section 101(b) also explicitly stated that statutory damages “shall not be regarded as a penalty.”29
Cases interpreting this new provision articulated its purpose as granting fair compensation to copyright owners when “the rules of law render difficult or impossible proof of damages or discovery of profits.”30 (Under prior law, strict rules requiring precise proof of damages and profits had sometimes resulted in under-compensating copyright owners and insufficient deterrence of infringement.31) In keeping with this purpose, some courts refused to order defendants to pay statutory damages when actual damages or profits could be proven.32 Indeed, the Supreme Court held that the 1909 Act’s statutory damage provision was inapplicable when profits were proven.33 If a successful plaintiff had suffered only nominal or no damage, the minimum of $250 might be awarded, but no more, consistent with the policy that statutory damages should not be a penalty.34 Courts sometimes also refused to impose any statutory damages when the evidence showed no harm to the copyright owner and no profits to the infringer.35 In keeping with the no-penalty rule, appellate courts sometimes reduced large statutory damage awards to the minimum in close, although ultimately unsuccessful, fair use cases.36 Appellate courts sometimes also reduced statutory damage awards that were excessive in relation to approximate damages or profits.37
B. Statutory Damages Under the 1976 Act
28 Unwitting infringements of photographs in newspapers could give rise to statutory damages between $50 and $100; statutory damage awards for infringement of undramatized or non-dramatic works in motion pictures were capped at $100. Id.
29 Id. The legislative history of the 1909 Act shows there was considerable debate about the potential risk that statutory damage awards could be excessive and punitive. See, e.g., Berg, supra note 20, at Part I-B. Inclusion of the “no penalty” rule was aimed at curbing this.
30 See, e.g., Douglas v. Cunningham, 294 U.S. 207, 209 (1935). See also NIMMER, supra note 1, sec. 14.04[F][1][A].
31 See, e.g., Douglas, 294 U.S. at 209.
32 See, e.g., Zeigelheim v. Flohr, 119 F. Supp. 324, 329 (E.D.N.Y. 1954) (awarding the plaintiff $1700 in actual damages and profits rather than statutory damages, which would have amounted to $4100).
33 Sheldon v. Metro-Goldwyn Pictures Corp., 309 U.S. 390, 399 (1940). See also Universal Pictures Co. v. Harold Lloyd Corp., 162 F.2d 354, 378 (1947) (rejecting defendant’s argument that statutory damages should be awarded because actual damages were too conjectural). However, courts sometimes awarded statutory damages under the 1909 Act without requiring plaintiffs to try to prove actual damages or profits. See Strauss, supra note 24, at 8-9.
34 See, e.g., Russell & Stoll Co. v. Oceanic Elec. Supply Co., 80 F.2d 864, 865 (2d Cir. 1936).
35 See, e.g., Washington Pub. Co. v. Pearson, 140 F.2d 465, 466 (D.C. Cir. 1942).
36 See, e.g., MCA, Inc. v. Wilson, 677 F.2d 180 (2d Cir. 1981) (live performance of raunchy version of popular song infringed copyright).
37 See, e.g., Turner & Dahnken v. Crowley, 22 F. 749, 754 (9th Cir. 1918) (reducing $7000 statutory damage award to $560, which the court estimated was the defendant’s profit from infringement).
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Section 504(c), the statutory damage provision of the 1976 Act, is similar in some respects to its cousin in the 1909 Act, although different in others. Under both laws, statutory damages are available only “in lieu” of awards of actual damages and the defendant’s profits; a successful plaintiff could, in other words, get statutory damages or actual damages and defendant’s profits, but not all three.38 Both laws also set minimum and maximum amounts of possible awards, as well as directing courts to choose a statutory damage award within that range that would be “just.”39 Nothing in the statute or legislative history indicates any Congressional intent to abandon the long-standing compensatory goal of this unusual remedy, except perhaps as to willful infringers who could now be subject to enhanced damages.40
1. Respects in Which Congress Limited Statutory Damage Awards
Before discussing some respects in which Congress broadened the role of statutory damages in U.S. copyright law, it is well to recognize that in at least five respects, the statutory damages provision of the 1976 Act reflects Congressional efforts to cabin or narrow the award of statutory damages. First, unlike the 1909 Act, Section 504(c) allows courts to award statutory damages below the ordinary minimum in cases of innocent infringement (that is, when the defendant reasonably believed that his acts were non-infringing).41 Second, it allows statutory damages to be remitted entirely for nonprofit educational users or public broadcasters who had reason to believe their uses were non-infringing.42 Third, and more significantly, the 1976 Act limits the availability of statutory damage awards to those who register their claims of copyright within three
38 Courts have occasionally made mistakes and granted all three types of awards. See, e.g., Roy Export Co. v. CBS, Inc., 503 F. Supp. 1137 (S.D.N.Y. 1980), aff’d, 672 F.2d 1095 (2d Cir. 1982)(awarding $5000 in statutory damages as well as $7280 in actual damages for broadcaster’s use of clips in connection with news story about Charlie Chaplin).
39 17 U.S.C. sec. 504(c)(2).
40 Id.
41 Id. The 1976 Act allowed the $250 minimum statutory damage award to be reduced to $100 for innocent infringement. Subsequent amendments increased the ordinary infringement minimum to $750 and the innocent infringement minimum to $200. Modern court interpretations consider a defendant innocent only if he proves that “he was not aware and had no reason to believe that his acts constituted an infringement of copyright.” Nimmer, supra note 1, sec. 14.04[B][2]. As Part II-B shows, this innocent infringement provision of the 1976 Act is virtually never used. It is worth noting that prior to 1931, U.S. copyright law was much more charitable toward innocent infringers. See, e.g., Tony Reese, Innocent Infringement in U.S. Copyright Law: A History, 30 Colum. J.L. & Arts 133, 133 (2006). The 1976 Act initially had also an innocent infringement exception as to those who were misled by the omission of copyright notices on published copies. Id. at 182-83. Innocent infringers could be ordered to pay a fee to the copyright owner for continued use. Id. at 183. This rule was changed after the U.S. abandoned notice requirements as part of its accession to the Berne Convention. Nimmer, supra note 1, sec. 14.04[B][2][a].
42 17 U.S.C. sec. 504(c)(2). We have found no evidence that this provision has ever been utilized in a litigated case.
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months of publication.43 (This requirement caused statutory damages to take on a new purpose in U.S. copyright law, namely, to induce prompt registration.44) Fourth, Section 504(c) provides that infringement of a compilation of independently copyrighted works (e.g., an edited book consisting of chapters written by many authors) should be treated as a single copyrighted work for purposes of statutory damages.45
The most significant respect in which Congress sought to narrow statutory damage awards in the 1976 Act was in its adoption of a rule that such awards should be made “per infringed work,”46 instead of the “per infringement” rule that had been common under the 1909 Act.47 The legislative history of the 1976 Act reveals that Congress was persuaded that the “per infringement” standard had sometimes resulted in excessive awards.48 The change to a “per infringed work” standard was intended to lessen this risk.
Unfortunately, these changes have not uniformly had the effects intended by Congress. For example, more than thirty years after the effective date of the 1976 Act, it is apparent that the innocent infringer provisions may be useful in deterring lawsuits against truly innocent infringers. However, this part of the statutory damage framework has virtually no significance in litigation, not even in the fair use context.49
43 17 U.S.C. sec. 412 (registration necessary within three months of publication to qualify for awards of statutory damages and attorney fees). This requirement does not apply, however, to lawsuits aimed at enforcing the moral rights provisions of 17 U.S.C. sec. 106A. There is also a special provision in respect of works unpublished prior to the infringement. 17 U.S.C. sec. 412.
44 See, e.g., Blanch v. Koons, 329 F. Supp. 2d 568, 570 n.1 (S.D.N.Y. 2004) (“If punitive damages [were] available to a plaintiff who did not timely register [his] work, the statutory purpose of encouraging copyright registration [would be] frustrated.”).
45 17 U.S.C. sec. 504(c). The recording industry recently tried to persuade Congress to revise the statutory damage provision to repeal this restriction on statutory damage awards, but the effort was ultimately unsuccessful. See Nate Anderson, Rep. Berman Pulls Controversial “Compilations” Rule From PRO-IP Act, Ars Technica, March 6, 2008, available at
http://arstechnica.com/tech-policy/news/2008/03/rep-berman-pulls-controversial-compilations-rule-from-pro-ip-act.ars.
46 17 U.S.C. sec. 504(c)(1).
47 See 17 U.S.C. sec. 101(b) (superseded) ($1 per copy for most infringing reproductions). See, e.g., Nimmer, supra note 1, sec. 14.04[E][2][a] at 97-101 (discussing “per infringement” statutory damage cases).
48 See Strauss, supra note 24, at 11-12. The problem was particularly acute in the case of “mass communication,” e.g. radio and later television. Id. at 12. In the case of networked radio stations, “a performance by each station constituted a separate infringement. Such decisions have sometimes awarded what may be considered disproportionately high damages.” Id., citing Select Theaters Corp. v. Ronzoni Macaroni Co., 59 U.S.P.Q. 288 (S.D.N.Y. 1943).
49 See infra Part II-B for a discussion of the rarity of innocent infringement cases. In none of the close fair use cases in which statutory damages were awarded under the 1976 Act did any court (or jury) award the lower amounts that Sec. 504(c) permits, although courts sometimes awarded the ordinary infringement minimum when they believed the defendant thought he was making a fair use. See, e.g., Warner Bros. v. RDR Books, 575 F. Supp. 2d 513, 554 (S.D.N.Y. 2008). For an excellent account of the history of concerns about imposing liability for unwitting
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The prompt-registration requirement for statutory damages looks in hindsight less like a meaningful inducement to registration for all authors who value copyright protection, and more like a substantial boon to major copyright industry players, the commercial exploiters of copyrighted works whose rights largely derive from the Act’s work for hire rules or assignments from authors.50 Because individual authors rarely take the trouble to fill out the proper form, pay the necessary registration fee, and get a certificate of registration, they rarely qualify for statutory damage and attorney fee awards. The prospect of enhanced damages if their copyright is infringed—an eventuality that authors dearly hope will never occur, but which may happen at some point in the distant future--is too remote to induce prompt registrations. Well-financed commercial exploiters of copyrighted works, on the other hand, benefit from the statutory damage scheme, which they are sometimes able to use with considerable success to strike terror into the heart of anyone with the temerity to make unauthorized uses of their copyrights.51 Copyright-savvy firms can even infringe copyrights of individual authors of unregistered or late-registered works with relatively little risk, given that the costs of litigation are likely to be greater than any damage award the unregistered authors might ultimately be awarded for infringement. “Little guy” authors thus, in theory, have the same strong legal rights as major copyright industry players, but effectively no way to get relief when their rights are infringed.52
It is also debatable whether the switch to a “per infringed work” rule has limited statutory damage awards in the manner Congress expected. It does, of course, limit the statutory damage exposure of some firms (e.g., the seller of millions of counterfeit Barbies or the television network that broadcasts a single program via many stations). The “per work” rule has, however, had far less of a limiting impact than its proponents may have anticipated. This is in part because the range within which awards can be made is so much wider under the 1976 Act than under the 1909 Act,53 in part because Congress has twice further raised statutory damage minima and maxima,54 in part because there is
infringement, and an argument that our current copyright regime does far too little to address such concerns, see Reese, supra note 41.
50 See, e.g., Christopher Sprigman, Reform(aliz)ing Copyright, 57 Stan. L. Rev. 485, 495-96 (2004) (citing evidence of low registration rates).
51 See infra Parts II-C, II-D.
52 See, e.g., LIBRARY OF CONGRESS, ADVISORY COMMITTEE ON COPYRIGHT REGISTRATION AND DEPOSIT, REPORT OF THE CO-CHAIRS ROBERT WEDGEWORTH & BARBARA RINGER at 17-19 (Sept. 1993) (discussing hardships for authors and small firms because of sec. 412 and the prompt registration requirement for awards of statutory damages and attorney fees; also recognizing that a repeal of sec. 412 would bring about “a flood of infringement claims”).
53 The ratio of high to low awards under the 1909 Act was 20:1, with $5000 as the maximum. The ratio of high to low statutory damage awards under the 1976 Act is now 200:1 (or 750:1, if one considers the innocent infringer provision).
54 Congress doubled the statutory minima and maximum in 1989: from $250 to $500 as a minimum, from $10,000-$20,000 for the maximum for ordinary infringement, and from $50,000 to $100,000 for the maximum for willful infringements. It raised them by a further 50% in 1999. See Berne Convention Implementation Act of 1988, Pub. L. No. 100-568, 102 Stat 2853 (1988);
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so little guidance about how to make just awards within that wide range, and in part because Congress didn’t anticipate circumstances in which a per work rule would lead to excessive liability, as in the Thomas p2p file-sharing case, or excessive risk of liability, as in new technology cases such as Sony Corp. of Am. v. Universal City Studios, Inc.55
One additional significant change in the U.S. statutory damage regime since 1976 is one that was unintended by Congress. Although Sec. 504(c) can be interpreted as deeming statutory damage awards to be equitable in nature,56 the Supreme Court ruled in Feltner v. Columbia Pictures Television, Inc., that litigants had a Seventh Amendment right to a jury trial as to statutory damages.57 It is still quite common for judges to render statutory damage awards, but Feltner has meant that juries now also play a significant role in awarding statutory damages. As the Thomas case aptly illustrates,58 Feltner has exacerbated the potential for excessive and arbitrary awards when skillful lawyers are able to persuade juries to become outraged about infringing conduct. Actual damages in the Thomas case were arguably about $50. Given the defendant’s lack of innocence, the jury had no choice but to award Capitol Records at least $750 per infringed work (which would have totaled $18,000). Some jurors were so outraged by Thomas’ conduct that they wanted to award Capitol Records $3.6 million for this infringement.59
Digital Theft Deterrence and Copyright Damages Improvement Act of 1999, Pub. L. No. 106-160, 113 Stat. 1774 (1999).
55 417 U.S. 340 (1984)(Universal sought to hold Sony liable for infringing uses of its Betamax video taping device). See, e.g., Jessica Litman, The Sony Paradox, 55 CASE W. RES. L. REV. 917 (2005) (discussing the potentially massive statutory damage award that might have been levied against Sony as one reason why the Court was reluctant to affirm the Ninth Circuit’s ruling that Sony was a contributory infringer). Congress’s concerns about the “per-infringement” rule during the 1976 Act revision centered around the potential for high liability for technologies developed since the last copyright revision—radio and television: “While the awarding of statutory damages in cases of multiple infringement has not created any difficulties if the infringement is by copying in printed publications, there is a problem in cases of infringing performances of musical or dramatic works in network broadcasts.” Strauss, Study No. 22 at 11. They did not anticipate the future prevalence of technologies that could result in similarly unfairly aggregated awards under the new “per work” rule.
56 Sec. 504(c) refers to “the court” as the determiner of statutory damages and the standard for determining the proper amount as that which is “just.” The overwhelming majority of statutory damage awards prior to Feltner had been rendered by judges. Some courts had concluded that statutory damages were equitable in nature. See, e.g., Sid & Marty Krofft Television v. MacDonald’s Corp., 562 F.2d 1157, 1177 (9th Cir. 1977). But see William F. Patry, The Right to a Jury Trial in Copyright Cases, J. Cop. Soc’y 139 (1981) (arguing that copyright statutory damages are not equitable in nature).
57 Feltner v. Columbia Pictures Television, Inc., 523 U.S. 340 (1998).
58 Capitol Records, Inc. v. Thomas, 579 F. Supp. 2d 1210 (D. Minn. 2008).
59 Kravetz, supra note 17. The judge in the Thomas case expressed concern about the disproportionate award handed down by the jury: “While the Court does not discount Plaintiffs' claim that, cumulatively, illegal downloading has far-reaching effects on their businesses, the damages awarded in this case are wholly disproportionate to the damages suffered by Plaintiffs. Thomas allegedly infringed on the copyrights of 24 songs—the equivalent of approximately three CDs, costing less than $54, and yet the total damages awarded is $222,000—more than five
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2. Respects in Which Congress Broadened Statutory Damages
Although Congress narrowed statutory damages in the respects discussed above, it also broadened the statutory damage provision in several ways that benefit successful plaintiffs. First, it increased the statutory damage award maximum.60 Second, it gave plaintiffs the right to elect statutory damages at any time during the litigation, up until entry of final judgment.61 Third, it no longer gave examples of proper statutory damage awards for common types of infringements.62 Fourth, Section 504(c) omitted that part of Section 101(b) that provided that statutory damages are not intended as a penalty.
These two latter omissions become more pregnant when considered in light of the fifth and most significant pro-plaintiff broadening of the 1976 Act’s statutory damage provision, namely, the creation of a new much higher maximum for statutory damage awards against “willful infringers.”63 For ordinary infringements, the 1976 Act allowed awards between $250 and $10,000 per infringed work, but it authorized awards of up to $50,000 per infringed work for willful infringements. The legislative history reflects an expectation that these enhanced damages would be awarded only in “exceptional cases,”64 by which we think Congress meant cases involving counterfeiters, repeat infringers, and the like.
Subsequent amendments have increased the range for what are presumably ordinary acts of infringement from $250 to $750 as the minimum, and from $10,000 to
hundred times the cost of buying 24 separate CDs and more than four thousand times the cost of three CDs. While the Copyright Act was intended to permit statutory damages that are larger than the simple cost of the infringed works in order to make infringing a far less attractive alternative than legitimately purchasing the songs, surely damages that are more than one hundred times the cost of the works would serve as a sufficient deterrent.” Thomas, 579 F. Supp. 2d at 1227.
60 Initially, the 1976 Act doubled the general maximum statutory damage to $10,000. Subsequent amendments to Sec. 504(c) have increased it to $30,000 per infringed work. See supra note 54.
61 17 U.S.C. sec. 504(c)(1). This change takes the decision about whether a statutory damage is appropriate away from the judge; it also allows plaintiffs to surprise defendants late in the litigation. A defendant who thinks its exposure is limited to a lost license fee and any profits attributable to infringement because that’s all the complaint requested as relief may be unpleasantly surprised by a last minute switch to statutory damages when the judge seems to be warming to the plaintiff’s case.
62 Without consulting the legislative history of the 1976 Act, one might imagine that this omission could be explained by the larger range of works and types of infringements that were in contemplation in 1976 as compared with 1909. Oddly enough, however, it appears that leaving examples of damages per type of infringement out of the statute was thought desirable as a way of avoiding excessive awards. See Register’s 1961 Report, supra note 23, at 104. Over time, however, the effect of this omission has been to unmoor statutory damages from its modest compensatory roots and purposes.
63 17 U.S.C. sec. 504(c)(2).
64 See supra note 4 and accompanying text.
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$30,000 per infringed work as the maximum.65 The minimum-to-maximum range under the 1909 Act yielded a 20:1 ratio. The current range for ordinary infringement doubles that for a 40:1 ratio between the smallest and largest authorized awards.66 Now that the willful infringement maximum is $150,000 per infringed work, the ratio rises to 200:1,67 or 750:1 if one considers also the innocent infringer provision.
Where in that very broad range any particular statutory award will be rendered is anybody’s guess, as there are no guidelines or criteria in the statute or otherwise to provide guidance. And courts have yet to develop a meaningful jurisprudence to calibrate how to render “just” statutory damage awards. It is also quite worrisome that judges are reluctant to scrutinize or reduce excessive awards rendered by juries.68
The risk of arbitrary and excessive awards enabled by this exceptionally broad range is all the greater in view of the fact that Congress did not define the term “willful” in relation to statutory damage awards. While this term clearly applies to counterfeiters and repeat infringers,69 courts have largely ignored Congress’ direction to order enhanced damages only in “exceptional cases.” Courts have interpreted this term expansively such that infringement is willful “if it is committed with knowledge that the defendant’s conduct constitutes copyright infringement,” if the defendant was reckless in respect of the copyright, or even if the defendant should have known his conduct was infringing.70 Judges have sometimes found infringement to be willful as to defendants who proffered plausible, even if ultimately unsuccessful, fair use defenses.71
For all intents and purposes, the tripartite structure Congress thought it was creating through the 1976 Act’s statutory damage provision—quite modest awards against innocent infringers, including those who genuinely thought their use was fair or otherwise privileged, moderate awards against ordinary infringers, and large awards
65 See Berne Convention Implementation Act of 1988, Pub. L. No. 100-568, 102 Stat 2853 (1988); Digital Theft Deterrence and Copyright Damages Improvement Act of 1999, Pub. L. No. 106-160, 113 Stat. 1774 (1999).
66 Id.; sec. 504(c)(1). Of course, if the actual damage from infringement for that work is $1 (or less), the ratio is actually up to (or more than) 30,000 times the harm.
67 For very small scale infringements (e.g., $1 or less per work, as with a song from iTunes), the actual ratio is 150,000 times (or more) larger than harm to the copyright owner’s market.
68 See, e.g., SESAC, Inc. v. WPNT, Inc., 327 F. Supp.2d 531 (W.D. Pa. 2003) (denying motion for a new trial on damages).
69 See, e.g., Nintendo of Am., Inc. v. Ketchum, 830 F. Supp. 1443 (M.D. Fla. 1993) (seller of counterfeit games was willful infringer); RSO Records, Inc. v. Peri, 596 F. Supp. 849 (S.D.N.Y. 1984) (large scale counterfeiter was willful infringer); Pret-a-Printee, Ltd. v. Allton Knitting Mills, Inc., 218 U.S.P.Q. 150 (repeat infringer was willful infringer).
70 See, e.g., Nimmer, supra note 1, at sec. 14.04[B][3][a] at 14-77 (citing cases).
71 See, e.g., Basic Books, Inc. v. Kinko’s Graphics Corp., 758 F. Supp. 1522 (S.D.N.Y. 1991) (commercial photocopy service held willful infringer for college coursepacks). See also Rogers v. Koons, 960 F.2d 301 (2d Cir. 1992) (characterizing defendant artist as an egregious and willful infringer and suggesting that on remand the plaintiff should request an award of statutory damages, even though his fair use defense was plausible).
11
against the really bad actors—has devolved into a regime in which the innocent infringer provision is essentially never used and willful infringement is found in many more cases than Congress intended.
As Part II will show in greater detail, there is little consistency in the case law on copyright statutory damages. Some unquestionably willful infringers (e.g., counterfeiters) have been required to pay fairly minimal statutory damages,72 while other ordinary infringers, including putative fair users, have found themselves held liable as willful infringers, and subjected to maximum awards in circumstances when a rational assessment of damages would have been minimal to non-existent, and hence, a minimum award would have been more appropriate.73
Although Congress did not specifically state that it intended awards within the newly established upper range to be punitive, courts have sometimes interpreted them so.74 The omission of the old “no penalty” rule of the 1909 Act seems to have reinforced this trend.75 In one case involving a plausible joint work defense, for instance, the judge
72 See, e.g., Arclightz & Films Pvt. Ltd. v. Video Palace, Inc., 303 F. Supp. 2d 356 (S.D.N.Y. 2003) (sale of counterfeit motion pictures was willful infringement, but statutory damage award of $750 per infringed movie was adequate deterrence under the circumstances). In counterfeit video game cases, statutory damage awards have been far under the maximum. See, e.g., Nintendo of Am., Inc. v. Ketchum, 830 F. Supp. 1443 (M.D. Fla. 1993)(awarding $2000 for each of twelve works infringed).
73 See, e.g., Macklin v. Mueck, 2005 U.S. Dist. LEXIS 18026 (S.D. Fla. 2005) (awarding $300,000 in statutory damages on a default judgment for posting two poems on the Internet). See also Los Angeles Times, Inc. v. Free Republic, 2000 WL 1863566 (C.D. Cal. Nov. 16, 2000) ($1 million in statutory damages awarded against plausible fair user who posted news articles on nonprofit conservative site inviting commentary on their liberal bias).
74 See, e.g., On Davis v. The Gap, Inc., 246 F.3d 152, 172 (2d Cir. 2001)(“The purpose of punitive damages—to punish and prevent malicious conduct—is generally achieved under the Copyright Act through the provisions of 17 U.S.C. sec. 504(c)(2), which allows increases to an award of statutory damages in cases of willful infringement.”); Nat’l Football League v. Primetime 24 Joint Venture, 131 F. Supp.2d 458, 478 n.17 (S.D.N.Y. 2001)(statutory damages partly punitive); United States Media Corp. v. Edde Entm’t Corp., 1998 WL 401532 (S.D.N.Y. 1998)(“a statutory damage award…is designed to serve both a compensatory and punitive purpose”); RSO Antenna Television, A.E. v. Agean Video, Inc., 1996 WL 298252 at 8 (E.D.N.Y. 1996)(“To the extent that Congress intended the Copyright Act to contain provisions for statutory damages, such provisions are found in the statutory damages sections of the Act”); RSO Records, Inc. v. Peri, 596 F. Supp. 849, 862 (S.D.N.Y. 1984) (statutory damages are “partially punitive”); Rodgers v. Quests, Inc., 213 U.S.P.Q. 212 (N.D. Ohio 1981)(characterizing enhanced statutory damage award for willful infringement as “punitive”); Kamakazi Music Corp. v. Robbins Music Corp., 534 F. Supp. 69, 78 (S.D.N.Y. 1982)(“The public policy rationale for punitive damages of punishing and preventing malicious conduct can properly be accounted for in the provisions for increasing a maximum damage award” for willful infringements). See also Evanson, supra note 22, at 627, n. 175 (noting that judge had instructed the jury in one excessive award case that it could use statutory damages to punish the defendant).
75 At least one court has opined that this omission signaled that Congress intended the enhanced damage provision to provide punishment for infringement. See Rodgers v. Quests, Inc., 213
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concluded that the defendant playwright was a willful infringer and referred to the $30,000 award against her as “primarily punitive in nature.”76 The legislative history of the 1999 amendments to Section 504(c) is peppered with statements about the need for “stringent deterrents” and increased “penalties” for infringement.77
One commentator has observed that the enhanced damages range for willful infringement “as employed, thus ha[s] a punitive character since [it is] used to punish an infringer for [its] willfulness.”78 As the Supreme Court has noted in another context, “[a] civil sanction that cannot be fairly be said solely to serve a remedial purpose, but rather can only be explained as also serving either a retributive or deterrent purpose, is punishment.”79 Insofar as statutory damage awards are frequently being awarded at very large multiples over actual damages and/or defendant’s profits, it is fair to infer that such statutory damage awards are, in fact, punitive in character.
Even when judges or juries do not explicitly say they are intent on punishing defendants, the awards they sometimes make are punitive in effect. How else can one explain the $53.4 million award against MP3.com, which was based on the firm’s “ripping” the music from CDs into a database so that MP3.com could “beam” these songs to clients who already owned the CDs in question or who were purchasing them simultaneously with the beaming? 80 MP3.com had purchased the CDs from which it ripped the music, as had its clients, so the plaintiffs had already obtained some compensation from the defendant and its intended customer base.81 MP3.com’s fair use defense was somewhat bold and aggressive, but not completely implausible,82 and it had
U.S.P.Q. 212, xx (N.D. Ohio 1981)(“Significantly, clause (1) [of Sec. 504(c)] omits the caveat of the Prior Act that statutory damages ‘shall not be regarded as a penalty.’”).
76 Childress v. Taylor, 798 F. Supp. 981, 997 (S.D.N.Y. 1992) (after initial collaboration fell apart, one dramatist developed a separate play whose performance was held to be infringement).
77 See, e.g., H. Rep. No. 106-216, 106th Cong., 1st Sess. 1999, available at 1999 WL 446444, p. 3. The main purpose of the legislation was to amend the enhanced damages part of Section 504(c), but it also aimed to stiffen criminal sentencing guidelines in copyright cases.
78 Marketa Trimble Landova, Punitive Damages in Copyright Infringement Actions Under the U.S. Copyright Act, [2009] Eur. Intell. Prop. Rev. 108, 109. See also Patry, supra note 56, at 194 (referring to the “penal” nature of the enhanced damage provision of Sec. 504(c)); Barker, supra note 16, at 526 (noting the “punitive effect” of even the statutory damage minimum when applied to peer to peer file sharing); Evanson, supra note 22, at 632-37 (characterizing awards in some copyright statutory damage cases as punitive).
79 Austin v. United States, 509 U.S. 602, 610 (1993), quoting U.S. v. Halper, 490 U.S. 435, 448 (1989).
80 See, e.g., Christopher Stern, MP3.com to Pay Universal $53 Million, Washington Post, Nov. 15, 2000, at E3.
81 UMG Recordings, Inc. v. MP3.com, Inc., 92 F.Supp.2d 349, 350 (S.D.N.Y. 2000)(discussing the service MP3.com had designed).
82 See, e.g., LAWRENCE LESSIG, REMIX: MAKING ART AND COMMERCE THRIVE IN THE HYBRID ECONOMY 134-35 (2008)(discussing MP3.com’s service). MP3.com thought it was facilitating lawful personal uses of music akin to the facilitation of personal uses held lawful in the Sony Betamax case. 13
made little or no profit on this service because MP3.com suspended the service while UMG’s lawsuit was being litigated.83
The $1 million statutory damage award in Los Angeles Times, Inc. v. Free Republic84 is similarly difficult to explain except as an infliction of punishment on a nonprofit conservative commentary site for posting some articles from the Washington Post and the Los Angeles Times in an effort to illustrate liberal bias in the media.85 That this lawsuit was later settled for $1000 shows how out of proportion the statutory damage award was. Because Free Republic raised a plausible fair use defense—and indeed, a First Amendment defense as well86—one might have expected a minimal statutory damage award. This defendant had no profits, and the lost profits claims by the newspapers were highly speculative.87
The $19.7 million jury award in Lowry’s Reports, Inc. v. Legg Mason88 is even more difficult to understand except in punitive terms. Legg Mason was a subscriber to Lowry’s financial newsletters whose research staff had made some copies of some newsletters for their internal use.89 The jury ruled against Legg Mason’s argument that this internal copying from 240 works was fair use.90 After concluding that Legg Mason’s infringement was willful, the jury punished Legg Mason for this copying by imposing an award that amounted to roughly $82,000 per infringed work!91 Legg Mason’s fair use defense—after all, we’re subscribers, we were using the copies for research purposes, and we thought this was fair use—was not implausible.92 Under the 1909 Act, Legg Mason’s exposure for statutory damages would have been considerably less than this award, and the actual damages in the case were probably about $60,000.93 As we explain in the next Part, Legg Mason was correct in asserting that due process principles of the Supreme Court’s punitive damages jurisprudence do and should limit grossly excessive statutory damage awards in copyright cases.94 But awards of this sort are also inconsistent with the tripartite structure for statutory damages that Congress established in 1976.
83 MP3.com, 92 F.Supp.2d 349.
84 2000 WL 1863566 (C.D. Cal. 2000).
85 See Los Angeles Times, Inc. v. Free Republic, 2000 WL 565200 (C.D. Cal. Apr. 4, 2000).
86 Id. at *5-22.
87 Id. at *13, 19-21.
88 Lowry’s Reports, Inc. v. Legg Mason, Inc., 302 F. Supp. 2d 455 (D. Md. 2004).
89 Lowry’s Reports, Inc. v. Legg Mason, Inc., 271 F.Supp. 2d 737, 742-44 (D. Md. 2003).
90 Legg Mason, 302 F. Supp. 2d at 458 & n.2.
91 Id. at 457-58.
92 Although the Second Circuit had ruled against a similar fair use defense in American Geophysical Union v. Texaco, 60 F.3d 913 (2d Cir. 1994), that case was decided by a 2-1 majority. Lowry’s brought its case in a different circuit, and Legg Mason may have thought that courts in a different circuit would view its fair use defense more charitably.
93 Evanson, supra note 22, at 632, n.203.
94 Legg Mason, 302 F. Supp. 2d at 458 (discussing the due process challenge to this award).
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II. Statutory Damages Awards in Copyright Cases Should Be Consistent with Due Process Principles
Part I has shown that copyright statutory damages are sometimes not only punitive in effect, but punitive in intent. Section A of this Part reviews the Supreme Court’s due process jurisprudence concerning punitive damage awards. Section B goes on to demonstrate that some statutory damage awards in copyright cases comport with Congress’ intent to establish a just statutory damage regime and with due process principles. Section C discusses several respects in which copyright statutory damage awards have been inconsistent with Congress’ goal of establishing a just statutory damage regime and with Gore and its progeny. Section D responds to arguments that due process principles have no application to statutory damage awards in copyright cases.
A. The Supreme Court’s Due Process Jurisprudence Limits Punitive Damage Awards
BMW, Inc. v. Gore95 is the foundational ruling of the U.S. Supreme Court’s modern due process jurisprudence on punitive damages. Gore sued BMW for fraud, claiming that the firm’s failure to disclose that his “new” car had, in fact, been repainted was deceitful and materially harmed him.96 In addition to obtaining a jury award of $4000 in actual damages,97 Gore sought and obtained a $4 million punitive damage award by arguing that BMW should be punished for having hidden repainting and other repairs to “new” cars from roughly a thousand other customers.98 Although the Alabama Supreme Court reduced the punitive award to $2 million, it affirmed liability.99 In Gore, the U.S. Supreme Court ruled that “grossly excessive” punitive damage awards, such as the $2 million award against BMW, violate the Due Process clause of the U.S. Constitution.100
Gore sets forth three criteria, often referred to as “the Gore guideposts,”101 for determining whether a punitive damage award is consistent with due process: 1) the degree of reprehensibility of the defendant’s actions, 2) the disparity between the harm to the plaintiff and the punitive award, and 3) the similarity or difference between the punitive award and civil penalties authorized or imposed in comparable situations.102
95 517 U.S. 559 (1999).
96 Id. at 563-64.
97 Id. at 563-65.
98 Id. at 564.
99 Id. at 566-68. The Alabama court lowered the punitive award because it was based in part on harm to consumers beyond Alabama borders. Id. at 567. The U.S. Supreme Court pointed out that BMW’s failure to disclose repairs such as repainting did not violate the laws of many states. Id. at 569-71.
100 Id. at 562-63.
101 The Court characterizes these critieria as “guideposts,” id. at 574, and commentators have followed suit. See, e.g., Evanson, supra note 22, at 605-13 (discussing the Gore guideposts).
102 Gore, 517 U.S. at 574-75.
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Gore characterized the reprehensibility criterion as “[p]erhaps the most important indicium” for determining whether a punitive award was reasonable or excessive.103 The Court recognized that “some wrongs are more blameworthy than others,”104 and proffered several factors for judging relative reprehensibility, including whether “the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.”105
Because the harm in Gore was economic and because the firm had not made deliberately false statements and could have thought it did not need to mention minor repairs, the Court placed BMW at the less reprehensible end of this spectrum.106 The Court observed: “That conduct is sufficiently reprehensible to give rise to tort liability, and even a modest award of exemplary damages does not establish a degree of culpability that warrants a substantial punitive damages award.”107
The reasonableness of a punitive award depends not only on the relative reprehensibility of the defendant’s conduct, but also on the relationship or ratio between compensatory and punitive awards. Judging the reasonableness of punitive awards in relation to compensatory awards has, the Court noted, “a long pedigree.”108 Pre-republic English laws had allowed punitive awards between two and four times actual damages, and the Court opined that the relevant ratio was generally 10:1.109 Somewhat higher ratio awards might be justified when actual damages arising from highly egregious conduct were quite small, and lower ratios should be considered when conduct was less reprehensible or when the compensatory award was more substantial.110 Although constitutional due process assessments of punitive awards could not, of course, be reduced to “a simple mathematical formula,” the Court considered the 500:1 ratio in Gore to be “breathtaking,” and unwarranted, especially given the low level of BMW’s reprehensibility.111
One consideration underlying the third guidepost—comparable civil sanctions for the same or similar conduct—is that “[e]lementary notions of fairness enshrined in our constitutional jurisprudence dictate that a person receive fair notice not only of the conduct that will subject him to punishment, but also of the severity of the penalty that a
103 Id. at 575.
104 Id.
105 Id. at 576-77. The Court also noted that “a recidivist may be punished more severely than a first offender.” Id.
106 Id. at 580.
107 Id.
108 Id.
109 Id. at 580-81.
110 Id. at 582.
111 Id. at 582-83.
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state may impose.”112 The Court observed that Alabama had set the maximum civil penalty for comparable wrongs at $2000.113 A reasonable BMW executive might have believed that the firm’s exposure to civil liability in Alabama was in that range, not a thousand times larger. Another consideration is whether a more modest award would adequately deter this defendant.114 The Court could not accept the conclusion that “BMW’s conduct was sufficiently egregious to justify a punitive sanction that is tantamount to a severe criminal penalty.”115 Justice Breyer’s concurrence pointed to the “substantial risk of arbitrary outcomes” because juries are insufficiently constrained by due process principles.116
The Court reaffirmed and extended Gore in Cooper Industries, Inc. v. Leatherman Tool Group, Inc.117 Cooper Industries ruled that courts should apply a de novo standard of review in judging whether a punitive damage award is consistent with constitutional due process principles.118 Leatherman sued Cooper for trademark infringement because Cooper copied the configuration and features of Leatherman’s multi-purpose tool and for unfair competition for advertising the Cooper tool with a photograph of a slightly modified Leatherman tool.119 The jury awarded $50,000 in compensatory damages and $4.5 million in punitive damages.120 Both the trial and appellate courts ruled that the punitive damage award was not “grossly excessive” under Gore, although the appellate
112 Id. at 574.
113 Id. at 584.
114 Id. at 584. “In the absence of a history of noncompliance with known statutory requirements, there is no basis for assuming that a more modest sanction would not have been sufficient to motivate full compliance…” Id. at 584-85.
115 Id. at 585. As Evanson has noted, “[s]ince punitive damages act in a quasi-criminal manner, ‘straddling’ civil and criminal penalties, they run the risk of imposing what amount to criminal penalties without the safeguards that criminal law offers.” Evanson, supra note 22, at 603-04.
116 Gore, 517 U.S. at 595-96. “To the extent that neither clear legal principles nor fairly obvious historical or community-based standards (defining, say, especially egregious behavior) significantly constrain punitive damage awards, is there not a substantial risk of outcomes so arbitrary that they become difficult to square with the Constitution’s assurance, to every citizen, of the law’s protection?” Id. at 596.
117 532 U.S. 425 (2001). We think Cooper Industries is a significant case for our analysis, not only as to its holding on de novo review of jury awards to consider whether they may be grossly excessive, but also because the case claims of infringement of an intellectual property right and wrongful copying by the defendant as well as an excessive award by a jury.
118Id. at 443. The Court opined that “the level of punitive damages is not really a ‘fact’ ‘tried’ by the jury.” Id. at 437, quoting Gasperini v. Center for the Humanities, Inc., 518 U.S. 415, 459 (1996)(Scalia, J., dissenting). The Court also rejected an argument derived from Mitchell Polinsky & Steven Shavell, Punitive Damages: An Economic Analysis, 111 Harv. L. Rev. 869, 890-91 (1998) that “punitive damages should equal the harm multiplied by…the ratio of the injurer’s chance of escaping liability to his chance of being held liable.” Cooper Ind., 532 U.S. at 439.
119 Id. at 427-28.
120 Id. at 426.
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court vacated the injunction against Cooper’s manufacture of a comparable tool on the ground that its configuration was too functional to be protectable as a trademark.121
An important consideration in Cooper Industries was the institutional competence of juries vs. judges in applying the Gore guideposts. Juries and trial judges may have greater institutional competence than appellate courts in judging the reprehensibility of the defendant’s conduct, but trial and appellate courts have equal competence—and greater competence than juries—in assessing the reasonableness of the ratio of punishment to harm, and appellate courts are the most competent judges of the comparable sanction guidepost.122 Although saying it did not intend to prejudge how the Gore guideposts should be applied in Cooper Industries, the Court remanded for de novo review while hinting that Cooper’s conduct was not all that reprehensible, the harm to punitive damage ratio was very high, the jury might have based the punitive award on unrealistic assumptions, and the fine for unfair trade practices in Oregon could not have exceeded $25,000.123
Still other decisions have struck down as “grossly excessive” high punitive damage awards which plaintiffs sought to justify because the wrongs done to them were part of a pattern of bad acts. In State Farm Mutual Auto Insurance Co. v. Campbell, for example, the Court held that a $145 million punitive damage award against State Farm was unconstitutionally excessive.124 The Court accepted the jury’s conclusion that the insurer had wrongly failed to settle a tort lawsuit against the Campbells and the $1 million compensatory award.125 The Campbells’ lawyer argued that the high punitive damage award was justified because State Farm had adopted a nationwide policy of limiting payouts to insurance customers in order to meet internal fiscal goals, and the Campbells were one of many claimants who had been harmed by this policy.
The Utah Supreme Court upheld the punitive award for several reasons. First, it regarded State Farm’s policy to be quite reprehensible. 126 Second, State Farm had enjoyed “massive wealth” in part as a result of this policy.127 Third, the Campbells had offered testimony that the clandestine nature of the policy suggested that State Farm would rarely be caught and punished for its bad acts, which meant that severe punishment was warranted when it did get caught.128 And finally, State Farm could have been
121 Id. at 428-30. The courts below thought the punitive award was “proportional and fair, given the nature of the conduct, the evidence of intentional passing off, and the size of an award necessary to create deterrence to an entity of Cooper’s size.” Id. at 430, quoting Leatherman Tool Group, Inc. v. Cooper Industries, Inc., 205 F.3d 1351 (9th Cir. 1999).
122 Cooper Ind., 532 U.S. at 440.
123 Id. at 442-43.
124 538 U.S. 416, 429 (2003).
125 Id. at 419-20. The jury actually awarded the Campbells $2.6 million in compensatory damages, but the trial court reduced the compensatory award to $1 million. Id. at 415.
126 Campbell v. State Farm Auto Ins. Co., 65 P.3d 1134, 1153 (Utah 2001).
127 Id. at 1153.
128 Id.
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penalized by $10,000 fines per fraud and forced to disgorge profits if the state had sued it for these wrongs, and so the sanction was relatively comparable to other civil awards.129
The U.S. Supreme Court disagreed with the Utah court on every point. Although it noted that State Farm’s policy “merits no praise,”130 the Campbells had offered “scant evidence” that State Farm had hurt others in the same way it had hurt them.131 Much of the evidence presented at trial consisted of tangential and inflammatory testimony about State Farm’s nationwide operations and claim adjustment policies.132 “The reprehensibility guidepost does not permit courts to expand the scope of the case so that a defendant may be punished for any malfeasance.”133 Utah did not have a legitimate interest in punishing State Farm for harms suffered beyond its borders, for harms unrelated to those experienced by the Campbells, or for harms that were lawful, even if unsavory, in jurisdictions in which they occurred.134 “Due process does not permit courts, in the calculation of punitive damages, to adjudicate the merits of other parties’ hypothetical claims against a defendant under the guise of the reprehensibility analysis.”135 The Court recognized that there was a risk of “multiple punitive damage awards for the same conduct” if it upheld the punitive award in State Farm.136
As for the reasonableness of the punitive award in relation to actual harm, the Court opined that in general, “sanctions that double, treble, or quadruple [actual] damages [will generally be adequate] to deter and punish,” and “few awards exceeding a single-digit ratio will satisfy due process.”137 A 145:1 ratio should be presumed “grossly excessive.”138 The presumption was not overcome in State Farm in part because the compensatory award was already substantial and fully compensated the Campbells for the suffering they had ex
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