United States: Limiting Statutory Damages In Internet Copyright Cases

One of the most significant legal concerns for Internet service providers is the risk of exposure to liability for the copyright infringements of their users. The concern is not unreasonable. Because Internet service providers can be held secondarily liable for the infringements of their users, and because this liability can come with statutory damages attached, the service provider's potential economic exposure can be significant, especially for Internet service providers engaged in the transmission or hosting of user-generated content.

Moreover, the principle of joint and several liability may further increase this potential economic exposure for Internet service providers.

Under Section 504(c) of the Copyright Act, which permits a range of statutory damages for each infringed work, the principle of joint and several liability can make a defendant liable for multiple statutory damage awards for infringing a single work. The Ninth Circuit's decision in Columbia Pictures Television v. Krypton Broadcasting of Birmingham, Inc. two decades ago illustrates the operation of this principle.

The defendants in Columbia Pictures were three television stations that had directly infringed upon plaintiff's copyrights independently of each other. Consequently, the company that owned the three stations was secondarily liable for their infringement. Relying in part on legislative history, the court held that the plaintiff was entitled to separately calculated statutory awards against each of the three stations as they were separate infringers, and that, with respect to these awards, each of the three stations was jointly and severally liable with their common owner.

As applied to infringement on the Internet, statutory damages can have a truly punitive impact when the downstream direct infringements are numerous and the upstream infringer, often an Internet service provider, is secondarily liable. Even if a court exercises its discretion to award no more than the $750 minimum for each of the separate infringements subject to joint and several liability, a statutory award for tens—or hundreds—of thousands of Internet-based direct infringements could bankrupt all but the most deep-pocketed service provider. The mere prospect of such an award could discourage companies from entering this market.

To avoid punitive statutory damage awards against jointly and severally liable copyright defendants, some courts have invoked proportionality as a principle of statutory interpretation. In Arista Records LLC v. Lime Group LLC, for example, a file-sharing service provider faced a potential near-billion-dollar damage award for the conduct of a multitude of downstream infringers. The New York district court found that "the most plausible interpretation of Section 504(c) is one that authorizes only a single statutory damage award per work against a secondarily liable defendant, particularly in the context of the mass infringement found in the context of online peer-to-peer file sharing." Accordingly, the court limited the plaintiffs' statutory damages to a single statutory damage award per work.

More recently, in Friedman v. Live Nation Merchandise, Inc., the Ninth Circuit adopted a different approach to the joint-and-several-liability conundrum. The court held that, for a plaintiff to recover multiple damage awards against a secondarily liable defendant based on downstream infringement, it must join the direct infringers as defendants. The court found nothing in the text of Section 504(c)(1) that "admits of a 'mass-marketing' exception" of the sort endorsed in Arista, and it observed that its Columbia Pictures holding was premised on the fact that each downstream infringer in that case also was a named defendant. Because the plaintiff in Friedman had not joined any of the 104 alleged downstream infringers (retailers who distributed the infringing merchandise), their unadjudicated liability could not enlarge his statutory damage award against Live Nation.

Read and applied literally, the statutory formulation could support multiplication of the statutory award against a single contributory infringer by the hundreds of downstream direct infringers with whom it is jointly and severally liable. The Friedman decision attempts to avoid this possibility by importing the due process requirement that, for the copyright owner to obtain remedies against the contributory infringer, the direct infringers must also be parties to the action.

The Arista court presumably would have followed the Freidman approach in expanding a statutory award against the secondary infringer if the direct infringers had been joined. As the Arista court noted, if the plaintiffs "were suing multiple individually liable infringers in the same lawsuit, they would be entitled to one award with respect to each individual's infringement of any given work."

Internet service providers and other potential upstream infringers should understand that the current statutory-damages regime is particularly unsuitable for Internet cases, and that, while Friedman and Arista offer expedient solutions for limiting punitive awards, they are neither definitive nor entirely responsive to the problem. As the Friedman court noted, there is nothing in the statute to support Arista's "mass-marketing" exception to multiple statutory damage awards, much less to indicate how a court should go about drawing a "mass-market" line. Nor does the Friedman rule that downstream infringers must be joined as defendants help much in Internet cases, where a plaintiff can identify and join large numbers of defendants with relatively little effort, and where even a minimum award of $750 for each infringement might repay the expense. The real problem with Section 504(c)(1) in this respect is that Congress, when it considered the provision, failed to contemplate secondary liability for infringement on this massive scale.

Until the contemporary reality of Internet usage is addressed in the statute, Internet service providers face greater exposure than do other alleged infringers.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

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