Whether Congress intended the Copyright Act's damages provision to apply to consumers and whether the 1st Circuit should overrule its statutory language were up for debate at the 1st U.S. Circuit Court of Appeals on Monday.
The oral arguments in Sony BMG Music Entertainment v. Tenenbaum probed whether the Copyright Act's damages provision violates the U.S. Constitution's due process clause. The act allows for damages of $750 to $30,000 for each infringement, which can balloon to $150,000 for each act of willful infringement.
The closely watched case filled the 1st Circuit's courtroom and about 60 seats in an overflow courtroom equipped with a video feed of the oral argument.
Chief Judge Sandra Lynch and judges O. Rogeriee Thompson and Juan Torruella sat on the panel.
In the underlying case, a District of Massachusetts jury awarded a $675,000 verdict against Boston University graduate student Joel Tenenbaum in July 2009. The number boiled down to $22,500 for each of 30 songs whose copyright Tenenbaum infringed.
District Judge Nancy Gertner slashed the jury's verdict by 90 percent to $67,500 about a year later. Gertner ruled that the verdict violated the U.S. Constitution's due process clause. It's "wholly out of proportion with the government's legitimate interests in compensating the plaintiffs and deterring unlawful file sharing," Gertner wrote.
The Copyright Act contemplates that "copyright infringement is a serious problem that merits statutory damages," argued the music companies' lawyer, Paul Clement, a Washington partner at King & Spalding and a former U.S. solicitor general. The Recording Industry Association of America has taken a lead role in running music downloading cases, but the three plaintiff companies in the Tenenbaum case are Sony Music Entertainment, Universal Music Group, and Warner Music Group.
"Congress thought willful conduct was more serious than nonwillful conduct," Clement said. Gertner found that Joel Tenenbaum's conduct was "willful in the extreme," he said.
Not only did Tenenbaum know that the illegal downloading was wrong, he was warned several times advised of the potential damages, Clement said, adding that the record companies, his father and his school (the Baltimore-based Goucher College) warned Tenenbaum.
Clement also argued that illegal activity such as Tenenbaum's illicit downloading significantly affects a copyright's value. "This technology makes home copiers home distributors," Clement said.
"Is making available the same as distributing?" asked Thompson.
"Judge Gertner clearly found there was distribution, so that's not an issue the court needs to address," Clement said.
Torruella asked if the actual damages in the case were sales lost because of the illegal downloading.
"It's really the complete undermining of the copyright," Clement replied. Tenenbaum's distribution to others means damages can't be based on the fact that he didn't purchase his own copies of the music recordings, Clement said. "To do what he did, the value of that license is the value of that copyrighted work. It's unprecedented because of the nature of this technology."
The U.S. Department of Justice intervened in the case to advance the argument that the Gertner should have used the remittitur process to cut the verdict rather than address the constitutionality of the damages award
"This is a case plainly well-suited for review under common law remittitur proceedings," argued Jeffrey Clair, a trial attorney in the Civil Division of the Justice Department's appellate branch. "It's well established in federal common law," Clair said. "It provides protection against very excessive damages awards."
After Torruella asked about the fact that Congress didn't specifically address file sharing in the Copyright Act, Clair said Congress has "noted that it expected damages to be applied to Internet-based technology."
The judges then asked Clair about a previous dearth of lawsuits against noncommercial users. The recording industry sued thousands of people who illegally downloaded copyrighted music starting in 2003 and ending in 2008, but most defendants quickly settled. Other than the Tenenbaum case, only one other music downloading case has gone to trial. A case against Jammie Thomas-Rasset in the District of Minnesota for infringing 24 songs, Capitol Records Inc. v. Thomas-Rasset, has gone to trial three times. In 2007, a jury issued a $222,000 verdict against Thomas-Rasset, but the judge ordered a new trial due to a jury instruction error. The second jury issued a $1.92 million damages award against her in 2009. The judge slashed the verdict to $54,000, but the record labels refused to accept the lower amount. The third jury issued a $1.5 million verdict against Thomas-Rasset last year.
When Torruella asked Clair to explain the previous dearth of lawsuits involving noncommercial users, he replied, "Every copyright holder has to make a determination of whether the expensive of litigation [is worthwhile]," Clair said.
"Do we assume that Congress is aware that noncommercial users hadn't been sued before [record companies began suing individual downloaders]?" asked Thompson.
Clair replied that the 1984 Supreme Court case Sony Corp. v. Universal City Studios "makes it clear that courts should apply the statute as written." In that case, the Court wrote that Congress may "take a fresh look" at the video recording technology at issue in the case and its impact on copyright liability "just as it so often has examined other innovations in the past."