Jason Harrow: Day 2: It’s all about statutory damages

Reposted from JUST ENRICHMENT

After a first day that was full of panels focused mostly on the business aspects of the music crisis, today the lawyers gave their views on the problems facing the music industry. With cleverly named sessions like “The Current State of Copyright Law,” and “The Future of Copyright Law,” and with preeminent copyright thinkers like Terry Fisher, Larry Lessig, Google’s Fred von Lohmann, and many more taking to the stage, it was a pretty great day to be thinking about copyright law in the digital age.

There were many themes that were repeated by people of all different perspectives, but it became clear to me that the one change in the law that will solve the most problems in the simplest way is reform of statutory damages. As I mentioned in my preview post, I have a strong personal interest in this particular issue, but even I was surprised at how the specter of statutory damages lurked menacingly in the background of almost every discussion. The remedy has to be changed, and it is the one change that is simple enough that it seems genuinely within reach. The best way to see why is for to me to briefly explain the current statutory damages regime, quickly articulate the three most pressing Big Problems that I saw, and then show why statutory damages reform would go a long way to solving many of them.

Here’s the current scheme in a nutshell. The Copyright Act has two ways that plaintiffs can recover damages in a case of infringement. The first way is the way plaintiffs recover in almost every other civil case: a copyright holder can recover his actual damages and lost profits. But there is also a unique second measure of damages that plaintiffs can recover instead: something called “statutory damages” that can range from $750 to $150,000 per work infringed, constrained only by what a judge or jury “considers just.” There are currently several major fights about just how far such damages can go, like whether you can recover over $600,000 against a regular filesharer who earned no profits and caused no measurable harm, or whether you can recover damages that run into the trillions against the operator of LimeWire. But even if there are some limits in the most extreme cases, the threat of astronomical damages, even when a copyright holder has not shown that infringement has caused him any harm at all, is a very scary prospect. With that in mind, let me turn to the Big Problems.

Big Problem 1 has to do with the difficulty of collective licensing for entrepreneurs. Multiple panelists noted that, even if an innovator could obtain licenses from many copyright holders, there will inevitably be holdouts who don’t want to license even on what many would think to be reasonable terms; one entrepreneur compared the process of negotiating licenses in this space with herding cats. The holdout problem is critical, because, as I wrote after Day 1, the new generation of music services can only really be successful if they offer an incredible abundance of music. Not many people want to pay for a service that only features music from one or two record labels.

There are lots of hard, complicated ways to fix this specific problem, but notice that getting rid of onerous statutory damages also solves it. That’s because, if a plaintiff were instead entitled to something that reasonably tracks the harm he suffered (i.e. a reasonable royalty) in cases of good faith infringement by entrepreneurs trying to develop new business models — instead of an arbitrary amount of up to $150,000 per work — then negotiating licenses would all of a sudden be much easier: an owner either licenses his content, or leaves it to a judge to figure out the harm after-the-fact. This scheme makes the prospect of innovation much more appealing. All of a sudden, there’s a real incentive for copyright holders to license widely, and, conversely, companies don’t go bankrupt if they make good-faith efforts to comply with copyright in the service of business models that try to grow the pie for everyone (companies that look more like “pirates” could be subjected to much more severe damages). Big Problem 1 looks like not as big of a problem.

Big Problem 2 is what to do about so-called “orphan works.” Orphan works are songs that are in-copyright but whose owners are hard to track down (this problem also rears its head powerfully in the case of Google Books). In the current regime, it’s an enormous risk to use that song without permission, because someone could come out of the woodwork at any point and sue you for massive damages. Even people who make documentaries for public broadcasting aren’t immune from this threat: we heard over and over that basically every producer of documentaries, whether for-profit or not, either gets a song affirmatively cleared or doesn’t use it. If you can’t track down the owner, you just can’t use it, even if the chances of actually being sued are remote and the harm caused would be exceedingly minimal. This problem will only get harder beginning in 2013, when a very complex scheme kicks in that allows original creators to regain their copyrights even if the creators signed them away many years ago. This will further muddy the already swamp-like waters of copyright ownership.

Again, reforming damages solves this problem. No longer would it be an enormous risk to use an orphan work; if the copyright holder steps up at some later date, he can just be paid a reasonable rate — which is what the entrepreneur or documentary producer would have wanted to pay anyway, if only the owner were easier to find. This also gives an owner more incentive to make sure that there are accurate, public records of her copyrights, rather than hanging back and suing. Again, problem solved with damage reform.

Finally, Big Problem 3 is the meta-problem of reforming copyright to reflect new technologies and uses of music. As one panelist described this morning, the Copyright Act wen through a major, comprehensive revision in 1976, and for a few years people thought they had finally “solved” copyright. And then the personal computer and the CD and the Internet were invented; the Act now looks about as out-of-date as a traffic law that governs horse and buggies. This has lead people to propose all kinds of specific reforms, from the creation of alternative compensation schemes to reintroducing copyright formalities to adding a public performance right for sound recordings broadcast on terrestrial radio (though I don’t know still listens to FM radio these days). The list goes on.

Many of these are great ideas, but, again, reforming damages is a way to change the Copyright Act that is genuinely technology-neutral. No matter what technologies emerge over the next 10, 20, or 30 years, the general principle that good-faith innovators and average consumers should not be subjected to damages that are wildly out of proportion to any conceivable amount of financial damage their infringement causes is sound. It is tried and tested: it is the principle we use in essentially every other area of civil law. It will allow innovators to innovate and consumers to consume. It will lower the number of billion-dollar, high-stakes lawsuits and increase the number of people who sit down to the negotiating table to deliver consumers music in a way that makes sense for everyone. That sounds good to me, no matter what we might want to do to the rest of Title 17 of the United States Code in the coming decades.

Thanks to all who participated in the conference for a stimulating two days, thanks to the readers who have commented on these posts, and thanks to the organizers and specifically Professor Fisher for allowing this lowly law student to attend.