Sony BMG Music Entertainment v. Tenenbaum

Court reduces the jury’s award for willful copyright infringement of thirty of plaintiff recording companies’ songs from $675,000 to $67,500, after holding that jury’s damage award is unconstitutionally excessively large.

Five recording companies (Sony BMG Music Entertainment, Warner Bros. Records Inc., Atlantic Recording Corp., Arista Records LLC, and UMG Recordings, Inc.) sued defendant Joel Tenebaum for copyright infringement based on his use of peer-to-peer file-sharing systems to download thirty copyrighted songs. The court granted summary judgment for the plaintiffs and set a jury trial on the issues of willfulness and damages. The plaintiffs chose to request statutory damages rather than actual damages. Section 504 of the Copyright Act authorizes the award of statutory damages in the amount of $750 to $30,000 per infringement and up to $150,000 for willful infringement. The jury concluded that the infringement was willful and awarded damages to the plaintiffs in the amount of $22,500 per copyrighted work, yielding a total amount of $675,000. The defendant moved for a new trial or remittitur, asserting (among other things) that the jury’s award violated the Due Process Clause of the U.S. Constitution. The U.S government intervened and filed a motion in support of the jury’s verdict.

In a 62-page decision, the court granted the defendant’s motion for a new trial, holding that the jury’s award “is unconstitutionally excessive.” As a preliminary matter, the court determined that the proper standard for evaluating whether the jury’s award is constitutional should be based on the three guideposts established in BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), which involved a jury’s award for punitive damages. The three BMW guideposts are:

(1) the degree of reprehensibility of the defendant’s misconduct;
(2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award;
and (3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

The court also said that it would consider two additional factors “that distinguish this case from a typical case in which punitive damages are awarded: (1) the jury’s award fell within a range authorized by Congress, and (2) the maximum and minimum amount of statutory damages that could be imposed for each of Tenenbaum’s acts of infringement was clearly set forth in section 504(c) [of the Copyright Act, i.e., providing notice to Tenenbaum of the potential damage amount].”

The court began by applying the third guidepost because it “is arguably the most troublesome for Tenenbaum’s argument that the jury’s award violated the Due Process Clause.” Using the third guidepost, courts should consider the difference between the jury’s award and the civil penalties authorized or imposed in comparable cases. The court stated that this guidepost weighs heavily in favor of the plaintiffs because the jury’s award falls within the range set forth in section 504(c); thus there is a nexus between the damages authorized by Congress and the jury’s award. However, the court also stated that “it is far from clear that Congress contemplated that a damages award as extraordinarily high as the one assessed in this case would ever be imposed on an ordinary individual engaged in file-sharing without financial gain. Just because the jury’s award fell within the broad range of damages that Congress set for all copyright cases does not mean that the members of Congress who approved the language of section 504(c) intended to sanction the eye-popping award imposed in this case.” (emphasis in original)

The court turned to legislative history to conclude that Congress “did not foresee that statutory damages awards would be imposed on noncommercial infringers sharing and downloading music through peer-to-peer networks.” The court also examined jury awards in other copyright infringement cases. According to the court, the case most comparable to Tenenbaum’s is that of Jammie Thomas-Rasset, the only other file sharer to go to trial. When the second jury returned a verdict of $80,000 per song, for a total award of $1,920,000, Chief Judge Davis required that the plaintiffs accept a remitted award of $2,250 per song or submit to a new trial; the plaintiffs rejected this reduced amount. In this case, the court stated that “Tenenbaum’s culpability seems roughly comparable to that of Thomas-Rasset. Both knew that file-sharing was illegal but engaged in it anyway. Both refused to accept responsibility for their actions, trying to shift blame to others and even lying under oath. And both engaged in multiple acts of infringement. Thus, it seems that the awards in both cases should be about the same, suggesting that the jury’s award of $675,000 in this case should be significantly reduced.”

The court also examined damages imposed on other file-sharers whose cases have not made it to trial. As the court noted, most individuals sued by recording companies for illegal file-sharing have either settled with the recording companies or have allowed default judgments to be entered against them, and when defendants have defaulted, the recording companies have generally asked courts to impose the statutory minimum damage amount of $750 per infringed work, and courts have routinely granted these requests. “ Recording companies’ willingness to accept damages of only $750 per infringed work in such cases suggests that section 504(c)’s minimum damages provision is roughly sufficient to encourage the recording industry to ferret out copyright infringement. Since section 505 provides for the awarding of attorneys’ fees and court costs, there is no reason to further inflate awards under section 504(c) to allow plaintiffs to recover their litigation expenses.” And the court examined awards for copyright infringement cases involving public performances and held “I cannot conceive of any plausible rationale for the discrepancy between the level of damages imposed in public-performance cases and the damages awarded in this case. The disparity strongly suggests that the jury’s $675,000 award is arbitrary and grossly excessive.”

The court held that the second guidepost weighs in favor of the defendant. The second guidepost requires a court to consider the ratio between the actual or potential harm to the plaintiff and the punitive award assessed by the jury; in this case, the court stated that its analysis using the second guidepost “must focus squarely on Tenenbaum’s individual conduct, the benefits that he derived from that conduct, and the harm that he caused.”

Regarding potential harm to the plaintiffs, the court held that, although the plaintiffs argued that they have lost billions of dollars in revenue due to file-sharing, the jury was not permitted to punish the defendant for harm caused by other infringers. The court also addressed how much it would have cost the defendant to legally download copyrighted songs. The court stated that each of the songs that the defendant illegally downloaded can now be purchased online from the iTunes Music Store and other retailers for approximately $0.99 or $1.29 a piece, and that the defendant could have purchased albums containing those songs for about $15 each. The court tried to calculate the actual damages to the plaintiffs using these amounts. “If we assume that the damages to plaintiffs equaled $1 per song, then the ratio [of the jury’s award to actual damages] is 22,500:1, and if we assume damages of $15 per song . . . the ratio is 1,500:1.” According to the court, “[w]hile file-sharing may be very economically damaging to the plaintiffs in the aggregate, Tenenbaum’s individual contribution to this total harm was likely minimal.”

Under the second guidepost the court also considered the benefits to the defendant, which it called minimal. “Tenenbaum did not derive any direct pecuniary gain from file-sharing. He did not, for example, sell the songs he illegally downloaded or charge for access to his shared folder. Instead, the ‘profit’ that he reaped from his activities was more amorphous; he gained the ability to access an essentially unlimited variety of music on demand.” The court calculated this benefit to be worth about $1,500 for the eight-year period that the defendant engaged in illegal downloading, based on the current availability of some music services that cost $15 a month for access to thousands of songs. “If we assume that Tenenbaum would have paid approximately $1,500 to engage in file-sharing from 1999 to 2007, the ratio between the statutory damages awarded in this case and the benefit he derived from his infringing conduct is 450:1,17.”

Regarding the first guidepost – the degree of reprehensibility of the defendant’s conduct – the court held that several of the reprehensibility factors identified by the Supreme Court in BMW militate in the defendant’s favor including (1) the harm he caused was economic, not physical; (2) his conduct did not evince an indifference to or a reckless disregard of the health or safety of others; and (3) the “large recording companies that he harmed are not financially vulnerable.” Other factors, however, militate against the defendant including (1) he willfully engaged in thousands of acts of copyright infringement, knowing his conduct to be illegal but acting anyway; and (2) he lied under oath and tried to shift blame to family members and others who had access to his computer in an effort to escape liability. According to the court, “Tenenbaum is one of the most blameworthy [file-sharers] since he engaged in the activity for a long period of time, knowing it to be illegal, and then lied in a futile attempt to cover his tracks.”

Using these guideposts, the court partially granted the defendant’s motion and reduced the jury’s award. “Based on my review of the BMW factors and the standard articulated in Williams [St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63 (1919)], I conclude that the jury’s award of $675,000 violates the Due Process Clause. The award bears no rational relationship to the government’s interests in compensating copyright owners and deterring infringement. Even under the Williams standard [which the plaintiffs urged the court to apply], the award cannot stand because it is ‘so severe and oppressive as to be wholly disproportioned to the offense and obviously unreasonable.’”

Citing favorably to Capitol Records Inc. v. Thomas-Rasset, the court held that the maximum amount allowable under the constitution is three times the minimum statutory amount of $750 per infringed work. Thus, the court reduced the jury’s award to $2,250 per infringed work, for a total of $67,500. According to the court, this amount “is significant and harsh. It adequately compensates the plaintiffs for the relatively minor harm that Tenenbaum caused them and, even more importantly, should serve as a strong deterrent against unlawful filesharing. The award is higher than I might have awarded in my own independent judgment and is the maximum that the Constitution will permit given the facts of this case.”