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Commerce Task Force Recommends Reforming Copyright Statutory Damages

· January 28, 2016

This morning the Commerce Department’s Internet Policy Task Force released a long-awaited “White Paper on Remixes, First Sale, and Statutory Damages.” The paper stems from a July 2013 “Green Paper” on copyright issues, which DisCo covered here. Following the Green Paper, Commerce convened 4 regional roundtables in mid-2014 to hear from stakeholders on three copyright subjects flagged for further review: (1) remix, (2) first sale, and (3) statutory damages. That process and related notices for comment led to today’s report.[1]

So what does it say? While it’s hard to do a 100+ page paper justice in a few sentences, in short, the paper is supportive of remix culture and consumers’ rights to resell what they own (the first sale doctrine), but doesn’t recommend any changes to copyright law to facilitate these activities, or to respond to changes resulting from digital technology. On statutory damages, however, the Task Force does suggest copyright law should be updated. It points to reforms that could help courts and juries determine more equitable damages, and that would mitigate the chill on investment and innovation that disproportionate damages causes. (Commerce also expresses support for a small claims copyright process, a subject that the Copyright Office explored in a 2013 report.)   

On remix culture and user-generated content, the Task Force recognizes that these activities are “a hallmark of the Internet.” It also notes that these activities can easily run afoul of copyright law, insofar as some, but not all, may be protected by fair use or other limitations and exceptions. Despite these challenges, Commerce concludes there’s “virtually no support” for legislation on this front, in part because it sees fair use as doing a decent job handling the issue. For cases where fair use doesn’t fully protect remix activities, Commerce looks to new private sector licensing efforts. Will “micro-licensing” help remix artists whose projects exceed fair use? It depends considerably on transaction costs: the harder it is to find and license works, the less likely follow-on users will be able to create.

With regard to the question of digital first sale (last explored by DisCo here), the task force adopts a similar wait-and-see approach. As we’ve discussed here before, “first sale” ensures that the copyright holder’s distribution right does not impede lawful, secondary market sales of a work once it has been sold. In part because of the rise of services like ReDigi, Commerce explores whether any changes should be adopted to this doctrine in the digital context, and concludes no, worrying that premature government intervention “could skew the development of innovative and mutually beneficial arrangements.” Commerce also opines, as the Copyright Office did in 2001, that technology that allows users to “forward and delete” digital content consistent with the copyright holder’s reproduction rights is not yet viable, but one day may be.

Notably, the report encourages content providers and digital content platforms to ensure consumers have a clearer understanding of the terms under which they are acquiring content. In a passage that sounds more like the FTC than the Commerce Department, the Task Force frowns on “the use of the ‘buy’ button (or buttons with similar designations such as ‘purchase’ or ‘own’) in cases where no purchase is taking place.” Basically, Commerce suggests that vendors of digital content may inadvertently imply ownership of content when what is in fact being sold is a license. This looks like it may lead to (another) multistakeholder process, focused on whether consumers know what they’re getting when they acquire digital content.

When it comes to copyright statutory damages, the Task Force accurately assesses the problems. The fact that a copyright plaintiff can obtain between $750 and $150,000 per work infringed can chill investment and innovation. The high range causes disproportionately punitive awards to fall upon individuals, and the mandatory floor has the potential to leave online service providers liable for large sums of money when awards for large numbers of works are aggregated.

The paper offers a number of solutions to these problems, while maintaining a meaningful deterrent to infringement. These include:

  1. codifying a list of nine factors in 17 U.S.C. § 504(c) for courts and juries to consider when determining the amount of statutory damages, including willfulness, and creating some relation between injury and award;
  2. expanding eligibility for the lower “innocent infringement” category of damages, such as in cases where a defendant had a good faith fair use defense; and
  3. giving courts discretion to assess statutory damages in cases of non-willful secondary liability in ways other than on a per-work basis, so as to avoid “extraordinarily large” awards in cases where such damages are not warranted, thereby chilling investment and innovation. This alternative damage assessment would be consistent with the nine factors proposed for 504(c).

In sum, the paper is an exhaustive, thoughtful assessment of complicated statutory provisions. The legislative recommendations for reforming statutory damages are moderate, but reasonable, and would help to remedy one of the more dysfunctional aspects of current copyright law.

[1] In some ways, the contemporary efforts of the Task Force resemble a 1994/95 Green and White Paper produced by a Commerce Department Working Group at the beginning of the long legislative process that led up to the Digital Millennium Copyright Act of 1998. However, whereas the 1994 Green Paper received considerable criticism for lack of balance (e.g., here), Commerce’s 2013 Green Paper was both thoughtful and exhaustive, even if one didn’t agree with every aspect of it.

Innovation

New technologies are constantly emerging that promise to change our lives for the better. These disruptive technologies give us an increase in choice, make technologies more accessible, make things more affordable, and give consumers a voice. And the pace of innovation has only quickened in recent years, as the Internet has enabled a wave of new, inter-connected devices that have benefited consumers around the world, seemingly in all aspects of their lives. Preserving an innovation-friendly market is, therefore, tantamount not only to businesses but society at large.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.