Copyright Plaintiffs Take a Hit: The Fifth Circuit Has Recalculated Statutory Damages in UMG v. Grande
The Fifth Circuit Court of Appeals overturned a jury’s awarding of $46,766,200 in statutory damages under the Copyright Act.[1] Significantly, the decision departs from how the majority of its sister circuits have computed statutory damages in copyright infringement cases.[2] It will likely result in much lower copyright infringement awards for plaintiffs in this circuit.[3]
The case arose when major record labels, including that of UMG Recordings, Inc., Sony Music Entertainment, and Warner Bros. Records (collectively the “Plaintiffs”) filed suit against Grande Communications Networks, LLC (“Grande”) for contributory copyright infringement.[4] Grande is a large internet service provider (“ISP”) servicing Texas.[5] Plaintiffs explained that peer-to-peer file-sharing networks (“P2P networks”) make it possible for internet users to copy and distribute digital files amongst one another.[6] P2P networks have evolved so that they only identify users by their IP addresses, making it very difficult for copyright owners to identify infringers of their content.[7] It is only the ISPs that operate these networks that can match a specific IP address to its corresponding internet user.[8] To assist in identifying infringers, third-party companies have developed technologies to identify infringing users by their IP addresses.[9] These companies then notify the ISPs of the conduct so that they can take the appropriate measures to stop the misconduct.[10]
In this case, Plaintiffs alleged that Grande had received thousands of infringement notices over a seven year period and had no policy in place to suspend or terminate these repeat offender accounts.[11] Under the Digital Millenium Copyright Act, ISPs have a complete defense to copyright infringement claims if they have “reasonably implemented” a policy to terminate repeat infringers.[12] The district court found that as a matter of law, Grande did not meet the requirements of the defense, which Grande did not dispute on appeal.[13]
On appeal, the Fifth Circuit upheld the jury’s verdict finding Grande liable for contributory copyright infringement.[14] The court stated that “intentionally providing material contribution to infringement” was a basis for contributory liability.[15] An ISP that continued to provide internet services to known infringers constituted such material contribution.[16] Because Grande had engaged in this kind of conduct to infringe upon Plaintiffs’ content, Grande was liable for contributory infringement.[17]
The Fifth Circuit then assessed the jury’s statutory damages award under the Copyright Act.[18] The question presented to the court was whether the Copyright Act awarded plaintiffs with multiple infringed sound recordings appearing on the same album, one statutory damage award or if each sound recording was a single work entitled to its own individual damages award.[19] This was an issue of first impression for the Fifth Circuit.[20]
In a shocking split from the other circuits, the court held that when there are multiple infringed sound recordings appearing on the same album, plaintiffs should only receive one statutory damage award for that album.[21] In its analysis, the court highlighted that under § 504 of the Copyright Act, “a copyright owner may elect to recover an award of statutory damages for all infringements involved in the action, with respect to any one work, . . . For the purposes of this subsection, all the parts of a compilation or derivative work constitute one work.[22] The Copyright Act defines a compilation as “a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship.”[23]
The court emphasized the Supreme Court’s directive to look first to the plain meaning of the applicable statute.[24] When the words of the statute are unambiguous, courts must apply the statute as written by Congress.[25] Finding that the words of § 504 were unambiguous, the court applied the statute to the facts at hand.[26] Because each album constituted a compilation, a point conceded by the Plaintiffs, “all the parts of a compilation,” qualified as one work within the meaning of § 504.[27] Thus, under the statute Plaintiffs would only be entitled to one award of statutory damages, regardless of the number of individual recordings from that album (or compilation) that were infringed.[28]
In its strict textualist approach, the court rejected the “functional” test adopted by the other circuits.[29] The functional test assesses whether parts of a compilation have their “own independent economic value in the marketplace” when they were infringed and allows a court to count such parts (or songs) as individual works for purposes of calculating damages.[30] The court also rejected amicus supporting Plaintiff’s policy argument that to read the statute so narrowly would “threaten the livelihood of some copyright owners” and unfairly penalize those copyright owners that had taken advantage of the cost and efficiency benefits of registering their work as a compilation.[31]
Some are saying that the Fifth Circuit’s split from the circuit majority will result in a petition for certiorari to the Supreme Court.[32] In the meantime, it seems probable that plaintiffs seeking statutory damages in copyright infringement cases may try to avoid the Fifth Circuit.[33]
Footnotes
