Did statutory damages destroy the music industry?

Have statutory damages become a narcotic that helped to destroy the music industry?  As reported elsewhere, file-sharer Joel Tenenbaum was found liable for $675,000 by a jury for copyright infringement of 30 songs.  The basis for the damages is the statutory damages provision of the Copyright Act, which permits copyright owners to seek between $750 to $30,000 per work, and if the infringement is willful, up to $150,000 per work.  Considering that the songs Tenenbaum infringed would have cost about a buck apiece on iTunes, the damages awarded — $22,500 per song and $675,000 total — are absurd.  As argued by others such as Pamela Samuelson and Tara Wheatland, grossly excessive statutory damages may be unconstitutional. 

I think the proper role for statutory damages is to provide a basis for damages when actual damages or defendant’s profits are hard to compute or are nominal.  Here, actual damages may be nominal, since the cost of each song is more or less a dollar.  Statutory damages need to have enough of a bite that the plaintiff will have a legitimate remedy.  But they shouldn’t be so excessive that they give a plaintiff a windfall.  In the Tenenbaum case, $22,500 per song is such a windfall.  Sure, the jury might have awarded $150,000 per song for a total of $4.5 million.  But the fact that the jury didn’t go to the max doesn’t make $22,500 per song any less punitive.  If a bully breaks your nose, it’s no defense for him to say that he could have broken your arms, too, but chose not to.

That’s not to say that Tenenbaum should only be liable for $1 per song.  There are other purposes to statutory damages.  Reasonable deterrence — both specific and general — can also be appropriate.  But $22,500 per song is not necessary for such deterrence.  Even at a minimum level of $750 per song, the total damages would still be $22,500 total.  Tenenbaum may also be liable for plaintiff’s attorney’s fees, which would be many, many thousands more.  $22,500 plus attorneys fees is nothing to sneeze at, and for many, would amount to personal bankruptcy.  All this for 30 songs.

This brings me to my suggestion that statutory damages may have helped to kill the music industry.  The power of possible statutory damages is undeniable.  Someone who downloads 10 songs is liable, at least in theory, for $1.5 million plus attorney’s fees.  Whoa!  Such theoretical liability is chilling, and the music industry has relied on it to try to deter file sharers.  But I have to wonder if statutory damages also made the music industry complacent.  Instead of spending critical years of trying to adapt its business model to the internet, the industry spent years suing its own customers.  In the meantime, newcomers such as the iTunes store, swooped in to create new business models to take advantage.

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