Tag Archives: statutory damages

USPTO White Paper on Remixes, First Sale, and Statutory Damages

*Guest post by Jonathan Band, policybandwidth*

Today the Department of Commerce Internet Policy Task Force today released its White Paper on Remixes, First Sale, and Statutory Damages. (This follows on from the Green Paper issued in 2013.) The Task Force has proposed several significant changes to statutory damages. It recommends that the statutory damages provision be amended: 1) to incorporate a list of factors for courts and juries to consider when determining the amount of a statutory damages award; 2) to expand the eligibility for lower innocent infringement awards when the copyright owner uses a copyright notice; and 3) to give courts discretion to assess statutory damages other than on a strict per-work basis in cases involving non-willful secondary infringement for online services offering a large number of works. These changes, if adopted, would make the statutory damages framework much less burdensome. The Task Force does not recommend any statutory changes relating to remixes or digital first sale, but it proposes multi-stakeholder negotiations related to these issues. The White Paper contains numerous references to comments submitted by the Library Copyright Alliance (which consists of ARL, ALA, and ACRL) and individual libraries.

The message at the beginning of the White Paper from Commerce Secretary Penny Pritzker states that “a healthy copyright system strikes important balances between rights and exceptions–delineating what is protectable and what is not, determining which types of uses require permission or payment, and establishing appropriate frameworks to effectively protect rights and foster creativity and innovation. These balances must be reviewed regularly to ensure they continue to function well as a foundation for America’s culture and economy.”

Digital First Sale. The Task Force does not recommend statutory amendment to facilitate digital first sale. It says that it was hard to measure the extent of consumer loss resulting from the absence of a digital first sale provision. Further, it feels that the market has responded with business models such as providing access to large quantities of digital works, e.g., Netflix. At the same time, digital first sale could cause harm to the primary market. Accordingly, the Task Force sees no need to amend the Act at this time.

However, the Task Force notes the problems libraries had experienced with the lending of e-books. The Task Force observes that the situation appears to be improving, and that government intervention could interfere with the development of innovative solutions. However, “if over time it becomes apparent that libraries have been unable to appropriately serve their patrons due to overly restrictive terms imposed by publishers, further action may be advisable (such as convening library and publisher stakeholders to develop best practices, or amending the Copyright Act).” Similarly, the Task Force recognizes that publishers might interfere with library preservation. This could be addressed, if necessary, in the context of updating section 108.

Remixes. The White Paper does not recommend any statutory changes to facilitate the creation of remixes. The Task Force recognizes that fair use is the central mechanism for permitting remixes, and believes that fair use performs this job well. It rejects compulsory licensing schemes as unnecessary. At the same time, the Task Force has suggestions for making it easier for remixers to understand what uses are fair and to obtain a license when they wish to do so. While recognizing the role of single sector best practices (e.g., the best practices organized by AU), it expresses a preference for negotiated guidelines for remixing. Although acknowledging the challenge of different stakeholders reaching an agreement on guidelines, it believes they are achievable if the scope of any guideline is narrow enough.

The Task Force also encourages the development of voluntary licensing systems. It acknowledges the concern the Library Copyright Alliance raised that licensing systems might undermine fair use, but disagrees with that assessment in a helpful way. In essence, it argues that the fourth fair use factor receives less weight in cases of transformative uses. Thus, the existence of a licensing system should not weaken a remixer’s fair use argument.

The Task Force recognizes that users would benefit from clarification of the terms of EULAs, and recommends a multi-stakeholder process for better communicating terms to the public (e.g., developing standardized notices or alternatives to a “buy” button).

Statutory Damages. As noted above, the White Paper’s most important contribution is in the area of statutory damages. The Task Force recognizes that the existing framework can be applied inconsistently because courts and juries have insufficient guidance. Moreover, the potential of draconian damages deters development of innovative technologies. At the same time, the Task Force does not seem convinced that there was a copyright troll problem.

The Task Force’s first proposal is to codify model jury instructions concerning statutory damages adopted by several circuits. The instructions include a list of factors to consider when determining the amount of a statutory damages award. These factors would help insure that the damages award is related to the actual harm and that the defendant’s state of mind and financial condition are given appropriate weight. These factors would improve consistency and transparency in the application of statutory damages.

The second proposal is to expand the eligibility for lower innocent infringement awards ($200 as opposed to $750). Currently, under sections 401(d) and 402(d), the innocent infringer defense is not available when the copyright owner places a copyright notice on the work. The Task Force proposes eliminating the preclusive effect of notice on the innocent infringement defense. At the same time, the Task Force rejects the Library Copyright Alliance proposal to expand the remission of damages when a library or archives has a good faith belief that its copying was a fair use. Currently, this provision applies only to the reproduction right, not the other exclusive rights. The Task Force believes that the libraries had not demonstrated need for this amendment. If the problem becomes more evident, the Task Force suggests addressing it in the context of section 108 reform.

The third proposal is to give courts discretion to assess statutory damages other than on a strict per-work basis in cases involving non-willful secondary infringement for online services offering a large number of works. This would reduce the threat statutory damages pose to innovative Internet companies.

Finally, the Task Force expresses support for the establishment of a small claims court for copyright infringement. The Task Force evidently believes that such a court could benefit defendants by diverting smaller cases away from a venue where significant statutory damages can be assessed.

Edited: January 28, 5:00pm

What’s Missing from the Register’s Proposals

*Guest post by Jonathan Band, policybandwidth*

In her wrap-up testimony yesterday in the House Judiciary Committee’s two-year Copyright Review, Maria Pallante, the Register of Copyrights, identified three categories of policy issues: those that are ready for legislative process, those that warrant near-term study and analysis, and those that warrant further attention. Unfortunately, what many perceive to be the Copyright Act’s greatest flaw, the existing structure of statutory damages, received just a passing reference in the third “warrant attention” category. As numerous witnesses testified during the course of the Copyright Review, the threat of statutory damages of $150,000 per work infringed chills investment in innovative technologies and allows copyright trolls to extort settlements that greatly exceed the actual harm caused.

The Register paid more attention to the Digital Millennium Copyright Act’s prohibition on the circumvention of technological protection measures, 17 U.S.C. § 1201, which appears on the first two lists. While the Register’s recognition of Section 1201’s flaws is welcome, the Copyright Office has the power to address some of these deficiencies itself without additional Congressional action.

Register Pallante correctly observes that a wide range of stakeholders support “mak[ing] it easier to renew exemptions that have previously been adopted and are in force at the time of the triennial rulemaking proceeding.” She states that “the Copyright Office agrees that the process of renewing existing exemptions should be adjusted to create a regulatory presumption in favor of renewal.” Accordingly, she feels that “it would be beneficial for Congress to amend Section 1201 to provide that existing exemptions will be presumptively renewed during the ensuing triennial cases where there is no opposition.”

However, the Copyright Office need not wait for Congressional action to make the renewal process easier. The Register asserts that “the Section 1201 statutory framework requires that, to continue an existing exemption, proponents must bear the legal and evidentiary burden of justifying the exemption anew .…” In fact, Section 1201 itself imposes no such burden. It simply states that the Librarian must make a determination in a rulemaking proceeding whether to grant an exemption to users of a certain class of works and that the exemption lasts for three years. The statute says nothing about how the Librarian should handle renewals of existing exemptions.

The notion that a proponent must justify an exemption de novo every three years derives from a single sentence in a single committee report issued during the legislative process that resulted in the DMCA. This sentence states that the Librarian’s “assessment of adverse impacts on particular categories of works is to be determined de novo.” The Copyright Office in its administration of the rulemaking is not bound by this report language. Thus, it could decide to create a rebuttable presumption in favor of renewal.

Moreover, even if the Office chooses to give weight to this language, the language only states that the Librarian must take a fresh look at whether users of a class of works are likely to be adversely affected by Section 1201’s prohibition. It does not say that proponents must create a new legal and evidentiary record in support of renewal of the exemption. Instead, the Copyright Office and the Librarian could just review the record created in the previous rulemaking, as supplemented by interested parties in the current rulemaking. If opponents of renewal do not offer substantial evidence that renewal would harm the market for or value of their works, see § 1201(a)(C)(iv), the Librarian is likely to reach the same conclusion he reached three years earlier. In short, the Copyright Office could significantly lighten the burden of renewal by indicating that it will incorporate the record created in the previous rulemaking.

Additionally, in the category of policy issues that warrant near-term study and analysis, the Register identifies numerous other potential problems with Section 1201. She notes that some of the permanent exceptions may be too narrow in scope, and that the exemptions created under the rulemaking apply only to the act of circumvention, and not the development and distribution of circumvention tools.

Further, she observes that some stakeholders have suggested “a disconnect between the original purpose of Section 1201—protecting access to creative works—and its effect on a wide range of consumer goods that today contain copyrighted software.” (This was the subject of a DisCo post earlier this year.) She adds that “consumers have voiced discomfort that Section 1201 prevents them from engaging in activities, such as the repair of their automobiles and farm equipment, which previously had no implication under copyright law.”

It is true that the Copyright Office cannot change the scope of the existing permanent exceptions, nor extend the exemptions to the trafficking in circumvention tools. It is also true that the Copyright Office cannot unilaterally solve the problem of the application of Section 1201 to embedded software essential to the operation of larger devices and machines.

At the same time, the Copyright Office could take a more pragmatic approach toward exemptions for embedded software. For example, it could consider, and ultimately grant, a broad exemption for all software essential to the operation of hardware in the lawful possession of the user. Regrettably, in this rulemaking cycle the Copyright Office has gone in the opposite direction, drawing up classes as narrowly as possible. For the unlocking of devices from wireless networks, the Copyright Office has identified five separate classes for five different kinds of devices. It has done the same for the “jailbreaking” of devices so that they can access alternate lawful content. For circumvention of TPMs on vehicle software, for the purpose of diagnosis and repair, or after-market customization, the Copyright Office is considering only land vehicles, when the same issue obviously will apply to boats and aircraft.

By balkanizing the embedded software problem in this manner, the Copyright Office places a much greater burden on the applicants of each narrow class to meet the evidentiary standard the Office imposes. Section 1201 certainly does not require the identification of such narrow classes.

Obviously these measures will not address all the ills of Section 1201. Legislation along the lines of the Unlocking Technology Act, H.R. 1587, or the Breaking Down Barriers to Innovation Act, S. 990 and H.R. 1883, are necessary to do that. But the Copyright Office could adopt these measures now, without Congressional action.

The Register’s testimony raises too many other issues to be examined here. But one proposal merits attention. In the category of issues that warrant near-term study and analysis, the Register recommends a “formal and comprehensive study” of the safe harbors in Section 512 “to ensure that it is properly calibrated for the internet as we know it today.” Frankly, the Section 512 safe harbors have been studied to death. They have been the subject of numerous Congressional hearings and were a major focus of the Commerce Department Internet Policy Task Force report on Copyright Policy, Creativity, and Innovation in the Digital Economy. As the Register’s testimony acknowledges, the Internet Policy Task Force’s report led to a year-long process to produce best practices for the notice and takedown system. The safe harbors have been examined in law review articles, economic studies, and Congressional Research Service reports. The Register asserts that “it is time to take stock of Section 512.” In fact, Congress, the Copyright Office, the PTO, the copyright owners, the Internet service providers, and public interest groups have been taking stock of Section 512 continuously since its enactment.

A far better use of government resources would be a formal and comprehensive study of statutory damages, “to consider what is working and what is not, along with possible legislative improvements…to…ensure that it properly calibrated for the internet as we know it today.”

LCA Statement on Copyright Remedies for House Judiciary Subcommittee Hearing

On July 24, 2014, the House Judiciary Subcommittee on Courts, Intellectual Property and the Internet continued its copyright review with a hearing on copyright remedies. Witnesses at this hearing include Mr. David Bitkower, Acting Deputy Assistant Attorney General in the Criminal Division, U.S. Department of Justice; Mr. Steven M. Tepp, President and Chief Executive Officer, Sentinel Worldwide; Mr. Matt Schruers, Vice President for Law and Policy, Computer & Communications Industry Association; Mr. Sherwin Siy, Vice President of Legal Affairs, Public Knowledge; and Ms. Nancy E. Wolff, Partner, Cowan DeBaets, Abrahams & Sheppard LLP.

The Library Copyright Alliance filed a statement for the hearing, focusing on the problems with statutory damages. The statement notes that the existing safe harbor requiring a court to remit statutory damages when a library, archive, educational institution or public broadcasting entity believed and had reasonable grounds to believe that its use constituted fair use applies only to the reproduction right. The statement recommends an update to reflect the digital era so that this safe harbor applies to any type of use, including those implicating performance, display, distribution or derivative work rights.