Businesses accused of software “piracy” by publishers or trade associations usually are most concerned about their potential exposure in copyright fines, should their dispute proceed to litigation. A recent Sixth Circuit case suggests that statutory damages awards in such cases legally can reach levels that may represent windfalls for prevailing plaintiffs, far outstripping the amount of their actual damages.
In Zomba Enterprises, Inc. v. Panorama Records, Inc., 2007 WL 1814319 (June 26, 2007), the Circuit Court reviewed a trial court’s decision to award a total of $804,000 in statutory damages for what it found to be the defendant’s willful infringement of twenty six copyrights. (In copyright cases, plaintiffs may elect to ask the court either for their actual damages, for which they must present evidence to support the amount claimed, or statutory damages, which is an amount set in the trial court’s discretion between $750 and $30,000 for non-willful infringement and up to $150,000 for willful infringement, per copyright infringed). The defendant in the case was a manufacturer of karaoke discs who had published some karaoke tracks without the consent of the original songs’ copyright holder. On appeal, the defendant argued that the amount was unconstitutionally high, in violation of its substantive due process rights, because the plaintiff’s estimated actual damages totaled only approximately $18,457.92 in lost licensing fees, or about 2.27% of the statutory damages award. The Circuit Court rejected this argument, in part relying on the 1919 Supreme Court case of St. Louis, I.M. & S. Ry. Co. v. Williams, 251 U.S. 63. The Williams case involved a claim by two sisters who were awarded $75 apiece against a railroad under a state statute providing statutory damages for ticketing overcharges. The Supreme Court there held that even though the amount awarded to the sisters was about 113 times the amounts they were overcharged, this did not constitute a violation of the railroad’s due process rights. Disregarding the substantial dissimilarity between the fiscal significance of $75 to a railroad in 1919, on the one hand, and nearly $1 million (including attorney’s fees and costs), to a medium-sized business today, the Sixth Circuit held that the case represented persuasive precedent that the statutory damages award in Zomba should stand.
The facts of Zomba differ considerably from those of many cases involving allegations of software “piracy.” The Zomba defendant was familiar with the entertainment industry and, though it claimed to have been unaware of the need to obtain permission to re-record songs for karaoke discs (even going so far as to claim, amusingly, that such use had an “educational” purpose, thus constituting fair use), it also apparently continued to infringe the copyrights at issue after having received both a cease-and-desist letter from the plaintiff as well as an injunction from the trial court. However, there is always a risk that what seems like a less egregious case of infringement will be read by a trial court much more harshly than initially expected, resulting in substantial costs to a losing defendant. The Zomba case suggests that it makes good sense for a business accused of “piracy” to at least be mindful of the worst-case scenario, and let an experienced attorney work to close the gap between disaster and a more reasonable resolution.