Arista Records LLC v. Usenet.com, Inc., USDC S.D. New York, September 16, 2010

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  • Court rejects pro se defendant’s argument that $6,585,000 statutory copyright infringement damages award assessed in magistrate’s Report and Recommendation is so excessive as to violate due process under the Fourteenth Amendment.'

In 2007, plaintiffs brought suit against defendants Usenet.com, Sierra Corporate Design, Inc., and Gerald Reynolds for direct, induced, contributory, and vicarious copyright infringement arising from the operation and use of internet song-sharing software. In 2009, the district court granted plaintiffs summary judgment on liability for infringement and referred the action to a magistrate for an inquest on damages. In his Report and Recommendation, the magistrate recommended statutory damages in the amount of $6,585,000. Pro se defendant Gerald Reynolds filed objections to the magistrate’s Report and Recommendation, arguing, in part, that the amount of damages was so excessive as to offend Fourteenth Amendment due process.

The calculation of statutory damages in copyright, which plaintiffs had elected to receive instead of actual damages, is “based on the number of works infringed rather than the number of times a defendant infringed each work.” Once the number of works infringed is established, it is multiplied by a per-work damages amount to derive a total damages award. Plaintiffs argued for the statutory maximum for willful infringement, $150,000 per infringement, and Reynolds argued for $200 per infringement, the minimum for innocent infringement. To determine the appropriate per-work damages amount, the magistrate “considered seven relevant factors that he identified from the case law: (1) expenses saved and profits earned by the infringer, (2) revenues lost by the plaintiff, (3) the value of the copyright to the plaintiff, (4) the deterrent effect the award would have on those other than the infringer, (5) the willfulness of the infringer’s conduct, (6) whether the infringer cooperated in providing records to assess the value of the material infringed, and (7) the likelihood that the award will discourage the defendant from repeating its infringement.” After applying this factor-based analysis and considering amounts awarded in similar cases, the magistrate arrived at an amount of $7,500 per work, resulting in a total damages award of $6,585,000.

Reynolds objected to the magistrate’s recommended damages award on constitutional grounds, arguing that due process limits which the U.S. Supreme Court has placed on punitive damages in State Farm v. Campbell, 538 U.S. 408 (2003), and BMW of North America, Inc. v. Gore, 517 U.S. 559 (1996), should be applied to statutory damages cases, including statutory damages for infringement under the Copyright Act. Reynolds argued that the ratio of statutory to actual damages established by the magistrate’s recommendation, which Reynolds asserted was 21,000 to 1, clearly violated the guideline set down by the Supreme Court in Campbell that “few awards exceeding a single-digit ratio between punitive and compensatory damages, to a significant degree, will satisfy due process.” The court rejected Reynolds’s argument, finding that Reynolds’s reasoning failed to take into account the true amount of actual damages, which would in fact be higher than the statutory damages recommended by the magistrate. Reynolds’s calculation assumed 35 cents of lost profit for each infringed work based on only one download for each song. The district court reasoned that, although actual damages were never determined because plaintiffs elected to receive statutory damages, an actual damages calculation would result in $20,000 in lost profits per song, based on infringement by defendants’ 15,000 subscribers. The resulting actual damages total of $17,560,000 would be almost three times the recommended statutory damages, negating Reynolds’s argument that, by comparison to actual damages, the recommended statutory damages were grossly excessive. Accordingly, the district court held that it need not decide whether Gore and Campbell apply to statutory damages awarded under the Copyright Act, and held that the recommended damages award did not offend due process.

The district court also rejected all of the non-constitutional objections raised by Reynolds. Reynolds’s objections that went to issues previously decided on summary judgment, including the court’s failure to consider the lack of a “clear expression” of intent to infringe when analyzing inducement, were rejected as untimely attacks on findings that are now law of the case. Reynolds, proceeding pro se after parting with his counsel, also argued that he was prejudiced in his defense because of lack of access to confidential, “attorneys’ eyes only” documents. The court found no error in the magistrate’s refusal to appoint counsel for the damages inquest, in part because neither the plaintiffs nor the magistrate relied on any confidential documents during the damages proceedings. Furthermore, the court found that Reynolds had failed to identify even a general category of confidential documents which might assist him on damages and Reynolds’s former attorneys had access to all confidential documents when briefing and arguing the issues which resolved liability. Rejecting several other arguments raised by Reynolds, the district court adopted and ratified the magistrate’s Report and Recommendation in full.