Raising the Stakes in Copyright Litigation: The Availability of Punitive Damages

The threat of enhanced damages, particularly in the hands of a jury, can have a considerable effect influencing the strategic conduct of litigation. Assuming some merit to a claim ' at least sufficient to withstand summary judgment ' the possibility of a verdict doubled or trebled or otherwise multiplied to deter or punish perceived willful, malicious conduct, perhaps representing many times the plaintiff's actual damages or the defendants' profits, can indeed be something of a gun to the head. To some plaintiffs seeking to vindicate a perceived wrong, the prospect of punitive damages can, of course also be something akin to the brass ring, adding extra incentive spurring pursuit of a verdict to the very end, even in a case that might otherwise settle.

To many practitioners, it is likely assumed that the sole monetary remedies under the Copyright Act are those specified in Section 504 of the statute, namely the copyright owner's provable losses and/or the infringer's profits, or, alternatively, statutory damages (which, by statutory formula, include possible stepped-up awards in cases of willful infringement). It was thus with some significance and perhaps surprise that on Aug. 30, 2004, in a slender decision of only seven paragraphs, Blanch v. Koons, 329 F. Supp.2d 568 (S.D.N.Y. 2004), a federal judge in New York (Louis Stanton) rendered a decision granting a motion to amend the complaint in a copyright case to allow the plaintiff to seek punitive damages (not simply enhanced statutory damages). As Judge Stanton's decision makes clear, his ruling is largely unprecedented.

Judge Stanton explained the basis for permitting the amendment: “where the contemplated award is actual damages plus profits, such a recovery is compensatory only and does not address the interests of deterrence and punishment that are reflected in the principles underlying both punitive damages and statutory damages for willful infringement. Therefore in this context, to say that the public policy rationale for punitive damages can be properly accounted for is not correct.” 329 F. Supp.2d at 569 (quoting TVT Records v. The Island Def Jam Music Group, 262 F.Supp.2d 185, 186 (S.D.N.Y. May 5, 2003)). Indeed, in Blanch, enhanced statutory damages were not available because the infringement commenced before the plaintiff's work was registered.

Judge Stanton elaborated only somewhat further: “Ultimately, the determination whether punitive damages are available for copyright infringement cases must be made in a case where the issue is squarely presented: where the jury could find malice or willful infringement, and the plaintiff is not seeking (or is barred from obtaining) statutory damages.” 329 F. Supp.2d at 569. It may be that simply allowing the amendment rather than foreclosing the possibility of recovering exemplary damages was viewed as the cautious, prudent course at the pleadings stage, not an endorsement of the theory. Indeed, as the court went on to say, the decision did no more than allow the plaintiff “a chance to prove malice and raise squarely the question whether punitive damages are available,” id. at 570, which may have been preferable to barring the matter entirely at the pleading stage.

In TVT Records, relied on in Blanch v. Koons, a claim for punitive damages for copyright infringement actually proceeded to a jury verdict. Finding no precedent squarely on point, TVT Records instead relied on intimations and dicta in other recent cases (discussed below) to the effect that what had once seemed a hard and fast rule precluding punitive damages might now admit exceptions in appropriate cases. The court also relied on a model jury instruction in Leonard B. Sand, Modern Federal Jury Instructions, Instruction 86B-20, both because the very existence of such an instruction (particularly in so prominent a treatise) was itself something of a practical precedent, and because the instruction was the actual model used to guide the jurors in that case. However, the court in TVT Records expressed caution in allowing the punitive damage claim to proceed, which it did because the plaintiff could not pursue the remedy of enhanced statutory damages.

Recent appellate cases have left only tantalizing clues of whether or when punitive damages might be available. In Davis v. The Gap, Inc., 246 F.3d 152, 172 (2d Cir. 2001), the court declined to allow punitive damages, but also declined to rule out the possibility that such an award might be allowed in appropriate cases. The Second Circuit thus explained: “As a general rule, punitive damages are not awarded in a statutory copyright infringement action.” Without entirely foreclosing such awards, the court there explained that “[t]he purpose of punitive damages ' to punish and prevent malicious conduct ' is generally achieved under the Copyright Act through the provisions of 17 U.S.C. '504(C)(2), which allow increases to an award of statutory damages in cases of willful infringement.” In Davis, defendant did not prove willfulness, so there was no need for the court to consider the claim any further. However, the crack left in the door (the statement of a “general” rule that, as distinct from an absolute rule, must admit exceptions) provided just enough daylight for TVT Records, 2 years later, to invite new opportunities for such claims to proceed.

Davis' qualified and conditional view may be contrasted with the Second Circuit's earlier summation, in Oboler v. Goldin, 714 F.2d 211 (2d Cir. 1983), where the court, without reservation explained that the Copyright Act, “by its language permits recovery only of actual damages.” Id. at 213. Thus the court opined that “[p]unitive damages are not available in statutory copyright infringement actions.” Id. (The court did of course explain that punitive damages are available under state law, but that there is no longer a cause of action for common law copyright infringement.)

The older and simpler view expressed in Oboler is certainly shared by Nimmer. See 4 Melville and David Nimmer, Nimmer on Copyright '14.02[B] at 14-29 (Lexis/Nexis 2004). However, the only circuit court decisions in the last decade cited by Nimmer (including Davis, supra) are less than wholly clear on the subject. As noted in Hays v. Sony Corp. of America, 847 F.2d 412 (7th Cir. 1988), “authority on the question is surprisingly sparse.” Id. at 415. The Seventh Circuit there relied on two 1982 cases from the Second Circuit, which perhaps need now to be re-read in light of Davis. Without any independent analysis, the court, seemingly less than fully convinced, was nonetheless reasonably content to rely on the plaintiff's failure to cite any contrary authority. The one other appellate decision, Nintendo of America, Inc. v. Aeropower Co., Ltd., 34 F.3d 246, 251 (4th Cir. 1994), simply rejected an award of damages that was an admixture of federal and state remedies (statutory damages under copyright, which were then trebled under a state statute). The court did not state that exemplary damages could not be awarded for copyright infringement but only that the federal statute has no provision for trebling actual damages pursuant to state law.

Nintendo did cite the Supreme Court's decision in the Betamax case, Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 431, 104 S.Ct. 774, 783, 78 L.Ed.2d 574 (1984). There the Court noted, not specifically in respect of damages (much less punitive damages) but with respect to the scope of substantive remedies for alleged contributory infringement by users of Sony's Betamax video recorders, that “the remedies for copyright infringement are only those prescribed by Congress,” quoting Thompson v. Hubbard, 131 U.S. 123, 151 (1889). To apply that reasoning specifically to damages may be the correct decision as a matter of statutory interpretation. However, the fact is, courts are moving away from such a simple straightforward analysis. Given the nature of litigation (and litigators) until one or more appellate courts elect to draw a brighter line, it is fair to expect that claims for punitive damages will become more and more common in copyright cases.

The threat of enhanced damages, particularly in the hands of a jury, can have a considerable effect influencing the strategic conduct of litigation. Assuming some merit to a claim ' at least sufficient to withstand summary judgment ' the possibility of a verdict doubled or trebled or otherwise multiplied to deter or punish perceived willful, malicious conduct, perhaps representing many times the plaintiff's actual damages or the defendants' profits, can indeed be something of a gun to the head. To some plaintiffs seeking to vindicate a perceived wrong, the prospect of punitive damages can, of course also be something akin to the brass ring, adding extra incentive spurring pursuit of a verdict to the very end, even in a case that might otherwise settle.

To many practitioners, it is likely assumed that the sole monetary remedies under the Copyright Act are those specified in Section 504 of the statute, namely the copyright owner's provable losses and/or the infringer's profits, or, alternatively, statutory damages (which, by statutory formula, include possible stepped-up awards in cases of willful infringement). It was thus with some significance and perhaps surprise that on Aug. 30, 2004, in a slender decision of only seven paragraphs, Blanch v. Koons , 329 F. Supp.2d 568 (S.D.N.Y. 2004), a federal judge in New York (Louis Stanton) rendered a decision granting a motion to amend the complaint in a copyright case to allow the plaintiff to seek punitive damages (not simply enhanced statutory damages). As Judge Stanton's decision makes clear, his ruling is largely unprecedented.

Judge Stanton explained the basis for permitting the amendment: “where the contemplated award is actual damages plus profits, such a recovery is compensatory only and does not address the interests of deterrence and punishment that are reflected in the principles underlying both punitive damages and statutory damages for willful infringement. Therefore in this context, to say that the public policy rationale for punitive damages can be properly accounted for is not correct.” 329 F. Supp.2d at 569 (quoting TVT Records v. The Island Def Jam Music Group , 262 F.Supp.2d 185, 186 (S.D.N.Y. May 5, 2003)). Indeed, in Blanch, enhanced statutory damages were not available because the infringement commenced before the plaintiff's work was registered.

Judge Stanton elaborated only somewhat further: “Ultimately, the determination whether punitive damages are available for copyright infringement cases must be made in a case where the issue is squarely presented: where the jury could find malice or willful infringement, and the plaintiff is not seeking (or is barred from obtaining) statutory damages.” 329 F. Supp.2d at 569. It may be that simply allowing the amendment rather than foreclosing the possibility of recovering exemplary damages was viewed as the cautious, prudent course at the pleadings stage, not an endorsement of the theory. Indeed, as the court went on to say, the decision did no more than allow the plaintiff “a chance to prove malice and raise squarely the question whether punitive damages are available,” id. at 570, which may have been preferable to barring the matter entirely at the pleading stage.

In TVT Records, relied on in Blanch v. Koons, a claim for punitive damages for copyright infringement actually proceeded to a jury verdict. Finding no precedent squarely on point, TVT Records instead relied on intimations and dicta in other recent cases (discussed below) to the effect that what had once seemed a hard and fast rule precluding punitive damages might now admit exceptions in appropriate cases. The court also relied on a model jury instruction in Leonard B. Sand, Modern Federal Jury Instructions, Instruction 86B-20, both because the very existence of such an instruction (particularly in so prominent a treatise) was itself something of a practical precedent, and because the instruction was the actual model used to guide the jurors in that case. However, the court in TVT Records expressed caution in allowing the punitive damage claim to proceed, which it did because the plaintiff could not pursue the remedy of enhanced statutory damages.

Recent appellate cases have left only tantalizing clues of whether or when punitive damages might be available. In Davis v. The Gap, Inc., 246 F.3d 152, 172 (2d Cir. 2001), the court declined to allow punitive damages, but also declined to rule out the possibility that such an award might be allowed in appropriate cases. The Second Circuit thus explained: “As a general rule, punitive damages are not awarded in a statutory copyright infringement action.” Without entirely foreclosing such awards, the court there explained that “[t]he purpose of punitive damages ' to punish and prevent malicious conduct ' is generally achieved under the Copyright Act through the provisions of 17 U.S.C. '504(C)(2), which allow increases to an award of statutory damages in cases of willful infringement.” In Davis, defendant did not prove willfulness, so there was no need for the court to consider the claim any further. However, the crack left in the door (the statement of a “general” rule that, as distinct from an absolute rule, must admit exceptions) provided just enough daylight for TVT Records, 2 years later, to invite new opportunities for such claims to proceed.

Davis' qualified and conditional view may be contrasted with the Second Circuit's earlier summation, in Oboler v. Goldin , 714 F.2d 211 (2d Cir. 1983), where the court, without reservation explained that the Copyright Act, “by its language permits recovery only of actual damages.” Id . at 213. Thus the court opined that “[p]unitive damages are not available in statutory copyright infringement actions.” Id. (The court did of course explain that punitive damages are available under state law, but that there is no longer a cause of action for common law copyright infringement.)

The older and simpler view expressed in Oboler is certainly shared by Nimmer. See 4 Melville and David Nimmer, Nimmer on Copyright '14.02[B] at 14-29 (Lexis/Nexis 2004). However, the only circuit court decisions in the last decade cited by Nimmer (including Davis, supra) are less than wholly clear on the subject. As noted in Hays v. Sony Corp. of America, 847 F.2d 412 (7th Cir. 1988), “authority on the question is surprisingly sparse.” Id. at 415. The Seventh Circuit there relied on two 1982 cases from the Second Circuit, which perhaps need now to be re-read in light of Davis. Without any independent analysis, the court, seemingly less than fully convinced, was nonetheless reasonably content to rely on the plaintiff's failure to cite any contrary authority. The one other appellate decision, Nintendo of America, Inc. v. Aeropower Co., Ltd., 34 F.3d 246, 251 (4th Cir. 1994), simply rejected an award of damages that was an admixture of federal and state remedies (statutory damages under copyright, which were then trebled under a state statute). The court did not state that exemplary damages could not be awarded for copyright infringement but only that the federal statute has no provision for trebling actual damages pursuant to state law.

Nintendo did cite the Supreme Court's decision in the Betamax case, Sony Corp. of America v. Universal City Studios, Inc., 464 U.S. 417, 431, 104 S.Ct. 774, 783, 78 L.Ed.2d 574 (1984). There the Court noted, not specifically in respect of damages (much less punitive damages) but with respect to the scope of substantive remedies for alleged contributory infringement by users of Sony's Betamax video recorders, that “the remedies for copyright infringement are only those prescribed by Congress,” quoting Thompson v. Hubbard, 131 U.S. 123, 151 (1889). To apply that reasoning specifically to damages may be the correct decision as a matter of statutory interpretation. However, the fact is, courts are moving away from such a simple straightforward analysis. Given the nature of litigation (and litigators) until one or more appellate courts elect to draw a brighter line, it is fair to expect that claims for punitive damages will become more and more common in copyright cases.