Reforming the Copyright Act's Statutory Damages Regime

---

Since 1997, Canada’s copyright regime has allowed a copyright holder to choose statutory damages instead of compensatory damages for copyright infringement.[1] The reason the Copyright Act[2] provides “for statutory damages in lieu of damages and profits is because actual damages are often difficult to prove and it is only the promise of statutory damages that will induce a copyright owner to invest and enforce his copyright and only the threat of a statutory award will deter infringers by preventing their unjust enrichment.”[3] Statutory damages award ranges differ based on whether the copyright infringement was for commercial or non-commercial purposes.[4]

Statutory damages as a remedy are uncommon globally and in Canada’s legal system. Statutory damages are not universally accessible in jurisdictions across the globe with only 24 out of 179 countries in the World Intellectual Property Organization having them.[5] The United States was the first jurisdiction to have a statutory damages regime, with Canada and Liberia following suit, years later, in 1997.[6] Notably, countries such as “the Netherlands, the United Kingdom, Australia, Germany, and France” lack a statutory damages regime.[7] Statutory damages are not often available in other circumstances; actual damages are more common.[8]

Copyright trolls take advantage of the copyright regime’s protection. In Voltage Picture LLC v John Doe, Canada’s first case to mention copyright trolls, the Court characterized them as plaintiffs filing “multitudes of lawsuits solely to extort quick settlements,” and stated that a troll lawsuit “requires courts to ensure that the litigation process and their scarce resources are not being abused.”[9] A copyright holder’s ability to elect for statutory damages has “undoubtedly enabled copyright trolls to flourish” because copyright trolls will scare individuals into settling the claim.[10] For example, Voltage was about individuals who were downloading a copy or sharing a Voltage movie.[11]

Copyright holders can elect for either actual or statutory damages as a remedy, and copyright trolls will often elect for statutory damages because the damage award is higher and actual damages are hard to prove. João Velloso and Mistrale Goudreau effectively illustrate the problem with statutory damages:

The regime is also very severe for a one-time infringer. In 2012, iTunes charged $1.29 CAD for the downloading of a single Justin Bieber song and his CDs were on sale at HMV for $12.99 CAD. Assuming that a song is a single work, the minimum award, even taking into account the good faith of a non-commercial infringer and the range set in the 2012 legislative modifications, would be $100 per proceeding, so seventy-seven times the actual damages.[12]

I argue that copyright troll practices will be less effective when the courts routinely award statutory damages for non-commercial purposes below the statutory minimum, especially in default judgment proceedings.

The existing statutory damages regime has sufficient statutory provisions but limited case law for courts to allow statutory damage awards lower than the non-commercial minimum

Statutory damage awards under s. 38.1 of the Act must be reasonable in the circumstances to “yield a just result.”[13] Lemieux J. stated that “[t]here should be some correlation between actual damages and statutory damages even though section 38.1 does not speak of actual damages.”[14] However, they clarify that “[a]ctual and statutory damages should not be conflated. Statutory damages are not intended to be 1:1 proportional with provable ‘but-for’ losses; rather, they can encompass both provable economic losses and additional factors such as deterrence.”[15]

For non-commercial purposes, the Court can reduce a statutory damages award after considering certain factors. Under s. 38.1 of the Act, the Court has the discretion to make proportionate awards after considering “all relevant factors, including”:

(a) the good faith or bad faith of the defendant;

(b) the conduct of the parties before and during the proceedings;

(c) the need to deter other infringements of the copyright in question; and

(d) in the case of infringements for non-commercial purposes, the need for an award to be proportionate to the infringements, in consideration of the hardship the award may cause to the defendant, whether the infringement was for private purposes or not, and the impact of the infringements on the plaintiff.[16]

These factors are considered contextually by the decision-maker. For example, in Bell Canada v L3D Distributing Inc (INL3D), the Court found a need to deter the defendant’s conduct and bad faith since its operations contributed to “the growth of the illicit pre-loaded set-top box industry.”[17] Fuhrer J. elaborated on what constituted bad faith in other cases, such as a party “ignoring a cease and desist letter” or “scraping or copying photos directly.”[18]

There are no Canadian reported non-commercial purpose infringement cases but existing case law promotes reducing statutory damages below the statutory minimum.[19] In Telewizja Polsat SA v Radiopol Inc, the Court outlined that this provision was enacted to ensure statutory damage awards are proportionate:

Parliament was alive to the problem which might arise in the case of the infringement of multiple works pirated from satellite signals. This is why Parliament wrote in an adjustment factor in subsection 38.1(3) of the Act which enables the assessment of damages per work below $200 in order to make damages proportionate to the infringement.[20]

Telewizja was decided before statutory damage awards were separated between commercial and non-commercial purposes.

The Court has jurisdiction to make statutory damage awards below the minimum range. Under s. 38.1(3), the Court can make a lower award for commercial purposes when the total award’s result is “grossly out of proportion to the infringement.”[21] For example, an infringer acting in good faith saw their statutory damages for each work reduced from $500 to $2.[22] However, Fuhrer J. acknowledges that “[t]here is little discussion in copyright jurisprudence about what constitutes ‘grossly out of proportion.’”[23] This statutory provision does not apply to non-commercial purposes. The defendant has the burden of showing that the statutory damages would be grossly disproportionate relative to the infringement.[24] For example, in Bell, a $20,000 award was seen as grossly disproportionate, and the Court settled on a $10,000 award per work after considering “the Plaintiffs’ intention to pursue default judgment against more defendants in this matter and in light of the Plaintiffs’ admission that declines in subscriptions result only partly from content piracy.”[25]

Canada’s legislative history and discussion offer additional support for lower damage awards being effective 

Parliament identified reduced statutory awards for non-commercial purposes. In 2012, the Copyright Act was amended to create two different statutory damage ranges based on whether the infringement was for commercial ($500–$20,000) or non-commercial purposes ($100–$5,000), instead of the previous single statutory damages range for all infringers ($500–$20,000).[26] Parliament intended for “individuals who download music from peer-to-peer file-sharing services” (p2p) to pay a “reduced damage award” for infringements.[27] Another amendment made was to include a “proportionality requirement for damages for non-commercial infringement” which became s. 38.1(5)(d).[28] In Parliament, an opposition Member of Parliament questioned the non-commercial purposes damage awards’ effectiveness at stopping p2p piracy but noted “damages must be commensurate with the severity of the infringement.”[29] During the consultation period, Access Copyright raised concerns that these “statutory damages [reforms] may have little or no deterrent effect on potential infringers,” including individuals.[30] Instead they proposed that the courts have “greater discretion in non-commercial cases to reduce the statutory damage awards.”[31]

Parliament has sought to reduce copyright trolling. The notice-and-notice regime was amended to prohibit copyright holders from including information such as offers to settle or demands for personal information.[32] Future Justice Minister David Lametti explained that these amendments were meant to standardize costs and make the regime fairer and “prevent[] [copyright] trolls from taking advantage of the system.”[33] This illustrates that Parliament and the courts are seeking to reduce copyright trolling.

Australia, New Zealand, and the United States offer examples where copyright infringement damage awards are lower and more relative for non-commercial purposes

In Australia’s Dallas Buyers Club LCC v iiNet Ltd (No 4), copyright holders were unsuccessful in having a stay lifted that prevented the internet service providers from providing a list of infringing account holders because they might engage in “speculative invoicing.”[34] Perram J. found that the DVD rental price should be a factor considered in the damages award:

ultimately the rental price will turn out to be what most infringers would have paid if they had not downloaded the Film using BitTorrent. Maybe the evidence will ultimately show that some of the infringers were true pirates and, sailing under the Jolly Roger, would only ever have acquired a copy of the Film if they did not have to pay for it. Maybe some regard will eventually need to be taken of the difference between the prices charged by retail outlets and the size of the revenue streams flowing to DBC [Dallas Buyers Club]. But even taking account of all of those future possibilities, the idea that DBC’s damages should equal the value of what was taken from it without its permission is not, self-evidently, a ridiculous claim and, indeed, has a certain biblical charm.[35]

Perram J. explained that:

[h]ere the Court would seek to put DBC back in the position it would have been in if the infringements had never occurred. But there are many different ways in which the infringements might not have occurred. One counterfactual is that the infringer might not have used BitTorrent at all but instead rented the Film legitimately from another source. Another is that the infringer might have foregone watching the Film altogether. Yet another is that the infringer might have seen the Film at the cinema… All of these differ[ent] scenarios are theoretically available ways of calculating DBC’s damages.[36]

Australian courts have shown that non-commercial infringements, like DVD piracy needs, need to be considered relative to actual costs like Telewizja.

New Zealand has two BitTorrent infringement cases where the courts awarded low damage awards. In Recording Industry Association of New Zealand Inc v Enforcement Number: Telecom NZ 2592, Glover J. awarded the copyright holder $616.57 for four infringed sounds where $360 was intended as a deterrent for the BitTorrent infringer.[37] In Recording Industry Association of New Zealand Inc v TCLE[A]-T5877102, the Court awarded the copyright holder $557.17 from the BitTorrent infringer for three songs in which $300 was for deterrence (or $100 for each infringement).[38] In both cases, the BitTorrent infringer was an individual who downloaded music through BitTorrent and the damage award included cost mechanisms such as application fees.

In the United States, some of its courts and scholars have adopted an approach to deterring copyright trolls by awarding the statutory minimum to BitTorrent infringers, especially in default judgement proceedings.[39] For example, Wake J. ordered some BitTorrent infringers pay the statutory minimum ($750) for sharing and downloading a movie.[40]

Concluding remarks

Judicial decision-makers can remove the punitive effect of statutory damages and better balance the statutory damages regime between copyright holders and consumers.[41] Scholars have offered alternative solutions to address the copyright troll statutory damages concern.[42] A common option is to remove statutory damages as a remedy.[43] The courts cannot remove statutory damages as a remedy, but they can award copyright trolls damages reduced below the statutory minimums to ensure they receive no more than their just desserts.