Lessons from the $65,000,000 pants suit

Should a Court award damages of US $65,000,000 for the loss of a pair of pants by a dry cleaner? This is not a hypothetical question and I’m not making this up. See the Washington Post, April 26, 2007.

Does this sound outrageous?

The plaintiff - who happens to be a lawyer and an administrative law judge by the name of Roy Pearson - in Washington, D.C. is suing his former dry cleaner. Among his other claims is $15,000 for car rentals so he can rent a car every weekend for 10 years to get his dry cleaning done elsewhere, since he was unhappy with the “poor service” from the defendant. Clearly foreseeable? We’ll have to wait and see.

What about the claim for “mental suffering”? I suppose that even lawyers and judges have feelings. Again , the suspense is gripping.

The original value of the pants? Apparently about $150. After all, they had red and blue pin stripes.

Here’s how the story started, according to the Washington Post:

[The clearness] gave Pearson a check for $150 for new pants. A few days later, the Chungs, Korean immigrants who live in Virginia and own three D.C. cleaners, told Pearson that he was no longer welcome at their store. That dispute was eventually put aside, and Pearson continued to use the company.

Move ahead to 2005, when Pearson got a new job as a judge. He needed to wear a suit to work every day. He dug out his five Hickey Freeman suits and found them to be "uncomfortably tight." He asked Custom to let the waists out two or three inches. Worried that he might be up against his Visa card limit, he took the suits in for alterations one or two at a time.

According to a statement filed by both parties in the lawsuit, Pearson dropped off one pair of pants May 3 so he could wear them to his new job May 6. But on May 5, the pants weren't ready. So o Chung promised them for early the next morning, but when Pearson arrived, the pants weren't there.

Outrageous? Quintessentially American absurd testosterone litigiousness? Maybe.

But what if there were a statute that allows for recovery of $1,500 a day in damages for violation of the District’s consumer protection laws and there were allegedly 12 violations over 1,200 days, times three defendants? Well, apparently that is the basis of Judge Pearson’s claim. As the Washington Post points out, “a pant leg here, a pant leg there, and soon, you're talking $65 million.”

BTW, the Judge has apparently been offered $12,000 to settle this case and has refused. Not enough, apparently, even to cover his rental car expenses.

The first moral of the story? Don’t mess with Judge Pearson. Other possible morals will follow below.

Now, what in the world does this have to do with copyright, for those few who may not already have guessed?

What if there were a statute that says that downloading or sharing - even inadvertent sharing - of a song worth $0.99 at the most gives rise to minimum statutory damages of $750 per song and up to $30,000? Or up to $150,000 per song if the infringement is “committed willfully”? Well, there is such a statute and such a provision. In the USA, it’s the Copyright Act, 17 U.S.C. §504(c).

And in Canada, in our modestly Canadian way of imitating the Americans but with some effort at restraint, we have statutory damages covering a range of only $500 to $20,000 per song. Yep. Only $20,000 max. After all, we’re Canadian, eh, and we’re not trigger happy litigants or excessively greedy, right? I suspect that the difference between the CDN and US figures is roughly equivalent to the difference between being shot in the head at point blank range by a 357 Magnum or a Colt 45. The latter is even bigger - but the result is about the same.

Well, it turns out that the lower amount in Canada not from lack of effort, as we shall presently see.

Now this means that any ordinary kid - perhaps your kid - or even music loving adult - perhaps you, dear reader - who downloads 5,000 songs (not a lot these days), could seriously incur some big time financial liability. BTW, an 80 gig iPod can hold about 20,000 songs, which is quite possibly why they are so popular and probably nobody has 20,000 “paid for” songs on their iPod at a buck a piece.

So - some simple arithmetic.

In the USA, those 5,000 songs give rise to liability as follows:

5,000 x $750 = $3,750,000
5,000 x $30,000 = $150,000,000
5,000 x $150,000 = $750,000,000

In Canada,

5,000 x $500 = $2,500,000
5,000 x $20,000 = $100,000,000

Never mind that one "unauthorized" download is not one lost sale. Indeed, the best independent analysis - from Oberholzer and Strumpf - suggests that unauthorized P2P file sharing activity may actually benefit the record industry overall. And many Indie artists and labels agree.

The statutory damages concept in copyright was, of course, never meant to be used against ordinary individuals, or so my then friends in the music industry told me at the time it was passed in Canada in 1997. But that was then and now is now.

Now is has been used - more than 20,000 times to date - in the USA by the RIAA. It’s been used against a 12 year girl living in subsidized housing , and a dead grandmother and lots of folks in between. Oddly enough, it hasn’t been used against Edgar Bronfman’s children - though he has effectively admitted that they have engaged in “stealing music”.

It has resulted in the legal extraction of settlements in the range of or even exceeding USD $5,000. That’s a year of tuition for many kids in the USA, (or a month or so at Harvard).

As we all know, the CRIA tried to imitate its American big brother with similar litigation in Canada. It failed - not so much because Canada’s copyright laws are lax, which they are not, but because Canadian courts imposed reasonable standards of evidence that CRIA was unwilling or unable to meet and respect for privacy law. True, Canada’s private copying levy scheme - passed mainly at CRIA’s behest - effectively legalizes downloading and this did not help the CRIA. The CRIA should have been more careful what it wished for. Nonetheless, the CRIA has attempted to use this setback - largely self inflicted - as an excuse to ratchet up Canadian copyright law to be like the American statute. And we all know how well the American system is working, right? (Full disclosure - I acted against the CRIA on this case and I have other clients who oppose the levy scheme).

The statutory damages provision in the Canadian Copyright Act were introduced in Bill C-32, which was rushed into law in 1997. This provision was mainly pushed along by forces in the music industry. David Basskin, who was then and now the President of the CMRRA, told the Senate on April 15, 1997:

We particularly support the creation of a statutory damages remedy and other measures in the bill that will make it more affordable for copyright owners to protect their copyrights. As things now stand, it is almost impossible for anyone to afford a copyright infringement suit, meaning that infringers can hide behind the cost of litigation. The elements of the bill that make it a little more affordable for copyright owners to pursue remedies are very important. They are a good balance of the interests of both the public and the copyright owners.

(emphasis added)

Every business says that it wants more affordable litigation (although the high cost of Copyright Board proceedings invariably benefits collectives by discouraging objectors). But, in Canada, only copyright owners get to sue - at their option - for minimum damages that are hundreds or thousands of times (or even more) greater than actual damages, if any, assuming that damages had to be provable in the normal way. According to Oberholzer and Strumpf, there would typically be no actual damages in P2P cases.

And there was the remarkable exchange - frankly more like a duet - between the Hon. Beth Phinney, former Member of Parliament, and the late Bernard Mayer, lawyer and film industry lobbyist, on November 6, 1996 in the House Committee. Mr. Mayer, who was appearing with the Canadian Bar Association delegation, tried to up the ante to $100,000 - to be more on par with the Americans at the time:

Ms Phinney (Hamilton Mountain): Thank you for coming this evening.

On proposed section 38.1, you say that creating a statutory damages regime is likely to make the civil enforcement process more effective. So we're glad you agree with that.

On proposed subsection 38.1(1), you have noted that the ceiling would be $20,000 and you're wondering if this would be adequate. You mention that for certain circumstances in the United States it could be $100,000. Would you expand on that and tell us why you are not satisfied with the $20,000?

Mr. Mayer: I think in looking at the whole subject of statutory damages you have to bear in mind that the damage range is merely a range that would be applied by the court. It has been pointed out that there are a number of very valuable programs, for example computer programs, that have a value significantly in excess of $20,000. Therefore, the likely utility of the provision would be enhanced if the amount were increased. I think this would not be unfair to defendants because the court still has a range and I think it is very unlikely that any unduly large awards because of that increase would be made.

Ms Phinney: So when you say that if we raise it to $100,000 it would significantly increase the number of circumstances in which it would be used, that's not so the lawyers would get more business, but just that more people would take somebody to court. Is that what you're getting at?

Mr. Mayer: The answer is yes.

More morals of this lost pants suit:

1. Don’t open a dry clearing business anywhere within driving distance of Judge Pearson.

2. If Judge Pearson should for any reason be looking for a new job, maybe the RIAA or the CRIA could use his services. This could be a good fit.

3. More seriously - and I am being very serious now. The statutory damages provisions in the Canadian legislation have the clear potential to inflict serious collateral damage on countless victims, especially if the CRIA has its way with the forthcoming bill. As the American experience and the thus far failed Canadian attempt at mass litigation shows, this is not merely a hypothetical concern. A court may one day call such practices a misuse or abuse of copyright law, or unconstitutional, and stop them. But we shouldn’t wait for that day - which may never come. These provisions should be repealed outright, or at least limited to blatant and egregious commercial activity. Now. As far as I know, Canada and the USA are the only major countries that have such draconian provisions in their copyright laws. There are no other “statutory damages” provisions, as such, in Canadian federal law. Nor is there any need for them. We have a system of costs, injunctions, and exemplary and punitive damages that can be invoked where necessary to send a message. We have a sophisticated and fair judiciary that can be tough on defendants when warranted, using normal legal remedies. That is more than enough. For example, SOCAN and its predecessors have sued many bar owners, etc. over the decades who have refused to pay. SOCAN has successfully used traditional damages principles to make its necessary points - without the need for statutory minimum damages.

What Judge Roy Pearson is doing may seem like a black comedy, though it can hardly be the least bit funny for the defendants.

What the RIAA is doing to more than 20,000 victims isn’t funny at all. It’s an abomination. Thank heaven, they are being opposed by a few brave and generous lawyers such as Ray Beckerman and others. Let us hope that the whole concept of statutory damages is removed from the Canadian Copyright Act before it can metastasize into a very ugly mess in the hands of the CRIA and perhaps others.

HK