“Volume Discounts” in CDN Statutory Minimum Damages Cases: When Available? A "License to Steal"?

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In my recent blog on the proposed Chet Baker $45 million class action settlement which has yet to be approved by the Ontario Superior Court of Justice, I touched on the issue of whether there might be a “volume discount” in a case allegedly involving the infringement of more than 300,000 different songs. The “normal” minimum of statutory damages in Canada is $500 per work (not per copy). At that rate, the case would have presumably been worth at least $150 million, assuming that the allegation of 300,000+ infringements would be provable and had it gone to trial.


A court does have the discretion to reduce the normal minimum statutory damages amount of $500 per work below the said minimum under very limited circumstances. Here are the relevant provisions from legislation:


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Statutory damages
38.1 (1) Subject to this section, a copyright owner may elect, at any time before final judgment is rendered, to recover, instead of damages and profits referred to in subsection 35(1), an award of statutory damages for all infringements involved in the proceedings, with respect to any one work or other subject-matter, for which any one infringer is liable individually, or for which any two or more infringers are liable jointly and severally, in a sum of not less than $500 or more than $20,000 as the court considers just.


Where defendant unaware of infringement


(2) Where a copyright owner has made an election under subsection (1) and the defendant satisfies the court that the defendant was not aware and had no reasonable grounds to believe that the defendant had infringed copyright, the court may reduce the amount of the award to less than $500, but not less than $200.


Special case


(3) Where
(a) there is more than one work or other subject-matter in a single medium, and
(b) the awarding of even the minimum amount referred to in subsection (1) or (2) would result in a total award that, in the court’s opinion, is grossly out of proportion to the infringement,
the court may award, with respect to each work or other subject-matter, such lower amount than $500 or $200, as the case may be, as the court considers just.


Collective societies


(4) Where the defendant has not paid applicable royalties, a collective society referred to in section 67 may only make an election under this section to recover, in lieu of any other remedy of a monetary nature provided by this Act, an award of statutory damages in a sum of not less than three and not more than ten times the amount of the applicable royalties, as the court considers just.


Factors to consider


(5) In exercising its discretion under subsections (1) to (4), the court shall consider 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; and
(c) the need to deter other infringements of the copyright in question.


No award


(6) No statutory damages may be awarded against
(a) an educational institution or a person acting under its authority that has committed an act referred to in section 29.6 or 29.7 and has not paid any royalties or complied with any terms and conditions fixed under this Act in relation to the commission of the act;
(b) an educational institution, library, archive or museum that is sued in the circumstances referred to in section 38.2; or
(c) a person who infringes copyright under paragraph 27(2)(e) or section 27.1, where the copy in question was made with the consent of the copyright owner in the country where the copy was made.


Exemplary or punitive damages not affected


(7) An election under subsection (1) does not affect any right that the copyright owner may have to exemplary or punitive damages.


1997, c. 24, s. 20.


(Emphasis added)


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Clearly, in a case such as the Chet Baker case, there could be no reasonable argument that the defendants were "not aware" or that there were “no reasonable grounds to believe that the defendant had infringed copyright”.


This leaves s. 38.1(3) which deals with the situation where:


Special case


(3) Where
(a) there is more than one work or other subject-matter in a single medium, and
(b) the awarding of even the minimum amount referred to in subsection (1) or (2) would result in a total award that, in the court’s opinion, is grossly out of proportion to the infringement,
the court may award, with respect to each work or other subject-matter, such lower amount than $500 or $200, as the case may be, as the court considers just.


(Emphasis added)


The word “and” would appear to be clearly “conjunctive”, which means that both the conditions in s. 38.1(3)(a) and (b) both must be met before a court could reduce damages below $500 per work by then taking into account, in turn,  the factors in s. 38.1(5) i.e.


 including
(a) the good faith or bad faith of the defendant;
(b) the conduct of the parties before and during the proceedings; and
(c) the need to deter other infringements of the copyright in question.


The really interesting question is what is meant by “a single medium”. There is no equivalent expression in the USA, which is the only other country to have a comparable statutory minimum damages regime. Canada imitated it with a slightly watered down version, for which the CMRRA (closely involved in the Chet Baker case)  was, ironically, a prime source of pressure.


It surely cannot mean a single type of medium - such as all books or all CDs or DVDs from one defendant  containing multiple works. That would potentially create a “license to steal” for record company that releases thousands of CDs, for example,  each containing one or more infringing works. A pop music commercial CD typically holds 12-14 or so single song tracks - but can hold up to two dozen or so three minute songs, if and when the record company chooses to be more generous.


It would seem likely that the provision would allow for a reduction, in theory, only  if several songs were included on each single medium  - as in each released CD or LP, or whatever in a record company’s catalogue. And NOT as in the entire CD medium catalogue of a single record company. 


And even then, the amount would have to be “grossly out of proportion” to the infringement. This does not seem likely if several infringing songs - up to 12-14 or so  are used per CD album. That would only be $6,000 to $7,000 for one album that could have substantial sales at a putative mechanical rate of about $1.00 for each copy of such an album.


We have very little jurisprudence on the discretion of a Canadian court to reduce statutory minimum damages. The closest ruling I know of involved a case in which the defendant posted 2,009 infringing works on the internet copied by decoding satellite signals. This was the decision of Justice Lemieux of the Federal Court in Telewizja Polsat S.A. et al. v. Radiopol Inc. et al. 52 C.P.R. (4th) 445. 


There was a default judgment and the damages hearing was undefended. Thus, the presidential value of this decision is somewhat imited. The Plaintiffs sought more $40 million, based upon the maximum statutory damages of $20,000 per work and the number of 2,009 works. Nonetheless, the Court took it upon itself to reduce the amount to $150 each, given the large number of works. It is implicit - though not explicit - that the Court considered that the defendant had used a “single medium” - presumably its subscription-based internet website.


So - what if the release of thousands or tens of thousands of infringing CDs each containing one or more infringing works must be considered as thousands or tens of thousands of single “media” and not “a single medium”.  Then, it would appear that the Court does NOT have the discretion to reduce the amount of the minimum statutory damages below $500 per work.


We do not have an answer to the “important questions” raised by Justice Lemieux in the Polsat decision. If the Chet Baker settlement is approved, we will not know how these issues played out behind the scenes in that case in the settlement negotiations - or how a court might have ruled if required to do so.


Is the result of the proposed settlement - namely $45 million for allegedly 300,000 works - or about $150 per work, which is the same as in the default judgment and undefended Polsat damages decision (but before deductions for legal fees, CSI commissions, etc.) - a serious and appropriate remedy for the composers and reflective of the “need to deter other infringements of the copyright in question”? Or is it an example of what these same record companies might call in the context of infringement by non-commercial downloaders (i.e. fans) a “license to steal”?


We won’t know if the settlement is approved and the case never goes to trial. 


The settlement approval hearing has been adjourned to March 28, 2011 - at which time we may or may not have a ruling on whether they Court is satisfied with the settlement being presented to it. In view of previous developments, this is not a foregone conclusion.

HK