The Cox $1 Billion Copyright Damage Award is Not as Big as You Think

When it was announced last week that a jury awarded the major record labels a one billion-dollar-damage award in its copyright infringement case against COX Communications, certain anti-copyright voices were predictably shrill in their astonishment at such a stratospheric number. Specifically, the plaintiffs represented by the RIAA were awarded $99,830.29 per infringement of just over 10,000 songs, which is actually less than the maximum statutory damage award of $150,000 per infringement.

Regardless, the big price tag prompted Mike Masnick at Techdirt to do his shrieking mandrake bit (from Harry Potter), describing statutory damages for copyright infringement as “crazy,” “messed up,” and even “unconstitutional.” And because comment threads are what they are, one reader at that Ministry of Disinformation opined, “the fact that .50-1.00 dollar [sic] songs magically become worth just under one-hundred thousand each simply highlights just how utterly insane copyright law is.”

I’m not eager to pick on some anonymous commenter who does not appear to have a rudimentary knowledge of what he’s talking about; but then, many people do think Masnick knows what he’s talking about, which is one reason all this whinging nonsense seeps into public perception. So, let’s review what Cox Communications did in this case; what statutory damages are for; and why the retail price of an individual song (or DVD, or movie ticket, or whatever) has nothing whatsoever to do with damages that may be awarded in a lawsuit.

Cox Was Not Merely Lax in Complying with the DMCA

The Digital Millennium Copyright Act (1998) provides a liability shield (the “safe harbor”) to internet service providers whose customers use their services to commit copyright infringement—but only if the ISP meets certain conditions. One of these conditions is that a service provider must have a policy in place whereby repeat infringers eventually face account termination for refusing to cease their infringing activity after receiving warnings sent by the provider. Separately, any party that materially contributes to a form of actionable conduct (including copyright infringement) may be held either civilly or criminally liable for the conduct.

Although the DMCA statute does not mandate how a “repeat infringer policy” must be structured, it was proven in the precedent and related case BMG v. Cox, that the defendant implemented a “thirteen-strike” policy, after which Cox still avoided account termination and was further shown to have taken affirmative action to avoid “knowing” about the scope of infringement claims it was receiving. For instance as the record labels’ complaint states, “Rather than working with Plaintiffs to curb this massive infringement, Cox unilaterally imposed an arbitrary cap on the number of infringement notices it would accept from copyright holders, thereby willfully blinding itself to any of its subscribers’ infringements that exceeded its ‘cap.’” [Emphasis added]

In his post, Masnick sweeps the evidence proving Cox’s “willful blindness” under his own invented narrative in which Judge Liam O’Grady of the Virginia Circuit Court simply “does not like the internet,” set in a world in which rightsholders expect ISPs to “wave magic wands to eliminate piracy.” That’s all very cute and distracting, but what Masnick is really suggesting is that he and others think the liability shield for ISPs should be unconditional; that no internet user should ever face account termination for any reason; and that statutory damages for contributory copyright infringement—especially to the tune of a billion dollars!—are purely functions of greed on the part of the rightsholders.

Those are opinions that copyright critics are free to express and argue on the merits if they can, but I would remind them and everyone else that it was the ISPs themselves (originally AT&T, Verizon, et al) who proposed the “safe harbor” provisions (Section 512) of the DMCA in the late 1990s; and one of the premises upon which they argued this cause was the fact that they were technologically capable (without the use of magic wands) of substantially mitigating copyright infringement on their platforms. This promise to use the tools at their disposal to collaborate with rightsholders was part of the deal that earned them the safe harbor in the first place—a bargain that has never actually been fulfilled.

According to the evidence presented in BMG (which also controls in the subsequent suit by the labels), Cox clearly made executive decisions that went far beyond Masnick’s flabby description that the ISP did “not adequately follow its own repeat infringer policy,” as though the conduct at issue were a mere lapse in maintaining compliance, rather than one of engaging in non-compliance as a matter of company policy. One email entered into evidence written by the former head of Cox’s Abuse Group stated, “Fuck the DMCA,” which appears to characterize the attitude that caused the ISP to lose so badly in these suits, and also why statutory damages are actually essential when giant players like this are involved.

A Billion Here a Billion There

Especially where major corporate entities are engaged in any kind of wrongful conduct, it is axiomatic that if damages awarded in litigations are not punitive, the prospect of further legal action can be factored into the cost of doing business and will, therefore, have no effect in correcting the underlying harmful conduct. Yet, bizarrely, Masnick points to the fact that the RIAA made a little under $10 billion in 2018 as a rationale for describing a damage award one-tenth that size a form of insanity. This is no less naïve than the aforementioned Techdirt commenter, who seems to have no frame of reference at all for how the law actually works. Damage awards in a wide range of litigation are not based solely on recouping the “street value” of the estimated financial loss to a plaintiff. This would never do as a form of justice.

Take this subject out of copyright law for a moment and imagine a man who is maimed as the result of negligence by some corporation. If he can no longer work as a janitor, should his damage award from a lawsuit be limited to his annual janitor’s salary multiplied by the number of years he can be expected to live? Though many might prefer such a cold and narrow remedy, it would neither deliver adequate justice to the injured party nor satisfy society’s compelling interest in punishing the corporation for its negligence severely enough that it would incentivize remediation of the harmful conduct. Damage awards that exceed these parallel aims may be held by a court to be excessive violations of due process (hence Masnick’s allusion to constitutionality); but is the Cox award actually excessive in context?

Cox has about six million subscribers. If just 20% of those customers are chronic users of pirate sites—this is below statistical piracy averages—that would be roughly one million customers whom Cox could potentially be required to warn and possibly cancel under the provisions of the DMCA. This subscriber base is worth around two-billion dollars in regular access fees each year,* which gives us a rough idea of the kind of revenue an ISP like Cox may be seeking to protect by engaging in “willful blindness” with regard to its consumers’ scope of infringement.

So, if we consider that one-billion dollars is one half of one year’s revenue from about one-sixth of Cox’s total customer base, this damage award begins to look like what a damage award is supposed to be—painful enough to effect change in the defendant’s (and related providers’) behavior, but not wildly out of scope with the business dynamics in the circumstance at issue. Or we can do the math in reverse and even reduce the chronic piracy number to 10% of Cox’s users (i.e. one-billion in revenue per year), and a one-time fine of one-billion dollars is not quite as madly disproportionate as it looks in the headlines.

Masnick is not wrong to allude to the fact that a damage award can be unconstitutional, but he is wrong to imply that statutory damages are inherently unconstitutional, or immoral, just because he and his friends do not like (or seem to understand) copyright. People are free to hate the RIAA or Cox or both, but if they’re not willing to unpack any of the pesky details in these cases, then the simple, objective story here is that two different juries concluded, based on evidence, that one big-ass entity willfully harmed the interests of other big-ass entities; and this does tend to result in what looks like big-ass money changing hands. And there is nothing all that crazy about it.

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*Average bill of $120-160 times 1 million.

Don’t Blame Internet Culture on Copyright

In response to a recent social media dustup, Mike Masnick writes on Techdirt, “…we’ve got quite a story today about how copyright is a total mess and not really fit for the way the internet works today.”

To his credit, Masnick does a solid job describing both the circumstances and the legal mechanisms relevant to a conflict that arose when a media company called Barstool Sports published a video made by writer/performer Miel Bredouw without permission, even posting the work as though it were their property. But I disagree with Masnick that this is a tale about why copyright is a “total mess” because it’s really a tale about why social media is a total mess with a twist—that when anti-copyright pundits describe weaknesses in the law, they may inadvertently point to how it can be strengthened. In fact, the lessons to be learned from this anecdote are instructive in ways I’m not surprised Masnick overlooked because, as I see it, this is a tale of two appropriations, and the contrasts between them are significant.

To recap as briefly as possible, Bredouw had an afflatus. She noticed that the lyrics to “Slob on My Nob” by Three 6 Mafia fit rather neatly into the melody “Carol of the Bells” and decided to demonstrate this by recording herself performing the musical mashup in a brief video she posted to her YouTube channel. Barstool Sports—run by a group of dudes who seem to be universally recognized as assholes—published Bredouw’s video to their Twitter account as though it were their own (i.e. uncredited). When Bredouw asked that they credit her, she was ignored and so responded by submitting a DMCA takedown notice to have the video removed. Twitter processed the notice and removed the video, and then Barstool got bitchy.

Apparently not the company’s first copyright strike, and seemingly fearful that their account could be terminated, Barstool sought to convince Bredouw to rescind her takedown notice by engaging in a fairly typical evolution of behavior, escalating from apologizing to begging to harassing her on all her social media accounts with bro-fans insisting that she stop ignoring Barstool’s demands for resolution. At the begging stage, Barstool even offered Bredouw $2,000, which she waved at on principle.

Thus, Barstool took its only course of action to mitigate the copyright strike and filed a (technically invalid) DMCA Counter Notice. By statute, the counter-notice procedure requires that a platform restore an allegedly-infringing file within 10 days, unless the copyright owner provides proof that they have proceeded with legal action against the alleged infringer.

Clearly, an underlying factor in this case is that Bredouw did not (and would never) register a copyright in her brief video performance; but that doesn’t make the story any less instructive. At the same time, it should be noted that were this a conflict that could lead to litigation, Barstool Sports would very likely be held to have violated the law under penalty of perjury when it filed an invalid counter-notice to restore a video it had no reason to claim was removed in error.

A Tale of Two Appropriations

It is a fun fact that tech pundits, including Masnick, have spent years attacking copyright on behalf of appropriations like those made by Bredouw while ignoring the much more problematic appropriations like the one made by Barstool. Bredouw made use of two creative works* and combined these in a recorded performance that, under slightly different circumstances, would likely be considered fair use as a parodic commentary on both works and distributed in a manner that is not likely to cause harm to the market value of either work. In short, it is the kind of creative expression the anti-copyright crowd loves to cite anecdotally as evidence that, “on the internet we are all creators,” meaning that people like Bredouw should not be targets of takedowns.

But the thing is that most copyright owners do not have a problem with uses like Bredouw’s video. They often enjoy these mashups and parodies; and even when they don’t like them, many copyright owners are well-enough informed about fair use to let such uses remain online without response. But the outright theft of material made by a commercial enterprise, like Barstool simply taking Bredouw’s video, is exactly the kind of appropriation that tens of thousands of copyright owners have a huge problem addressing online. Just ask any composer or professional photographer how often they find a business entity using their work, without license, for marketing purposes.

Meanwhile, inasmuch as Masnick is willing to call the dudes at Barstool a bunch of asshats, he does not take any responsibility for playing a substantive role in evangelizing the very culture that results in their behavior. The anti-copyright, sharing-is-caring, everybody’s-a-creator-now bullshit that Techdirt, the EFF, et al have been slinging into the atmosphere for years is constituent to the fact that even mainstream, commercial operators feel entitled to just take creative works and tell authors to go screw themselves. In general, the copyright critics have been claiming to speak for the Bredouws of the web while (perhaps inadvertently) empowering the Barstools all along.

So, one simple response to this type of appropriation is a change to the internal culture and practices of business enterprises. If Barstool found itself inching toward account termination for accumulating too many copyright strikes, one solution would be to stop using material they know is not theirs! (No doubt there’s a sports analogy that would explain the concept.) But of course copyright owners cannot rely on commercial users to just do the right thing. So, then what?

Well, oddly enough, Masnick provides one clue when he writes, “But what if it’s the counternotice that’s bogus? That’s… trickier. As the law is set up, then the only response is to sue.” He’s absolutely right. The counter-notice procedure, as it stands, leaves small and independent copyright owners with a nearly-toothless remedy in the DMCA; so perhaps this is one area of the 1998 statute that is overdue for revision. For example, if a platform is allowed to review and reject a takedown request that looks illegitimate, why can’t it do the same thing with a counter-notice?

That said, while I would disagree with Masnick’s use of the term “total mess” in this case, he is correct to imply that neither copyright law in general, nor the DMCA in particular, can adequately protect the limited scope of authorship entailed in Bredouw’s small video against a corporate entity’s smug appropriation of her work. The DMCA simply was not written to anticipate small-scale appropriation of works that authors would never register for copyright. And while it is admittedly not easy to develop an ideal—let alone universal—solution to address this strata of infringement, that is no excuse to call copyright wholly incompatible with “the way the web works today,” as Masnick claims.

To the contrary, the way the web works today for countless copyright owners, whose works are registered, is that the DMCA is a game of chicken the rights holder plays with the infringer in which the latter often assumes that the former lacks the resources to sue. Meanwhile, the major platforms have reaped the rewards while pundits like Masnick have told the rights holders to “quit whining and embrace the future.”

Really? Because stay tuned. The conversation about “the future” is already shifting from the appropriation of someone’s video or song or photograph to Silicon Valley’s disruption of food, medicine, transportation, infrastructure, etc. So, maybe if we fix (meaning strengthen) copyright enforcement online, that policy process will provide some clues as to how we might avoid careening into a state of technological feudalism.

*For the purpose of this discussion, the copyright status of “Carol of the Bells” is irrelevant.

Also see Rick Sanders’s post.

Counterfeits, Copyrights, and Digital Dysfunction

Now that the holiday shopping season is officially underway, it seems like a good time to talk about counterfeit products; and it may surprise some readers to know that consumers have almost no meaningful protection against the tens of thousands of counterfeiters operating online. At best, a counterfeit product will merely be disappointing; at worst, it will set the house on fire or maim someone; but a recent copyright lawsuit filed against the service provider CloudFlare demonstrates just how insufficient the mechanisms for addressing this problem really are.

Though the subject of this litigation is wedding dresses and other formalwear, keep in mind that it can just as easily be a product that plugs in, a medical device, or a child’s toy with toxic properties.

Mon Cheri Bridals and Maggie Sottero Designs are suing CloudFlare for contributory copyright infringement pursuant to the platform’s failure to comply with the terms of the DMCA. As designer/manufacturers of bridal and formalwear, the plaintiffs see their works copied all the time by China-based counterfeiters, who then sell the knockoffs via websites featuring the plaintiffs’ own marketing photographs.

The photographs are copyrighted works, and so the plaintiffs have filed hundreds of DMCA takedown notices requesting removal of their images from the various sites engaged in marketing counterfeits of their products. Then, because the target sites have–not surprisingly–refused to remove the photographs, plaintiffs allege that this makes them “repeat infringers,” which then implicates CloudFlare’s obligation under DMCA to terminate their accounts. Because CloudFlare has not taken action to terminate these accounts, plaintiffs allege the platform is liable for contributory infringement.

CloudFlare is already a deeply problematic service provider—a prime example of everything wrong with the kind of internet idealism that has for too long tolerated (and even celebrated) companies that hold themselves above the law while protecting the identities and maintaining the operations of criminal enterprises. As a favorite provider of anonymous hosting for major pirate sites like ThePirateBay, CloudFlare is probably only still in business because, as Devlin Hartline notes in this 2016 post, “the DMCA is such a mess.” “Courts have set the bar so high that CloudFlare wouldn’t likely be found to have red flag knowledge of the massive amounts of infringement it certainly knows its service enables for globally-infamous criminal infringers…,” Hartline writes.

It’s bad enough for creators that the DMCA is woefully inadequate for mitigating online infringement where copyrighted works are the central subject of a complaint. But in this case for Mon Cheri and Sottereo, the copyright infringement is, of course, ancillary to the larger crime of counterfeiting; and it is truly unfortunate that the DMCA is the plaintiffs’ best—let alone only—means of targeting these foreign-based websites used to hijack their enterprises and defraud consumers.

While the plaintiffs are certainly correct that their marketing photographs are protected by copyright and the counterfeiters’ infringing uses are properly the subject of DMCA, both legitimate product-makers and consumers deserve a more robust mechanism for protection from this kind of online predation.

If your kid wound up playing with a toy that scalded her (or worse), you’d want the counterfeit website selling that product to be shut down. End of discussion. And the American-based hosting provider shrugging at you while taking the counterfeiters’ money would provoke a justifiable pitchfork-and-torch moment for parents everywhere. The fact that the counterfeiters also happened to be infringing the photographic marketing materials of the real manufacturers would reasonably be viewed as secondary to the fact that consumers ended up with dangerous products in their homes. And DMCA is no way to address that problem.

The DMCA is in serious need of overhaul, if it is ever going to meaningfully address online copyright infringement. But a matter of even greater urgency is perhaps new legislation that can provide legitimate businesses with a reliable and expeditious means of shutting down websites that intentionally traffic in counterfeit goods.

On this topic, readers may not remember that the SOPA/PIPA bills included provisions designed to keep counterfeit products out of the military supply chain (so soldiers wouldn’t end up wearing fake kevlar or something); and that proposed legislation still remains every fool’s battle cry for defending the alleged sovereignty of “the internet.” Of course, “the internet” is not even a weak sovereign. If you end up with a foreign-made, counterfeit product that rips you off or kills someone, the service provider that helped you buy that product is free to KNOWINGLY continue hosting the fraudulent website and respond with a smug grin while he cashes the counterfeiter’s check.

As any regular reader knows, I have never understood believing the premise that the major internet companies are squarely on the side of the angels—that Facebook is an unqualified good for democracy, that YouTube is an unqualified good for artists, or that Amazon is an unqualified good for all commerce, etc. Yet, despite mounting evidence that such generalizations are far from accurate, we are presently watching yet another variation of the anti-SOPA campaign play out in Europe over the proposed Article 13 legislation to mitigate copyright infringement on major platforms like YouTube. As Neil Turkewitz writes in a recent post on the topic …

“They have enjoyed the freedom of wolves without regard to the safety of sheep, and are naturally opposed to the restraints imposed by fences. But our interdependence makes fences essential for the functioning of democratic societies. By eliminating fear, we create freedom and enable the pursuit of happiness.”

The time to correct this level of dysfunction is long past due. Both of the current liability shields protecting online service providers—as established in Section 230 of the CDA and in Section 512 of the DMCA—were based on an assumption of good faith and good-samaritan behavior. But CloudFlare is just one extreme example that demonstrates why this expectation of good faith is, and always was, utter folly. Limiting the liability of these companies has made them arrogant, predatory, and ominously powerful with the amount of wealth and information they wield. If there is profit to be found within legal loopholes, it is the rare exceptions whose personal ethics will forego such an opportunity. It is time to start writing internet policy based on the rule rather than the exception.

The Illusion of More

Dissecting the digital utopia.

Tag: DMCA