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Calculating Damages for Copyright Infringement

November 5, 2010 by · Comments Off
Filed under: Copyright Articles, law 

Calculating potential damages for copyright infringement is critical in determining your legal strategy.  The analysis is the same regardless of whether you’re the one suing (the copyright owner/plaintiff), or the one being sued (the infringer/defendant).

The first question to ask is: ‘Has the infringed work been registered with the copyright office?’  The answer to this question will have a large impact on damages.  All creative works are automatically protected by copyright law (check out this page for a background on copyright law), but registered works are afforded much greater protection.  Copyright registration records are held in a free online database that you can access from the Copyright Office website.

There are 2 types of damages for copyright infringement: Statutory Damages and Actual Damages.  For a copyrighted work that has been registered prior to infringement the plaintiff may choose to claim Statutory Damages or Actual Damages (in addition to claiming for attorney’s fees).  A plaintiff who is claiming infringement for an unregistered work may only make a claim for Actual Damages.

Statutory Damages

The vast majority of plaintiffs in copyright infringement cases will choose to pursue Statutory Damages (if they can) because they are easier to calculate and will often be higher than Actual Damages.  Illegal file sharing cases, for example, will choose Statutory Damages because while their Actual Damages may be around $1 per illegally copied song, they are entitled to much higher damages through the use of Statutory Damages.  (This case awarded the RIAA $9,250 for each song, while this case awarded $22,500 for each song.)
Statutory Damages get their name because the amount of damages is set by law, regardless of the actual damages suffered by the plaintiff (17 USC § 504).  They usually range from $750-$30,000 per infringement, though awards can go as low as $200 per infringement for ‘innocent infringers’ and up to $150,000 per infringement when the court determines that the defendant acted ‘willfully’.  The court may not award damages outside of this range.
While a plaintiff will always ask for the maximum amount of damages, it is at the court’s discretion how much to award within the defined damages range.  Some factors the courts consider are:

1.      The purpose of the infringing use.  (e.g. – were you selling bootleg CDs on the street, or did you copy a CD for your Mom?)

2.      The value of the work that was infringed.  (e.g. – was it a $1 song or a $5,000 computer program?)

3.      The infringer’s state of mind or intent.  (e.g. – did you download a picture off the web unaware that it constituted copyright infringement, or did you know it was illegal and decided to copy it anyway?)

Statutory Damages are a powerful tool for the plaintiff in copyright litigation and infringers of registered copyrights should beware.

Plaintiffs for copyright infringement of registered copyrights are also allowed to ask the court for attorney’s fees (17 USC § 505).  If awarded, the defendant will owe all or part of the plaintiff’s legal fees, in addition to the fees for the defendant’s own lawyer.  When litigation costs can run upwards of tens of thousands of dollars this is another big stick that the plaintiff can hold over the defendant’s head.  While the awarding of attorney’s fees is at the courts discretion, the plaintiff of an unregistered copyright is never allowed to ask for attorney’s fees (17 USC § 412).

Actual Damages

This is the type of damages pursued by people who have had their work infringed, but didn’t have their work registered prior to the infringement (and in rare cases a registered copyright holder may also select to pursue Actual Damages over Statutory Damages).

Actual Damages is the quantifiable monetary loss the plaintiff has suffered, or the profit the infringer has gained, from infringing your copyrights.

There are 2 general ways courts determine Actual Damages.  One method involves seeing what the plaintiff’s average income from their copyrighted work was before (and after) the infringement and compare it to the income from when their work was being infringed.  The difference is the Actual Damages.  This method is useful when there are extensive financial records backing up average sales and clear evidence that the dip in sales was due to the infringing activity.

The other method looks at how many instances of infringement took place and awards damages based on what the copyright owner would have received had she sold or licensed the work instead of having it stolen.  This method is easier to use when the plaintiff does not have extensive sales records, because the only numbers that need to be determined are the number of infringements and the value of the work.  This still may be difficult, however, because of the problems associated with pricing a work if it has not been commercially sold (e.g. – a piece of original art from an artist’s private collection).

What makes claiming Actual Damages more difficult, however, is that the plaintiff must prove to the court that their amount for Actual Damages is accurate.  The plaintiff will likely have to have a forensic accountant testify as their expert witness, and often the opposing party will have their own forensic accountant testify that the damages are lower than the plaintiff claims.  To reach these conclusions the forensic accountants and the opposing party will take an in-depth look into the plaintiff’s financial records and many records may become a part of the public record.  It is possible to have the plaintiff’s financial records kept private from the general public (if the court is convinced there is good cause to do so), but the plaintiff will have no choice in turning over financial records to the opposing party.  As all of this arguing in court over damages takes more time, it will also result in increased legal fees (not to mention the fees for your expert witnesses).  As litigation costs are so high and there is no option to recover attorney’s fees, often a claim that would have been pursued if Statutory Damages were available will not be pursued if all the plaintiff is entitled to is Actual Damages.

The more documentation the plaintiff has for showing lost profits the stronger the case becomes. Historical sales records are very important for showing expected sales. As you can only claim lost profits (not revenue), you are going to have to be able to document the average profit you receive the sale of your work. While the plaintiff is going to claim that lost sales are the result of the infringing activity, the defendant is going to do their best to show other factors that caused the reduced profits.  Any documentation that was done in the normal course of business will carry more weight than documents generated specifically for the infringement claim.

Conclusion

The vast majority of copyright cases will never get to trial.  Many will never even leave the pre-litigation stages before there is a settlement.  With the large costs of litigation many clients will choose to settle before their legal fees grow too large.

So why does it matter how damages will be assessed in court?  It’s because the parties will always be assessing the strength of their own and their opponent’s case.  If the plaintiff can claim a large amount in damages, then the plaintiff is in a more powerful position for negotiating a settlement.

Doing a proper analysis of potential damages from copyright infringement will allow you to get a better understanding of your case’s strength, which plays an integral role in determining a legal strategy.

While this article will hopefully give you a basic understanding of calculating damages for copyright infringement, there is much more involved when determining a person’s rights or liability under copyright law.  If you feel that your work is being infringed, or you have been contacted for infringing another’s work, it is strongly recommended that you contact a lawyer.  The individual specifics of every case play a role in determining your best legal actions, and a lawyer will be able to help you determine your best course of action based on your unique circumstance.

Dealing With Cybersquatters:What to do if your company name or mark is being used by someone else in a domain name

What is cybersquatting?

Cybersquatting is when a person registers or uses a domain name (website address) in bad faith that is the same or similar to a trademark that is owned by someone else.

The typical example of a cybersquatting is as follows:  You run a company selling widgets, AwesomeProducts, Inc., and sell your products at the URL www.awesomeproducts.com.  Without your permission someone else has registered the website www.theawesomeproducts.com and is using your company logo and is selling knock-off widgets through this site.  The owner of www.theawesomeproducts.com is a cybersquatter and you would be entitled to have their website taken down or transferred to you.

However, a cybersquatter is not simply anyone who operates a website with a URL that is confusingly similar to your trademark.  For example, Delta Faucets and Delta Air Lines both operate their companies under the mark “Delta”.  Delta Faucets would be unsuccessful in arguing that Delta Air Lines is cybersquatting on the domain www.delta.com.  This is because Delta Air Lines has a legitimate right in the mark “Delta” and is not using the domain in bad faith.  No one is going to go the Delta Air Lines site and think they are shopping at the Delta Faucets site.  Consumer confusion is the cornerstone of trademark infringement, and trademark infringement is the underpinning of anti-cybersquatting policies.

Someone is cybersquatting on your trademark, what can you do?

The very first thing you should do is send the infringer a Cease & Desist letter demanding they stop infringing your mark (more information on Cease & Desist letters is available here).  If talking with the infringer is unsuccessful, you have two legal recourses you can take to obtain an order requiring the infringer to stop.  You can file a law suit under the Anticybersquatting Consumer Protection Act (ACPA), or you may file a claim for arbitration under the Uniform Domain-Name Dispute-Resolution Policy (UDRP).

The Anticybersquatting Consumer Protection Act (ACPA)

The ACPA is codified at 15 U.S.C. § 1125(d) and was enacted in 1999.  Cybersquatters often are in violation of other trademark laws, however, as cybersquatting became an increasing problem the ACPA helped clarify exactly what types of conduct are illegal and what a plaintiff must show to have an infringing site removed.

Under the ACPA a person is cybersquatting when:

  1. They have a bad faith intent to profit from another’s mark, and
  2. Registers or uses a domain name that is confusingly similar to that mark.
    1. If the mark is famous, the cybersquatter may be guilty of trademark dilution as well.

The major issue that is generally disputed in these cases is: what constitutes ‘bad faith’?  While there is no bright line test for determining bad faith, some of the factors the courts look to are:

  1. Any rights the cybersquatter has in the mark, e.g. if the cybersquatter has a federal registration for the mark.
  2. How descriptive the domain name is, e.g. if the domain name describes the products or services being sold, it is afforded less protection.
  3. If the cybersquatter has used the site for a purpose unrelated to your products or services.
  4. Evidence that the cybersquatter is intentionally confusing customers and/or diverting them from your site.

The bad faith factors are delineated in the statute, but judges are not bound to only look at those factors when determining if there has been bad faith.  Any reasonable argument for showing bad faith is admissible.

The ACPA is a federal law and so should be brought in a federal district court.  Many cybersquatters will essentially admit their guilt by not showing up to court, which reduces your litigation costs.  However, pursuing any litigation can be a costly endeavor, and should generally only be undertaken if you are serious about protecting your rights.  It is strongly advised that you obtain the help of a lawyer before bringing a civil action in federal court.

Writing a letter to the host having them take the site down is obviously a much less expensive method of protecting your mark.  Unfortunately, unlike infringers of trademarks and copyrights, web hosts will generally refuse to remove a site for cybersquatting unless you successfully pursue a claim under the ACPA or the UDRP.  (See here for information on DMCA takedown letters.)