“There are three gaping holes in the CASE Act which may cause the small claims process it sets forth to have only very narrow appeal and to be an effective dispute resolution mechanism in only a narrow subset of cases.”
On October 22, the U.S. House of Representatives passed, by a vote of 410-6, the Copyright Alternative in Small-Claims Enforcement Act (the “CASE Act”). The Act proposes to set up what is in essence a voluntary administrative procedure conducted in the U.S. Copyright Office whereby artists and other copyright holders can protect their copyrights without the cost, expense and difficulty associated with filing a full-blown copyright infringement litigation in federal court.
Based on the vote in the House, the CASE Act appears to enjoy widespread, bipartisan support in Congress—a rarity these days, to be sure. The appeal is simple: give individual artists and small companies an affordable mechanism to enforce their rights in their creative works. But although the political appeal of the CASE Act is obvious, the practical reality of the CASE Act is something entirely different. Indeed, there are three gaping holes in the CASE Act which may cause the small claims process it sets forth to have only very narrow appeal and to be an effective dispute resolution mechanism in only a narrow subset of cases.
Big Companies and Trolls Still Win
The first of these holes is that the process is voluntary for both plaintiff and defendant. If an individual artist wishes to take on a big company under the CASE Act, the better-funded big company may decide to opt out of the proceeding, putting the plaintiff in the exact same bind the CASE Act was designed to cure. Alternately, if the big company is clearly or probably liable, it may decide to keep the proceeding in the Copyright Office, to benefit from the $30,000 cap on liability under the Act. In either event, the big company gets its preferred choice of forum.
The second hole derives from unusual features of the Copyright Act itself. Unlike most U.S. statutory claims, and all common law claims in the United States, a plaintiff who prevails on a copyright infringement case in federal court may recover their reasonable attorney’s fees. This fee-shifting provision of the Copyright Act was enacted to provide poorly funded plaintiffs and their counsel with a financial incentive to protect their copyrights; such plaintiffs would be made whole financially by recovering both attorney’s fees and damages. Indeed, the threat of having to pay a plaintiff both damages and their attorney’s fees is perhaps one of the leading factors contributing to early copyright settlements. Even if damages are low, a prolonged copyright case that a defendant loses could end up costing a lot of money to compensate a prevailing plaintiff for attorney’s fees. Additionally, the Copyright Act provides for recovery of “statutory damages” of up to $30,000 per copyright infringed, or, in the case of willful infringement, up to $150,000 per copyright infringed, even if the plaintiff’s actual damages were nominal.
The fact that the Copyright Act permits fee-shifting and statutory damages has contributed to the rise in recent years of “copyright troll” law firms, whose business model involves representing as many photographers and artists as they can find, then threatening to file infringement lawsuits and trying to obtain quick settlements under the threat that a prolonged suit will end up costing the defendant the plaintiff’s attorney’s fees and/or statutory damages. Clients of copyright trolls often do not pay the firm’s hourly rates, but instead agree that the firm may keep a portion of the recovery. By way of example, one of these firms has been reported to have filed over 500 cases between 2016 and 2018. The number of demand letters the firm has sent and received a settlement payment prior to filing in addition to filing suits is unknown.
For copyright trolls and the artists they represent, proceeding in the Copyright Office under the CASE Act has little to no appeal. The financial leverage on which they rely—threats of recovering attorney fees and statutory damages for willful infringement—are not available under the CASE Act. Also, there is no cost savings to the clients of copyright trolls, as they are enjoying the benefit of representation without having to pay attorney hourly rates.
The Benefits Aren’t Broad Enough
The third major hole in the CASE Act is that, under the current legislation, a decision by the Copyright Office in a CASE Act proceeding regarding who owns a contested copyright is not a binding decision and cannot be enforced in court. For this subset of copyright disputes, CASE Act proceedings will not provide a satisfactory outcome.
So, who will find CASE Act proceedings an attractive alternative? Certainly, individual and small business copyright owners who want to prevent other individuals and small businesses from using their copyrighted works. Individuals and companies named as a defendant in a CASE Act proceeding that can afford the costs of federal litigation, however, will opt to stay in a CASE Act proceeding only in rare circumstance where the benefits of the Act’s $30,000 liability cap outweigh the tactical and strategic advantages that can be gained by “lawyering up” and being better funded than one’s opponent in a federal litigation. Finally, copyright trolls and their clients should have no interest in starting CASE Act proceedings, as doing so leaves their best weapons—the threat of attorney’s fees and recovery of statutory damages for willful infringement—on the sidelines.
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