What's fair in punishing copyright infringement?

Are hundreds of thousands of dollars in damages or even permanent restriction of internet access appropriate responses to online copyright infringement and file-sharing?

As we all start to do more things on the internet — and have access to much more creative content via the internet — these questions start to become important, and relevant to our every day lives.

To date, only two file-sharing cases have gone to trial and resulted in verdicts. In both cases, the defendants were found liable for copyright infringement and were subject to up to millions of dollars in damages.

In the first file-sharing case verdict, a Minnesota jury decided last summer that Jammie Thomas-Rasset should pay $1.92 million for 24 songs. This amounts to $80,000 a song — a startling number, in light of the fact that many songs currently sell for little more than a $1 off of iTunes.

The nation’s second file sharing defendant, Joel Tannenbaum, is now asking his court for a retrial, or to reduce the $675,000 award related to the infringement of 30 songs. This amounts to $22,500 a song.

It is average citizens sitting on juries who are awarding these high damage figures. Copyright infringement is a strict liability offense, and the Copyright Act permits damage awards anywhere from $750 to $150,000 per infringement. In instances of “innocent infringement,” damages can be reduced to $200, but even then, something has to be paid.

Earlier this year, Judge Michael Davis for the District of Minnesota slashed the $1.9 million jury verdict against file-sharer Jammie Thomas-Rasset to $54,000, lowering the per-song damage award to $2,250 per song. In explaining his decision, Judge Davis wrote that the price tag of $2,250 per song was a “reasonable limit” against a noncommercial individual and did not “veer into the realm of gross injustice.” This represented three times the minimum statutory award of $750.

The Court further noted that Thomas-Rasset “was not a business acting for profit. Instead she was an individual consumer illegally seeking free access to music for her own use.” Any need for deterrence “cannot justify a $2 million verdict for stealing and illegally distributing 24 songs for the sole purpose of obtaining free music.” A third trial is currently scheduled for October 4, 2010, to settle the issue of damages.

Judge Davis may have engaged in some questionable legal analysis in unilaterally lowering the damage award. Congress has express authority under the Constitution to regulate copyrights (the “Useful Arts” Clause). And legitimate acts of Congress — including the setting of statutory damage awards by a jury — would likely be entitled to deference by a court.

On the other hand, the Supreme Court has placed limits on punitive damage awards based on similar principles. Even in cases where a company knew it was polluting a town’s water supply or manufacturing shoddy products, punitive damage awards are limited because due process demands some restriction on damages a defendant might face.

The Supreme Court has held that “few awards exceeding a single-digit ratio between punitive and compensatory damages…will satisfy due process.” State Farm Mut. Automobile Ins. Co. v. Campbell, 538 U.S. 408, 425 (2003).

Ultimately, the Constitution gives Congress the authority to decide what is appropriate in terms of creating and enforcing copyright in the United States.  As creativity becomes more important to the American economy — in the form of online entertainment and internet distribution — copyright laws will become increasingly relevant.