Sixth Circuit: ratio of punitive to compensatory damages too great in copyright caseOctober 19, 2007

In a decision Wednesday, the Sixth Circuit affirmed in part and reversed in part a district court judgment awarding $366,939 in compensatory damages, $3.5 million in punitive damages, and $150,000 in statutory damages (to a second plaintiff) in a copyright infringement case. The case was brought against the music publishers behind The Notorious B.I.G. album Ready to Die, and dealt with sampling of an Ohio Players song "Singing in the Morning" in the title track of the album. The court affirmed the lower court's judgment entered on the verdict with respect to four separate issues: (1) the district court did not abuse its discretion in denying a mistrial motion based on the on the argument that the jury verdict was the result of passion and prejudice, (2) the district court properly precluded evidence that the defendants did not willfully infringe, (3) the district court did not abuse its discretion in bifurcating the trial into liability and punitive damages phases and (4) the judge did not err in entering a judgment where the award may have included profits from non-infringing material. The Sixth Circuit did, however, reverse and remand the judgment due to the excessive punitive damages award and the inclusion of prejudgment and compound interest in the compensatory award.More detail of Bridgeport Music, Inc. v. Justin Combs Publ'g after the jump.

The plaintiffs, Bridgeport Music and Westbound Records, own the copyright to a song entitled, "Singing in the Morning." This song was released in 1972 by a funk group, the Ohio Players. The defendants, Bad Boy Records, released The Notorious B.I.G.'s first album, Ready to Die, in 1994 and the album went on to achieve multi-platinum status. The title song of the album, "Ready to Die," sampled a portion of "Singing in the Morning" and was released to the public without obtaining a license from Bridgeport and Westbound.Two lawsuits were filed against the defendants, the first on May 4, 2001 and the second on February 25, 2005. The parties stipulated that the second lawsuit would be deemed to have been filed on the earlier date for statute of limitations purposes. During the nine-day trial, the district court decided, sua sponte, that the trial would be bifurcated into liability and punitive damages phases. The jury found each of the defendants liable to Bridgeport for copyright infringement under the Federal Copyright Act. The jury also found all but one defendant liable to Westbound under New York common law for copyright infringement and unfair competition. Importantly, the jury chose May 4, 1998 as the date from which prejudgment interest would be awarded to Westbound and awarded punitive damages to Westbound in the amount of $3.5 million.Unconstitutionally Excessive Punitive DamagesIn the most interesting part of the decision, the court reversed the $3.5 million punitive damage award as unconstitutionally excessive, violating due process. When assessing the constitutionality of a punitive damage award, courts consider three "guideposts": (1) the reprehensibility of the defendants' conduct, (2) the disparity between the plaintiffs' harm and the award, and (3) a comparison of the award and civil penalties in comparable cases. Turning first to reprehensibility, the court found that the defendant's conduct was not so reprehensible as to justify the award. There are several factors considered in determining reprehensibility. Courts make this determination

by considering whether: the harm caused was physical as opposed to economic; the tortious conduct evinced an indifference to or a reckless disregard of the health or safety of others; the target of the conduct had financial vulnerability; the conduct involved repeated actions or was an isolated incident; and the harm was the result of intentional malice, trickery, or deceit, or mere accident.

The court held that even though the defendants acted willfully, the conduct was only "somewhat reprehensible." The court found that Westbound was not a financially vulnerable victim and that the defendant's infringement was not "one of a repeated number of actions." Ultimately, the court found that only one of the State Farm reprehensibility factors was present: the harm was the result of intentional malice or deceit. In such a situation, according to the court, a ratio of punitive damages in the range of 1:1 to 2:1 is all that can be tolerated by due process.The disparity between compensatory and punitive damages was also constitutionally problematic The ratio in this case was 9.5:1, which the court characterized as "large." The Supreme Court has stated that a 4:1 ratio "might be close to the line of constitutional impropriety." Finally, the court also compared the award of punitive damages to the related civil penalty: statutory damages. The maximum statutory damages available is $150,000 if an infringer is found to be willful. The maximum for a non-willful infringer is $30,000. As a result, statutory damages have a 4:1 punitive:compensatory ratio ($120,000:$30,000).All this, taken together, showed that the amount of punitive damages was excessive. The court remanded the determination of punitive damages to the district court, stating that "a ratio of closer to 1:1 or 2:1 is all that due process can tolerate in this case," and instructing the district court to offer a remittitur of the punitive damages verdict.Passion & PrejudiceAffirming the decision the district court, the Sixth Circuit said that the comments made by the plaintiff's counsel during closing arguments were not sufficiently prejudicial and that the resulting jury verdict was not the result of passion and prejudice. One of the statements referred to by the defendants included where the plaintiff's counsel argued to the jury that, "[t]his is a joke. They think they can come down here to Nashville, Tennessee, and pull a fast one on the six of you." The court also found that the amount of compensatory damages was supported by the evidence, namely the plaintiff's expert on damages, and thus was not only the result of jury prejudice.Exclusion of Willfulness EvidenceThe Sixth Circuit found that the district court properly excluded evidence purporting to show that the defendant's did not infringe willfully was proper. The defendants' attempted to introduce evidence of post-litigation settlement offer during the liability phase of the trial. The court noted that "[i]nstead, defendants' evidence purported to demonstrate that defendants did not have a 'malicious' state of mind. This was not relevant to the issue of whether the defendants willfully infringed." Accordingly the district court was correct to conclude that this evidence "would confuse the jury" and thus did abuse its discretion in excluding it.BifurcationThe court also found that the district court did not abuse its discretion in bifurcating the trial into liability and punitive damages phases. According to the court the defendants were not prejudiced by this decision and that any error resulting from the decision was harmless.Failure to Allocate ProfitsThe court also found that the district court did not err by entering judgment where the amount of damages included profits from non-infringing material. The court noted that the plaintiffs estimated a fair allocation of profits attributable to the song "Ready to Die" by dividing the album profits by the number of tracks on the album. In presenting this evidence, the jury was within its authority to reject the defendant's argument that plaintiff's allocation included profits attributable to non-infringing elements of the "Ready to Die" song.Inclusion of Compound and Prejudgment Interest in DamagesThe court reversed the district court's judgment in part on the grounds that the award mistakenly included compounded, prejudgment interest. This reversal was based on the fact that the plaintiff's own expert testified to a damages estimate without interest. Since this testimony was the only evidence which the jury could rely on, the jury could not award damages at a higher amount unsupported by evidence. Accordingly, the court noted that the plaintiffs request for compounded prejudgment interest was a mistake and the jury verdict should be remitted to the district court.Date of InterestThe court also reversed the district court's decision regarding the date from which prejudgment interest should be assessed. The court reasoned that under New York law the May 4, 1998 date did not represent a reasonable intermediate date. The court remanded to the district court for a determination of an appropriate date and in doing so declined to adopt the defendant's proposed date of April 1, 2002.This case is interesting, particularly given the attention that is currently being draw

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