Flexibility In The TPP Statutory Damages Provision

Note: This article is part of an IP-Watch and Infojustice.org series analyzing the Trans-Pacific Partnership (TPP) intellectual property provisions by leading experts around the world. The series will publish weekly through the first quarter of 2016.

By Jonathan Band

During the negotiation of the Trans-Pacific Partnership Agreement, many concerns were voiced about how TPP would mandate adoption of US-style statutory damages. Under the US Copyright Act, a court can award damages of up to $30,000 per work infringed, which can be ratcheted up to $150,000 per work infringed in cases of willful infringement. Scholars have found that statutory damages in the US have discouraged investment in innovative technologies while incentivizing the emergence of copyright trolls.

So how bad is the statutory damages provision in the final TPP agreement?

Jonathan Band

The TPP damages provisions go beyond TRIPS but are more flexible than the Korea-US Free Trade Agreement (KORUS) and allow the adoption of a statutory damages framework less onerous than that of the US Copyright Act.

In addition to providing for the recovery of actual damages under TPP Article 18.74.3 and the infringer’s profits under Article 18.74.5, a Party under Article 18.74.6 must establish or maintain a system that provides for “pre-established damages” or “additional damages.” Footnote 111 clarifies that “additional damages may include exemplary or punitive damages.” Thus, pre-established damages means what the US Copyright Act calls statutory damages. Article 18.74.8 then requires that pre-established damages “shall be set out in an amount that would be sufficient to compensate the right holder for the harm caused by the infringement, and with a view to deterring future infringements.” In contrast, TRIPS Article 45.1 only requires compensatory damages – not that damages be set higher to “deter” infringement. (TRIPS Article 45.2 does permit Members in appropriate cases to authorize judicial authorities to order recovery of profits or the payment of pre-established damages, but this provision is not mandatory and does not appear directed toward deterrence.)

Despite embracing a damages regime beyond that required by TRIPS, these provisions give Parties flexibility on the issue of statutory damages. To begin, the concept of “deterrence” is – of necessity – an open one, subject to range of interpretations. More specially, a Party doesn’t have to adopt a comprehensive system of statutory damages. Instead, it can opt for a system of additional damages, such as treble damages only in cases of willful infringement. In this respect, TPP is more flexible than KORUS, which required the adoption of pre-established damages.

Second, if a Party does adopt a system of statutory damages, the system need not be anywhere near as draconian as 17 U.S.C. § 504(c). The primary objective of the system would be to compensate the right holder for the harm caused by the infringement, and deterrence would only serve as a secondary consideration.

Third, the TPP’s general enforcement provisions require Parties to protect the interests of defendants:

• Article 18.71.1 provides that enforcement procedures “shall be applied in such manner as to prevent the creation of barriers to legitimate trade and to provide for safeguards against their abuse.”
• Article 18.71.3 provides that “each party shall ensure that its procedures concerning the enforcement of intellectual property rights are fair and equitable.”
• Article 18.71.5 provides that in implementing the TPP’s enforcement provisions, “each Party shall take into account the need for proportionality between the seriousness of the infringement of the intellectual property right and the applicable remedies and penalties….”
• Article 18.71.15 provides that each party shall ensure that its judicial authorities have the power to order a right holder who has “abused enforcement procedures” to compensate the defendant “for the injury suffered because of that abuse.”

Applying these provisions, a legislature enacting a system for pre-established damages could, as in the United States, set one range of statutory damages for willful infringement, another range for ordinary infringement, and a third for innocent infringement, which could go down to zero (as it does in 17 U.S.C. § 504(c)(2) for libraries, archives, educational institutions, and public broadcasters who reasonably believed their use was fair). The maximums could also be significantly lower than in the United States. The legislature could decide to treat the use of orphan works as a form of innocent infringement, or it could come up with a separate framework for orphan works, e.g., reasonable compensation as proposed by the US Copyright Office, which would meet Article 18.74.8’s compensation requirement. (Additionally, the legislature would be free to adopt an exception permitting the use of orphan works without payment under Article 18.66.) The legislature could also provide a cap on statutory damages against consumers, as in Canada’s copyright law.

Importantly, a legislature enacting a system for pre-established damages could provide its court with far more guidance on how to apply the statutory ranges than the US Copyright Act. (17 U.S.C. § 504(c) only instructs a court to allow recovery within the statutory range “as the court considers just.”) The legislature would be free to direct the court to focus on compensation for the right holder’s injury and to take into account the need for proportionality between the seriousness of the infringement and the amount awarded.

In short, although TPP requires parties to adopt a deterrent system of damages rather than only providing compensation, TPP allows for the adoption of a statutory damages system that is more fair than that of the US Copyright Act, and that is less prone to abuse by copyright trolls. Indeed, TPP provides the US Congress with a roadmap on how to improve the US Copyright Act’s statutory damages system.

Jonathan Band is a Washington, DC legislative and appellate advocate. More information at policybandwidth.com.