Saturday, December 31, 2011

Company Caught Downloading Competitor's Software Just Has To Pay The Fee To Buy One License

Here's an interesting case highlighted by Eric Goldman, involving two competing software companies. One of the companies, Real View, downloaded an infringing copy of the other company's (20-20 Technologies) software via a file sharing network. It seems this part is not contested. Real View then used the software to learn about what 20-20 was offering, and modified its own software to include some similar features, and then used a different business model which undercut 20-20's business model quite a bit. 20-20 sued for infringement both over the download and over the software. The jury, quite reasonably, said that the new software didn't violate anyone's copyright, as reverse engineering similar features to a competitor is not infringement.

However, since the initial download was infringing, the jury did have to rule on the damages there. I'll let Eric summarize this part:

20-20 argued that Real View should pay $38M, which is the amount 20-20 spent to buy a competitor company. Failing that, 20-20 argued that Real View should pay $2M due to "price erosion." Real View said it should pay 20-20's standard license fee of $4,200--although apparently 20-20 wouldn't have licensed the software at all to Real View, making the license fee calculation somewhat hypothetical. Real View also admitted to about making three-quarter million dollars in profits from its own licenses.

The jury came back with an award of $1.37M. In this ruling, the judge issued a remittitur down to $4,200, holding that Real View only was liable for the license fee for the unauthorized download--everything else wasn't proved or was irrelevant. For example, the court rejects all of 20-20's arguments about Real View's "saved development" costs as speculative. Perhaps more importantly, 20-20's claims of price erosion were irrelevant; any price erosion occurred due to Real View's non-infringing competitive software, not the infringing software download itself, and 20-20 didn't prove the causal link between the two well enough. Similarly, the court says 20-20 can't get any of Real View's profits from the non-infringing competitive software simply because it was facilitated by the illegal download.

This seems perfectly reasonable, and it's too bad that the jury seemed to have completely ignored the basics and seems to want to punish Real View for competing legally. Thankfully, the judge saw through that and reduced the jury's award. Of course, as we've seen with the remitittur process in the Jammie Thomas case, that allows 20-20 to "reject" the remitittur and get a new trial -- which appears to be exactly what 20-20 is doing. Again to Eric:
This case is interesting because it highlight how copyright owners can easily overclaim damages. Even if one step in the defendants' process involving infringing activity, that doesn't mean that the copyright owner gets to disgorge the defendant of all of its profits. For example, if a defendant impermissibly scrapes a plaintiff's website--making unauthorized copies into RAM while doing so--but the defendant's resulting publication doesn't infringe the plaintiff's copyright, arguably this case would take the defendant's profits off the table, leaving only the potentially meager and overly speculative damages from the illegal download.
I agree, but I also think it's interesting because it's rare that we see copyright cases where they argue over actual damages, rather than statutory damages. Copyright holders love to jump straight to statutory damages, because they tend to be so high (and totally out of proportion with actual damages). That's why something like this ruling is interesting, as it suggests (again) that perhaps the payment for downloading music should be the cost of licensing it for personal use -- or around $1. But as with the Jammie Thomas and Joel Tenenbaum trials, juries seem to massively inflate what they'd like to award for damages, even if there's no evidence that the downloads directly caused any real or significant damage.

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