Tuesday, July 27, 2010 - The Progress & Freedom Foundation Blog

Was the Tenenbaum Statutory-Damage Verdict Unconstitutional? Only If College Guys Are Irrationally "Risk-Averse...."

On July 9th, Judge Nancy Gertner issued an Order holding that the $22,500/song jury verdict assessed against file-sharing, oath-violating, evidence-concealing, family-framing willful mass pirate Joel Tenenbaum was unconstitutionally excessive. Judge Gertner then reduced the award by 90% to $2,250/per song—the maximum award that her Constitution would permit. See Sony BMG Music Ent. v. Tenenbaum, 2010 U.S. Dist. LEXIS 68642 (D. Mass.).

But those who get their copyright news from the Internet might be shocked that the record labels have just dared to appeal Judge Gertner's allegedly brilliant legal analysis. After all, Public Knowledge hailed Judge Gertner's reasoning as a triumph of common sense. And at the blog TechDirt, Mike Masnick gushed, "Gertner knows this is going to be appealed, and she put a lot of effort into making the case for why this ruling was excessive, in hopes of having her reasoning help carry the later appeals."

Such fawning is silly. Judge Gertner's reasoning is far too profoundly flawed to have much chance of surviving appellate review. I will thus note three defects in Judge Gertner's analysis that should prove fatal. None is merely technical; all involve basic disregard for settled law, the facts, or reality itself.

Judge Gertner's "deterrence" analysis held that an economically rational award would be unconstitutional because college guys are just so "risk averse."

If they gave a Darwin Award for Legal Reasoning, Judge Gertner's deterrence analysis would be a worthy nominee. Judge Gertner held that deterrence could not justify the Tenenbaum jury's verdict because people generally, college guys more specifically, and Joel Tenenbaum particularly are all irrationally "risk averse" when deciding whether to engage in probably rewarding conduct that creates a small risk of a very bad outcome. 2010 U.S. Dist. LEXIS 68642, at *87. Judge Gertner's theory of human nature thus predicts that college guys would avoid behavior like stair-diving, binge-drinking, file-sharing, and casual-sex-seeking: All these behaviors are usually gratifying in the short run, but they all create the sort of small, long-term risks of really bad outcomes that allegedly "risk averse" college guys avoid....

Meanwhile, back on Earth, self-reflective adults should know that Judge Gernter's claim is not just wrong—it gets reality backwards. In fact, real humans confronting such situations tend to be strongly "risk-seeking": we tend to seriously underestimate the odds that we will be unlucky when engaging in conduct that will probably produce short-term rewards, but also creates a small risk of a bad long-term outcome. Sadly, this indisputable reality complicates a vast array of policy debates. See, e.g., Cass Sunstein, Nudge, 32-33 (Yale U. Press, 2008); Nassim Nicholas Taleb, The Black Swan: The Impact of the Highly Improbable (Random House, 2007).

Moreover, most adults also know that this general human tendency towards situational recklessness soars in young people generally and young men in particular. See, e.g., Roper v. Simmons, 543 U.S. 551, 569 (2005) (holding that "any parent knows" what "scientific… studies" confirm: young people "'are overrepresented statistically in virtually every category of reckless behavior'"). Those who distrust the Supreme Court can derive the same conclusion from any insurance company's actuarial tables. Judge Gertner's "risk averse" claim should thus cause anyone who once was a college undergraduate to either laugh or cry. Most should laugh, but a few who were both very reckless and very unlucky should cry—including Susan Saxe, whose undergraduate decision to fund antiwar groups by robbing a bank put her on the FBI's Most Wanted List for the murder of a policeman and father of nine.

Nevertheless, Judge Gertner—the same 1960s-Counterculture radical who defended fellow 1960s-Counterculture-radical Susan Saxe—now relies on an absurd undergraduates-are-just-so-inherently-risk-averse premise to hold it unconstitutional for the Tenenbaum jury to impose even the minimum statutory-damage award needed to deter an economically rational defendant:

[The] shockingly high ratio between the jury's [$675,000] statutory damage award and [my lowball, inflation-ignoring $1,500 estimate of] Tenenbaum's non-pecuniary "profits" cannot be justified by the fact that there was some probability that Tenenbaum's file-sharing would not be detected. Since most individuals are risk averse, adequate deterrence can undoubtably be obtained with an award that is much, much lower.

2010 U.S. Dist. LEXIS 68642, at *87 (citations omitted). And do remember: while Judge Gertner was scribing those words, science-news sites were running stories like Adolescent Brains Biologically Wired to Engage in Risky Behavior. And mainstream news sites were running stories about a whole corporation of grown-ups who somehow under-prepared for the very small risk that something could go horribly wrong on a deep-water oil-drilling rig in the Gulf of Mexico…. Nevertheless, Judge Gertner's finding means that the $2,250/song award that she grudgingly allowed is "much much lower" than the minimum award needed to deter an economically rational Joel Tenenbaum.

Worst of all, even if a federal judge could rationally conclude that most stair-diving, binge-drinking college guys are irrationally risk-averse, that would only beg the real question: Could reasonable jurors reviewing the evidence in Tenenbaum conclude that Joel Tenenbaum—like Susan Saxe, but unlike most risk-adverse undergrads—was actually risk-rational or even risk-seeking?

Judge Gernter never denied that reasonable jurors could draw either conclusion. Indeed, the evidence showed that Tenenbaum repeatedly chose risk-seeking behavior. He ignored his own father's warnings. Even after he knew that he had been caught, Tenenbaum not only failed to keep his promise to delete infringing files—he also kept on "sharing" them anyway. He also lied under oath; he concealed evidence; and he falsely accused his own family of his own wrongdoing. Such behavior precludes any claim that reasonable jurors had to conclude that Joel Tenenbaum was just as inherently "risk adverse" as those other college guys who inhabit Judge Gertner's fertile imagination.

Consequently, Judge Gertner's reality-reversing illogic all but forecloses any hope that her "deterrence" analysis can be sustained on appeal. Using her own irrationally lowball estimate of the value of the benefits that Tenenbaum gained from his file-sharing ($1500), Judge Gertner held, in effect, that even a serial recidivist and family-blaming, evidence-concealing liar like Joel Tenenbaum would conclude that he faced odds of getting held liable for file-sharing no greater than 1-in-45. If any evidence in the Tenenbaum record even permits that conclusion, neither the Defendant nor Judge Gertner has identified it.

Consequently, the outcome of appellate review of the Tenenbaum jury verdict should thus turn on the answer to this question: Could reasonable jurors decide that a risk-neutral or risk-seeking Joel Tenenbaum could conclude that he could reduce the odds that he would be held liable to 1-in-450 by hiding in the crowd (which evidence showed would itself reduce the odds of getting caught to more than 1-in-1,000), lying under oath, concealing evidence, and falsely accusing his own family? If the answer to that question is "yes," (and it is), then even an economically rational Judge Gertner must concede the constitutionality of the Tenenbaum jury verdict.

Consequently, the odds that Judge Gertner's absurd deterrence analysis will survive appellate review are even less than 1-in-450.

Judge Gertner's "compensation" analysis dodged the real question: Could reasonable jurors conclude that Tenenbaum would have had to pay at least $22,500/song for global licenses to distribute permanent, perfect, and free digital copies of hit songs to all Internet users who wanted them?

Judge Gertner conceded that any statutory-damage award that merely compensates the Plaintiffs for Tenenbaum's eight years of willful mass piracy is constitutional. See 2010 U.S. Dist. LEXIS 68642, at *10. Moreover, the device of statutory damages exists to address the central challenge that arises in cases like Tenenbaum: Those engaged in willful mass piracy have the strongest incentives to make it difficult or impossible to estimate how much actual harm they willfully inflicted upon entrepreneurial creators and creative industries.

For example, Defendant Tenenbaum infringed copyrights by downloading and "sharing" files using the file-sharing program KaZaA, which was held courts in both the United States and Australia to have been a deliberately designed piracy machine. (The now-infamous program Grokster was just a branded version of KaZaA). Piracy machines like KaZaA and LimeWire are also technologically irrational: They are so woefully inefficient that their designs can be explained only as means to promote piracy.

When a KaZaA user begins "sharing" a copyrighted file, he or she can set off a "cascade effect" of infringing copying and distribution. At first, only about 150,000 KaZaA users could actually find and download that file, but as they begin doing so, then that file becomes accessible to an ever-larger subset of the entire FastTrack network. Eventually, after many thousands of tens of thousands of infringing copies have been made and "shared," perfect copies of a file once shared by only one user can be copied and re-distributed by almost any KaZaA or Grokster user. Consequently, in a case like Tenenbaum, the real question is this: What was the sum of all of the "cascades" of illegal copying that resulted from Joel Tenenbaum's eight years of "sharing" thousands of infringing audio files, particularly those specifically at issue?

File-sharing programs like KaZaA or LimeWire could have easily provided users like Tenenbaum with complete information about exactly how many copies and distributions arose from their own "sharing" of each given song. But they didn't: Piracy machines like KaZaA and LimeWire were deliberately designed to conceal this information and to make it essentially impossible to estimate just how much harm Tenenbaum or any other long-term, high-volume distributor of infringing files actually caused.

Fortunately, courts in copyright cases long ago devised a means to assess compensatory awards even when defendants have successfully concealed or refused to collect the evidence that could have proven the actual harm caused by their own wrongdoing: In such cases, fact-finders will estimate the reasonable royalty that the Defendant would have had to pay in order to engage legally in his or her infringing conduct. After answering this "reasonable royalty" inquiry, courts or juries will then award compensatory statutory damages equal to that amount, and then multiply that award several times to effect deterrence.

Judge Gertner acknowledges this reasonable-royalty approach to statutory damages and discusses many reasonable-royalty cases in which owners of bars or restaurants who would have had to have paid many thousands of dollars in order to legally publicly perform 30-or-so songs for patrons were required to pay tens of thousands of dollars in statutory damages. 2010 U.S. Dist. LEXIS 68642, at *73-75. But she never addressed the critical question that such cases raise: If Joel Tenenbaum would have had to have paid thousands for a license authorizing him to perform about 30 hit songs for less than 100 people, then how much more would he have had to pay for a license authorizing him to give free, permanent, perfect digital copies of about 30 hit songs to any of the 1.3 billion Internet users who might want copies?

Instead, Judge Gertner dodged this critical question by irrationally decreeing that the facts of the public-performance reasonable-royalty cases were just indistinguishable from those in Tenenbaum: "I cannot perceive of any plausible rationale for the discrepancy between the level of damages imposed in public-performance cases and the damages awarded [by the Tenenbaum jury]." Id. at *75. But Judge Gertner's inability to perceive the obvious is easily remedied. Obvious rationales for "discrepancies" between public-performance-case awards and the Tenenbaum award include the following:

In conclusion, Judge Gertner claimed that she could perceive no "plausible rationale for the discrepancy between the level of damages imposed in public-performance cases and the damages awarded [by the Tenenbaum jury]." But had such evidence been presented to reasonable jurors by Defendant Tenenbaum, the Tenenbaum Plaintiffs would have surely helped those reasonable jurors perceive the many "discrepancies" that Judge Gertner herself somehow could not. That illustrates one reason why valid judicial "re-view" of a jury verdict cannot rely upon evidence that a Defendant, perhaps wisely, chose to withhold from the jury.

In short, it may have been unwise for Judge Gertner's own hand-picked defense counsel to advise the Defendant to present no evidence controverting the Plaintiffs' evidence showing that someone like Tenenbaum would have to pay vastly more than $22,500/song for licenses authorizing him to share hit songs over file-sharing networks like KaZaA. Nevertheless, that was the choice that the Defendant and his counsel made. Their choice thus made it entirely constitutional for the jury to rely upon the only royalty-valuation-evidence actually presented to it.

Judge Gertner's usurpation of the jury's fact-finding authority was expressly unconstitutional.

Judge Gertner's review of the Tenenbaum jury's verdict also ignored the fact that two provisions of the Constitution govern judicial review of a jury verdict. One is the Due Process Clause of the Fifth Amendment, which the Supreme Court has clearly held to implicitly authorize judicial review of at least "grossly excessive" jury verdicts. The other is the Seventh Amendment, which states expressly, "[N]o fact tried by a jury, shall be otherwise reexamined in any Court of the United States, than according to the rules of the common law."

This explicit Seventh-Amendment constraint binds even courts reviewing jury verdicts for unconstitutional excessiveness. Cooper v. Leatherman Tool, 532 U.S.424, 439 n.12 (2001) (holding that "nothing" in a decision permitting excessiveness review of a jury verdict in an intellectual-property case should "suggest that the Seventh Amendment would permit a court, in reviewing a punitive damages award, to disregard… jury findings"). Courts reviewing jury verdicts thus use a familiar technique to respect jury findings: "[T]he factfinder's role as the weigher of the evidence is preserved through a legal conclusion that upon judicial review all of the evidence is to be considered in the light most favorable to the [verdict]." Jackson v. Virginia, 443 U.S. 307, 319 (1979) (emphasis in original); see, e.g., Evans v. United States, 504 U.S. 255, 257 (1992).

Judge Gertner neither admitted that this constitutional restraint exists, nor did she abide by it. To the contrary, Judge Gertner repeatedly made herself both judge and jury by adopting, for purposes of judicial "review, " interpretations of the evidence that were unfavorable to the jury's verdict and favorable to Tenenbaum. Two examples show how seriously such error affected Judge Gertner's analysis.

First, and most importantly, Judge Gertner conceded that Congress intended to severely punish willful and massive commercial piracy, but repeatedly held that Tenenbaum's file-sharing was "noncommercial." 2010 U.S. Dist. LEXIS 68642, at *54, *60, *93 ("Tenenbaum was an ordinary young adult engaging in noncommercial file sharing"). Reasonable jurors could have rejected such specious claims—as Judge Gertner herself did just a few months ago. Sony BMG Music Ent. v. Tenenbaum, 2009 U.S. Dist. LEXIS 112845, at *30 (D. Mass.) ("the commercial/non-commercial binary is a misleading one"). Reasonable jurors could thus have concluded that Joel Tenenbaum engaged in the worst sort of commercial mass piracy by acting as a willful paid-in-kind distributor for both LimeWire and KaZaA—the largest global for-profit and commercial copyright-piracy rings ever known.

Second, Judge Gertner also repeatedly deemed Tenenbaum's motives for file-sharing to be "non-pecuniary," and thus less culpable. 2010 U.S. Dist. LEXIS 68642, at *3, *9, *71, *84, *87, *91. Reasonable jurors could surely reject Judge Gertner's inane claim that someone who shoplifts a $5 item from a store is somehow less culpable than someone who steals $5 from the same store's cash register.

In conclusion, these are merely examples from the larger pool of reversible errors in Judge Gertner's attack on the reasonableness of the Tenenbaum jury's verdict. Nevertheless, Judge Gertner was wise to frame her ruling in a way that would produce a decision that the parties could appeal. The Tenenbaum Plaintiffs were also wise to accept her implied offer and file an appeal from an absurd ruling that pretends that college guys are just irrationally "risk adverse."

posted by Thomas Sydnor @ 11:28 AM | Copyright , E-commerce , IP , Internet , Mass Media