Those who argue that America’s civil justice system imposes needlessly high costs on free enterprise routinely cite punitive damages, and the random way that juries impose them, as one of the worst offenders. But the amounts of compensatory damages imposed in either private lawsuits or in enforcement actions by the government are often eye-popping in their own regard. Judges and juries impose many of these non-punitive damages pursuant to federal statutes. Some laws, such as the Sherman Antitrust Act and the Racketeer Influenced and Corrupt Organizations Act, allow or require damages to be trebled. Others set damages at a fixed amount, such as $10,000 per violation, which add up rapidly in such areas of the law as environmental and food and drug.
Defendants’ attempts to argue that excessive statutory damages violate their constitutional rights have not found any success, as compared to challenges to punitive damages, on which the Supreme Court has imposed due process limitations under the BMW, State Farm, and Philip Morris line of cases. On July 7, a federal district court judge in Boston took the unprecedented step of dramatically reducing statutory copyright damages in a closely-watched digital music file piracy case, Sony BMG v. Tenenbaum. Judge Nancy Gertner applied the rationale of the Supreme Court’s punitive damages cases to cut the damage award.
Businesses might find this result very promising. But as prominent copyright attorney and blogger Ben Sheffner points out in a new Washington Legal Foundation Legal Backgrounder, American enterprises should view the ruling as a double-edged sword, one which defendants like Mr. Tenenbaum or even other businesses can deploy in business-vs.-business litigation.
That is highly unlikely to happen, however. In the Legal Backgrounder, Mr. Sheffner argues that Judge Gertner’s reasoning equates to “an attempt to pound the proverbial square peg into a round hole.” The author predicts in the paper’s penultimate paragraph:
How would the Supreme Court justices ultimately rule should this issue reach the high court? Surely, there would be some sympathy for a defendant like Tenenbaum, who engaged in rather commonplace activity yet suffered a massive, bankrupting award. But, as Justice Ginsberg – a dissenter in Gore – observed in a different context, “[T]his Court has been…deferential to the judgment of Congress in the realm of copyright.” Eldred v. Ashcroft, 537 U.S. 186, 198 (2003). It is likely that the Court would defer to Congress’ judgment as to the proper range of statutory damages for a jury to impose as well.