LGJ: If 24 songs = $1.9 million, then 1 game = ?

Each week Mark Methenitis contributes Law of the Game on Joystiq ("LGJ"), a column on legal issues as they relate to video games:

Maybe you heard about the verdict that just came out in one of the music file-sharing cases: $1.9 million for 24 songs. So, what does this have to do with gaming? More than you would probably imagine, since this gets to the root of copyright and statutory damages. In fact, EFF legal scholar Fred von Lohmann posted an interesting piece on whether the penalty is even Constitutional. Whether this is the suit that breaks the back of statutory damages has yet to be seen, but it's something that any media producer or consumer should be keeping an eye on.

Of course, much of that may be getting ahead of the issue of explaining this decision in greater depth so that everyone can understand what the actual problem is. We've talked about copyright infringement and piracy at length on LGJ, and the issue here is what comes after someone is found to have infringed on a copyrighted work: damages. Specifically, we're talking about statutory damages, which something a lot of people may not be very familiar with at all.

So just what are statutory damages? Well, as the name might suggest, they're damages determined by statute. So what is it that makes copyright so special as to get statutory damages? The simple answer is that actual damages in copyright cases can often be difficult to ascertain, or may not be adequate to resolve the issue. The official rationale is that a piracy operation isn't going to keep records of how many copies they illegally made, which is true. But in other infringement cases, it may be nearly impossible to pin down the actual lost profits that need to be compensated.

For example, a leak of a game that proves to be lower quality than anticipated may cause losses of an untold number of sales. A fan sequel that's of poor quality may drive people away from the original work, or a machinima that is highly offensive may cause the offended parties to not buy the game the machinima is based on. As you might imagine though, these numbers are nearly impossible to figure out.

As a result, we have statutory damages, which are capped at $30,000 per work normally, and $150,000 per work in cases of 'willful infringement,' meaning that someone knew what they were doing was in violation of copyright law and proceeded anyway. Ordinarily, I would say a game is a work and those are the caps, end of story. However, this new case is putting things off balance. The RIAA argued, successfully, that an album isn't a work, but rather every individual song is a work. As a result, the defendant was told to pay $80,000 per song for willful infringement. That's 80,000 times the purchase value of each song on iTunes, or over 60,000 times the cost of the DRM free iTunes song.

As Fred's piece points out, the Supreme Court has thrown out both excessive verdicts and those based in statutory damages with the intent to deter future infringers, which arguably this decision is both. But if we assume this is allowed to stand, the possible implication is that the individual works that comprise the greater work that is a video game could be each pursued individually. So, for example, if you pirate a copy of Guitar Hero 4, you're not only liable for the piracy of the game, but also the piracy of the 86 included music tracks. So, keeping the value at $80,000 per work, your total bill would be $6.96 million. That's only 116,000 times the $60 retail value of the game.

The real question is: will this lead to a change in statutory damages? The answer: Maybe. The nature of the damages has not changed, but the value structure has, and it has dramatically. Remember, this copyright act originated in the 1970s, when there were no digital downloads. Pirates then had to be commercial operations, with actual reproduction equipment. They were, in short, people who actually had money to pay these damages. Today, however, I would imagine the majority of the population has pirated at least one song at some point in their lives, especially the population under age 40. Yes, that means the piracy is more widespread, but the value per pirate is much, much lower. So, perhaps statutory damages need to be limited to a multiple of the value of the work at retail for individual pirates, while remaining as is for large scale commercial pirates. If we had a limit of 100 times the value, this case would be worth $2400 and we wouldn't even be having this discussion. I won't even get into the irony that if the defendant pays the $1.9 million she theoretically owes, she still won't own legitimate copies of the works she downloaded, and will have to find another $24 to go buy them from iTunes or Amazon.

Short of the US moving to a Canadian 'tax the media' approach (which has some serious flaws as applied in Canada) to avoid lawsuits against individual infringers, it seems likely that a better balance will need to be struck. Don't misinterpret this column as a statement against copyright holders; I absolutely think they should be able to be paid for their works. In fact, it's a primary part of my job to write the agreements that see that the people who create copyrighted works get the appropriate payment from those who publish and distribute them. But I also think expecting an average settlement that's wholly unrealistic isn't a solution in anyone's best interest. All it does is create a bunch of settlements or verdicts that will never be collected and have, in essence, wasted everyone's time. Is the solution to make small time, individual piracy the speeding ticket of the 21st century, punished with a stinging slap on the wrist when caught? Perhaps. These are all questions with no easy answers. For the time being, we will have to wait and see what happens as this case is appealed, but I have trouble envisioning the court upholding such an extreme verdict.

[Image Credit: Jaro Larnos]

Mark Methenitis is the Editor in Chief of the Law of the Game blog, which discusses legal issues in video games. Mr. Methenitis is also a licensed attorney in the state of Texas with Munck Carter, LLP, and a member of the Texas Bar Assoc., American Bar Assoc., and the International Game Developers Assoc., where he is a board member of the Dallas chapter. Opinions expressed in this column are his own. Reach him at: lawofthegame [AAT] gmail [DAWT] com.

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