Emerging Issues In Statutory Damages

About a dozen federal statutes offer statutory damages to successful plaintiffs. As the name suggests, "statutory damages" are damages whose amount (or range) is set by law, usually without regard to the actual harm suffered by a plaintiff. Statutory damages give plaintiffs a procedural advantage, simplifying their proofs and awarding them damages without requiring them to proffer evidence of actual injury. For defendants, they have become a multiplier of liability, especially when claims, or parties, are aggregated. Although a number of courts have criticized statutory damages in circumstances where they have become oppressive, judicial decisions are in disarray about courts' power to rein in statutory damages and, if so, under what legal theories. The result of this uncertainty means that, in many cases, a defendant's potential liability is difficult to calculate and potentially ruinous. Individuals and companies faced with unquantifiable risks face a chilling effect on their legal and, in many cases, socially beneficial, activity.1

Statutory Damages Provisions

Statutory damages statutes take several forms. Some put floors on damages, others set ranges, and still others specify liquidated damages. For the most part, Congress has used statutory damages as a remedy in consumer protection statutes or intellectual property laws. Some of the better known ones are:

Anti-Counterfeiting Consumer Protection Act of 1996, 15 U.S.C. § 1116(d). Plaintiffs may seek statutory damages between $1,000 and $200,000 per counterfeit mark for each type of goods or services sold, offered, or distributed, and up to $2 million per willful use of a counterfeit mark. 15 U.S.C. § 1117(c). Anti-Cybersquatting Consumer Protection Act of 1999 ("ACPA") 15 U.S.C. § 1125(d). Plaintiffs are entitled to statutory damages between $1,000 and $100,000 from any person who "registers, traffics in, or uses a domain name" that is identical or confusingly similar to a distinctive mark, or that is dilutive of a famous mark, and who "has a bad faith intent to profit from that mark" under 15 U.S.C. § 1117(d). Cable Piracy Act (amending the Cable Communications Policy Act of 1984), 47 U.S.C. § 605(e). For acts of satellite and cable piracy, plaintiffs can recover from $1,000 to $10,000, in an amount the court considers just, and from $10,000 to $100,000 for willful violations committed for commercial advantage or financial gain. Cable Privacy Act (amending the Cable Communications Policy Act of 1984), 47 U.S.C. § 551(f)(2)(A). For violations of privacy and disclosure requirements by cable service providers, plaintiffs may obtain liquidated damages of $100 for each day of violation or $1,000, whichever is higher. Copyright Act, 17 U.S.C. § 504(c). In lieu of actual damages, plaintiffs may demand statutory damages between $750 and $30,000 for each act of infringement, and up to $150,000 for willful infringement. Fair and Accurate Credit Transactions Act of 2003 (amending the Fair Credit Reporting Act, "FACTA"), 15 U.S.C. § 1681n(a). For willful failures to comply with the Act's disclosure requirements, plaintiffs may seek statutory damages between $100 and $1,000. If a person obtains a consumer report under false pretenses or knowingly without a permissible purpose, the plaintiff may seek actual damages or $1,000, whichever is greater. Fair Debt Collection Practices Act of 1978, 15 U.S.C. § 1692k(a). For violations of the Act's regulation of debt collectors, plaintiffs are entitled to as much as $1,000 per violation. In class actions, plaintiffs may seek the lesser of $500,000 or one percent of the debt collector's net worth. A similar scheme is established by the Electronic Fund Transfer Act of 1978 ("EFTA"), 15 U.S.C. § 1693. Stored Communications Act of 1986 ("SCA"), 18 U.S.C. § 2707(c). For violations of electronic privacy, plaintiffs may sue for actual damages suffered and any profits made by the violator, subject to a floor of $1,000. If the violation is willful or intentional, the court also may assess punitive damages. Telephone Consumer Protection Act of 1991 ("Junk Fax Act"), 47 U.S.C. § 227(b)(3)(B). For violations of the Act's prohibitions of unsolicited advertisements by telephone, cell phone, or fax machine, plaintiffs may seek actual monetary loss or $500 per violation, whichever is greater. Courts may treble the damage award for willful or knowing violations. Truth in Lending Act of 1968 ("TILA"), 15 U.S.C. § 1640(a)(2)(A). For a lender's failure to disclose credit terms, consumers are entitled to statutory damages of twice the lender's finance charges, between $100 and $5,000, depending on the type of credit.2 Plaintiffs in a class action are not subject to a minimum recovery, and the total recovery is limited to the lesser of $500,000 or 1 percent of the defendant's net worth. Worker Adjustment and Retraining Notification Act of 1988 ("WARN Act"), 29 U.S.C. § 2104(a)(3). For violations of the Act's requirement of advance notification of 60 days for plant closings and layoffs of more than 50 employees, plaintiffs may seek back pay and benefits for the period of violation, up to 60 days; for failing to notify their local government, employers are liable up to $500 a day.3 Policies Underlying Statutory Damages Statutes

Congress has given three general policies for statutory damages laws.

The first is to encourage aggrieved plaintiffs to vindicate their rights.4 Fearing that many violations of consumer protection or intellectual property laws may result in actual damages too small to warrant filing a lawsuit, Congress established guaranteed minimum damages to encourage access to the courts.5 Statutory damages are above and beyond other procedural incentives, such as attorneys' fee-shifting provisions or the ability to bring class actions.

Second, statutory damages provisions can expedite lawsuits because statutory damages do not require the same level of proof as actual damages.6 At times, statutory damages are expedient because the damages can be hard to quantify or prove.7 In other cases, simplifying plaintiffs' proofs is offered as yet another incentive to bring a lawsuit.8

Third, many statutory damages laws have a punitive purpose. Courts have explained that the statutory damages under the Copyright Act serve as a "punitive sanction of infringers,"9 under TILA they "deter general illegalities which are only rarely uncovered and punished,"10 and under the EFTA they serve a "punitive, as well as compensatory purpose."11 As discussed below, the punitive element in statutory damages can raise due process issues in some circumstances.12

Lack of Standards: Range, Willfulness, and Actual Damages

Statutory damages regimes usually give broad ranges for the award of damages but lack meaningful standards for judges or juries to apply in deciding what damages to award. The Copyright Act specifies statutory damages between $750 and $30,000, and up to $150,000 in the case of "willful" infringement. Statutory damages under the Lanham Act range from $1,000 to $200,000 per counterfeit, with an increase to $2 million in the case of willful counterfeiting. Under other regimes, such as the TCPA, judges can treble awards when the violation is willful or knowing. 13

Lack of Guidance to Judges or Juries. At the outset, few statutes give a judge or jury meaningful standards to use in setting statutory damages. For example, to determine a statutory award in a copyright case, the finder of fact may look at "the expenses saved and profits reaped by the defendants in connection with the infringements, the revenues lost by the plaintiffs as a result of the defendant's conduct, the infringers' state of mind—whether willful, knowing, or merely innocent"—and whether the parties have fulfilled their contractual obligations to each other.14 Under the Supreme Court's decision in Feltner v. Columbia Pictures Television, Inc., as long as a material dispute of fact must be resolved,15 there is a constitutional right to a jury trial.16 At least one commentator has questioned whether juries are equipped to compare the facts of a case to those of relevant precedent, adding yet another layer of uncertainty to the calculus of damages.17

Similar discretion is granted by other statutory damages provisions. The Cable Piracy Act, for example, provides no guidance on how courts should determine an award (which can range between $1,000 and $10,000) for the unauthorized receipt and exhibition of television programming. Some courts have based statutory awards on the number of people who viewed the television show if the violator is a commercial establishment,18 others have awarded a flat sum for each violation,19 and still others award the license fee that the commercial establishment, based on its maximum capacity, would have paid if it had legally purchased the programming.20 Likewise, FACTA allows a range of $100 and $1,000 with no guidance on how to determine the award.21

Willfulness. The statutes' standard of willfulness is yet another area of ambiguity. A finding of willfulness under the Copyright Act can quintuple an award from $30,000 to $150,000 per infringement, but the term remains completely undefined.22 In fact, the Act expressly states that "[n]othing in this paragraph limits what may be considered willful infringement." Congress has suggested that the award should be raised to its maximum only in "exceptional cases,"23 but courts have interpreted "willfulness" expansively. In Zomba Enters., Inc. v. Panorama Records, Inc., the court defined "willfulness" as...