New Small-Claims Court for Copyright Claims (But Don’t Get Too Excited)

Last time, Tara discussed one of the three intellectual-property Easter eggs in that massive must-pass “Consolidated Appropriations Act, 2021.” You probably know the bill better as “that gigantic omnibus spending bill” or perhaps the “COVID-19 Relief Bill.” Tara discussed the two trademark-related Easter eggs. I’ll focus on the copyright one now.

The copyright Easter egg is a kind of small-claims court for copyright claims. It’s supposed to deal with a problem—a real problem, I’d say: there’s lots of casual copyright infringement on the Internet, but they’re so small that it’s not possible to enforce the copyright economically. Copyright owners have resorted to various strategies to address this problem. Some sue in a public way that hopes to deter other infringers. Others hire lawyers who, in effect, bundle the claims into massive lawsuits. Still others have hired lawyers who just file a huge number of lawsuits. And, finally, some just resign themselves to the infringement.

None of these strategies has come close to working. The strategies that result in massive lawsuits (whether in size or in number) have resulted in near-farcical abuses of the legal system. Some copyright lawyers I know would go so far at to say these suit-driven strategies have, if anything, made things worse by creating bad precedent and generally sullying the business of copyright enforcement.

“Small claims”? Yes, for a certain value of “small.” “Court”? Not really, no. Photo 169282032 © Andrei Dodonov – Dreamstime.com

A small-claims court is supposed to solve this problem by creating a streamlined judicial-adjacent procedure for enforcing copyrights in clear cases of infringement. I’m going to hit some of the highpoint and point out some serious flaws in the procedure. If you want a really detailed analysis of the procedure, I recommend this exhaustive analysis by Morgan Lewis. I also got more than a few insights from this shorter piece from Phelps (particularly the insight that the claims that may be brought aren’t necessarily all that “small”). You can read the statutory language here¹This is actually the language of the CASE Act from earlier in 2020, but I believe it’s identical to the operative language in the reconciliation bill..

What Is This “Court”?

Well, it’s not a “court.” It’s a board—the Copyright Claims Board—of three “copyright officers” nominated by the Register of Copyrights and appointed by the Librarian of Congress.²Will they need to be confirmed by the Senate? The law says the officers are to have experience on “both sides” of copyright disputes, but I don’t see how that’s enforceable³Can you disqualify one of the Board members because they have insufficient experience on, say, the copyright defense side? I also have concerns about the workload. If this program is at all popular, the Board will become swiftly overwhelmed (with unpredictable results).

If it’s not a “court,” what is it? You might think it’s an administrative proceeding, like a proceeding before the TTAB or the FTC. But that’s not quite it, either. It’s really a form of state-provided arbitration, with a lot of rules. It’s essentially voluntary (more on that in a moment), it handles disputes between parties (rather than brought by the government), and it can award money damages. This is in stark contrast to the TTAB, which handles disputes between parties (who can’t opt out), but whose power is limited to undoing what its parent office (the USPTO) can do: grant or deny trademark registrations. It can’t award money damages or even attorney’s fees. It can’t even issue injunctions. The Copyright Claims Board is more powerful than that—it can award money damages (to a limited extent), but also can’t issue injunctions—but only if you let it have that power.

The proceedings are handled “on the papers,” which is to say, nothing happens “in person” (even remotely). Instead, the parties just submit documents, arguments and even testimony in written form, and the Board makes its decisions “on the record” before it.

What Types of Cases Can the Board Hear?

First, the Board can hear garden-variety infringement actions, naturally, though the damages are limited. How limited? In two ways. First, each proceeding is capped at $30,000. Second, statutory damages are capped at $15,000 per work if the work was timely registered, and at $7,500 per work if the work wasn’t timely registered. Third, there is special cap for statutory damages if the works weren’t timely registered, and that cap is $15,000. Actual damages don’t have a specific cap, but it’s subject to the overall $30,000 cap. Thus, if you brought a claim for infringement of four timely registered works, you might get $15,000 per work, but you’ll be capped at $30,000 overall. If you brought a claim for four untimely registered works, you might get $7,500 per work but be subject to the special $15,000 cap, unless you proved actual damages, in which you’d be capped at $30,000.

Second, the Board can hear an action for “declaration of noninfringement.” As the Phelps folks point out, this is a sneaky big deal. What this means is that, if you’ve been accused of copyright infringement and sufficiently threatened with a lawsuit (for a certain value of “sufficiently threatened”), you can ask the Board to declare that your activities don’t infringe—regardless of how much money is at stake. This is what the Phelps folks mean when they say that not every claim will be “small.” If your allegedly infringing activity has a value of $1 million, the Board could still hear the claim, so long as you (the accused infringer) are the one to bring it.

Third, the Board can hear claims under § 512(f) of the Copyright Act. This is the provision that governs the accuracy of DMCA-takedown notifications and counter-notifications. I discuss these notifications and counter-notifications a lot, but here are my favorite posts on the topic, if you’d like to learn more: the one about Barstool Sports and the comedian who sang “Slob My Nob” to Carol of the Bells; and the one about Prince and the dancing baby. The short version is: this is a nothingburger because courts have interpreted § 512(f) to be nearly impossible to violate.

Unpacking the Money Limitations

If you already know the difference between statutory and actual damages in copyright case, you can probably skip this section.

OK, ready? In copyright cases, the copyright owner has a choice between two types of damages: statutory and actual. In a normal copyright case, you (the copyright owner) can recover between $750 and $30,000 in statutory damages, per work infringed, without having to prove any actual harm. If the infringement is “willful,” that ceiling extends up to $150,000 (but that doesn’t automatically mean the award will exceed $30,000 per work, only that it can). If the infringement is “innocent,” the floor drops to $200 (again, that doesn’t guarantee the award will be less than $750 per work, only that it can be).

Actual damages consists of (typically) profits that you didn’t realize because of the infringement (known as “lost profits”) plus profits the infringer wrongfully made from the infringement, minus any overlap between the two.⁴These different types of actual damages often overlap completely: the profits the infringer wrongfully made is completely subsumed by the profits you lost, or vice versa. So, as a practical matter, you usually get the larger of your lost profits or the infringer’s wrongful profits. Proving up the infringer’s wrongful profits might me difficult (verging on impossible) if discovery is sufficiently limited, however (see more below).

However, the copyright owner still has to prove a connection between the infringement at the profits it lost, and infringers often don’t make much money from their infringement. It is, thus, often impossible to prove actual damages. That’s why statutory damages are an option: so the copyright owner has a chance to recover some damages.

The big news here is that statutory damages are available for “unregistered” works. Normally (and simplified), to be eligible for statutory damages, you have to register the work with the U.S. Copyright Office before the infringement started.⁵It’s slightly more complicated than this. Since many copyright owners are unaware of their copyrights or their importance until after their violation, this serves as a rather significant brake on copyright claims. It’s so difficult to prove up actual damages, and without entitlement to statutory damages, there’s no way the claim will be economically worthwhile. The reason for this odd rule is to encourage quick registration of works.⁶You might wonder why THAT’S important.

But the Board can award up to $7,500 per work in statutory damages for unregistered works (capped overall at $15,000). That’s less than for timely registered works, but it’s still a big deal.

Registration Preferred but Not Required

In contrast to regular copyright litigation, you don’t need to have a copyright registration in hand (or a refusal from the Copyright Office) before suing. It will be enough to have applied (properly) for registration. In regular litigation, you have to wait until the registration issues before suing. Since many copyright owners don’t have a plan to regularly register their works with the Copyright Office (you should), this appears to be another nod toward helping the small-time copyright owner, like photographers.⁷This is twice I’ve referred to copyright registrations as a prerequisite for something. Earlier, I said a TIMELY registration was a prerequisite for damages. Now I’m saying a registration (no matter the timing) is a prerequisite to even bring the lawsuit. These are two different prerequisites, though they can overlap. It’s possible to have a registration that will let you sue but was obtained too late to entitle you to statutory damages. It’s also possible to have applied to register your work in time to be eligible to statutory damages but not yet have the registration in hand so that you can sue. If you regularly register your works, however, you’ll solve both problems, which is the point.

So You Want to Bring a Small-Claims Case

Well, all you have to do is submit a “statement of material facts.” That statement will need to be “certified” as to “accuracy and truthfulness.” That could mean a lot of things, actually. It could mean swearing under penalty of perjury, which would be pretty burdensome. Or it could mean that you feel fairly certain that you aren’t telling any whoppers (like in regular court), which wouldn’t be very burdensome at all but also wouldn’t serve as much of a gatekeeper. We won’t know the answer until the Register of Copyright issues regulations on this point.

You’ll also need to submit a filing fee. We don’t know what this is, either, but it’s safe to assume that it won’t be very much.

After you submit your certified statement of material facts, the Board’s clerks will review it to “ensure it complies with this chapter and applicable regulations.” That, again, can mean lots of different things. Does the clerk determine whether the statement states a claim of infringement (or § 512(f) violation), or is it more of a technical check? And, again, we’ll have to wait for the Register’s regulations to tell us more. There’s a reason for this exercise, though. It’s expected that this small-claims procedure will be used mainly by unrepresented copyright owners. The clerks are there to make sure the submissions are useful (and, incidentally, guide unrepresented copyright owners). If the submission is rejected, the claimant can try to fix the mistakes within 30 days. The claimant is allowed several attempts, though there’s a filing fee for every try.

If the statement is approved, then you have 90 days to “serve” the defendant with the statement. Such service must be “either by personal service or pursuant to a waiver of personal service, as prescribed in regulations established by the Register of Copyrights.” Personal service is regular old being handed the papers by a process server. The “waiver” is more interesting. In a normal lawsuit, it’s just a way to effectuate service via plain old U.S. mail, but it’s also optional as to the defendant. It’s not often used. But, here, the Register might issue regulations that would permit, say, an attempt to achieve waiver via email or even social media (“first-class mail or other reasonable means”).⁸There is a Constitutional right to adequate notice that you’ve been sued, so the Register won’t have unlimited discretion on this.

But no matter what the Register says, the waiver of service is still voluntary and will require affirmative action by the defendant. If the defendant is pseudonymous, she’ll probably just ignore it and see if you can track her down physically.

Oh, one more thing. The statement needs to be accompanied by a “notice.” The notice has to tell the defendant that she has the right to opt out of the proceeding. Further, the notice has to say: if the defendant doesn’t opt out, she will lose her (Constitutional) right to have the claim heard in a court, and her (even more Constitutional) right to a jury.

Opting Out

Whoa, whoa, whoa. You mean, after all this effort, the defendant can just… opt out?

Yes, that’s right. There’s no sugar-coating this. If the defendant is even remotely sophisticated, she’s just going to opt out. And then, if you want to continue to go after her, you’ll need to do it in U.S. court. You are right back in the soup.

If you are a defendant, there is almost no reason to stay in this small-claims proceeding. I’ll get to some major reasons in a moment. The only exception I can think of is: if you think the claimant really means business (i.e., they’ll go after you no matter what), you don’t really have a good defense, and you fear the damages would be significant. In such a case, this procedure would at least get it over with at a lower cost and with a cap on your potential losses. Beyond that, you would need to be insane not to opt out.

Thus, the only people this small-claims procedure will work against are the overconfident (“I have nothing to fear”), the panicky (“Oh, no! What do I do? I’m so screwed!”) and classic rug-sweeper-unders (“Maybe if I’m quiet they’ll just go away.”). And even then, they might actually read that notice and realize: wait, I don’t need to do this (“Oh no! I’m so scr– Oh, wait a minute. I can just say no.”).

Let’s go back to that notice, because now it’s pretty important. How prominent will the “opt out” language be? We don’t know, yet—that awaits another regulation from the Register. In my experience with federal document subpoenas, however, I’d say that about half of recipients read the fine print on the back that lays out their considerable rights.

Procedure

Let’s say the defendant choose not to opt own, what then? First, the defendant must respond to the statement of facts (probably admitting or denying the facts, but it’s unclear right now). Apparently, this response doesn’t need to be “certified” (which is interesting). The response must also include any defenses or counterclaims. Remember that a lot of things that sound like non-liability (“I didn’t do it”) are actually defenses (“I did it, but…”). Things like: fair use, license, and de minimis. Counterclaims are subject to the same procedure as claims.

The next stage will be “discovery,” where the parties try to find out more about the other’s case and try to get information to build their own cases. You’re generally limited to requesting documents, asking written questions (“interrogatories”) and trying to get written admissions. There is (generally speaking) no right to take live testimony. If everyone is on the up-and-up, this shouldn’t be a problem. But if a party is withholding information, forging documents, or just straight-up lying, it’ll be hard to get at the truth—or even know you’re missing something.

For example, if the claimant says he was making $50,000 a year in profits before the infringement, but now it’s only $10,000, and he produces “Quickbooks” printouts to back that up, it’ll be very hard to look behind those figures and documents. If a defendant says she made zero money from her infringing activity and says she has no receipts related to the infringing activity, it’ll be even harder to challenge that assertion.

Just as important, there is (generally) no right to expert testimony. You often need expert testimony in copyright cases, and this will significantly cut down on the types of cases that can be brought in small-claims “court.” You often need an accountant to establish the amount of damages, or an economist to establish the fact of damages, or an industry expert to discuss the market for the infringed work (in a fair use case), or a software engineer to establish even rudimentary substantial similarity in software cases. These types of cases just shouldn’t be brought in small-claims “court.”⁹I don’t want to overstate this, either. Most people can’t afford experts, so there may be no practical difference.

One last thing. There are no rules of evidence. It’s up to the Board to decide whether evidence is reliable or not. (It’s clear that it has to at least by relevant, though.) This means no formal rules against hearsay, or requiring proof of authenticity of documents, or against overly prejudicial information (i.e., where the prejudice to a party significantly outweighs the relevance). One suspects that overall norms will more or less substitute for the rules of evidence. After all, one instinctively “knows” that hearsay is unreliable. But if the Board is motivated to rule one way or the other, it can be very choosey about what evidence it decides to hear and to reject.

No Appeal

If you don’t like the Board’s ruling, tough.

Well, there might be a way to challenge it. Again, it depends on what regulations the Register issues. If you don’t like the ruling, you can ask the Board to reconsider, but only if there has been a “clear error.” Good luck with that. If they reject you, you can ask the Register to assess the Board’s refusal to reconsider, but only if the Board “abused its discretion.” That’s right: abuse of its discretion of finding clear error. That, on the face of it, sounds like an impossible burden. But it’s just possible that the Register will issue regulations that would make this appeal a little more meaningful.

Finally, you can go complain to a real court. But this, again, isn’t really an appeal. The only bases for going to a real court are in case of fraud or corruption, the Board heard a case it shouldn’t have, or if you were defaulted through no fault of your own. (This is a lot like challenging an arbitration award.)

Enforcement

Let’s say you’re the claimant and you like the result. You’ve been awarded money. Congratulations!

What if the infringer refuses to pay up? Don’t worry! There’s a streamlined process for registering the Board’s judgment with an “appropriate” U.S. District Court.¹⁰The statute says you can register the judgment in the District of Columbia or any other “appropriate” U.S. District Court. Does this mean D.C. is ALWAYS an appropriate venue, i.e., it automatically has personal jurisdiction over the defendant for purposes of enforcing the judgment? I don’t think that comports with the Fifth and Fourteenth Amendments. I think you probably need to establish personal jurisdiction independently. This probably means you’ll have to go to the defendant’s home venue and enforce the order there. (You might as well, since any attach the defendant’s property, bank accounts, etc., will be easiest from the defendant’s home state.) The defendant’s ability to resist this is very limited, as explained above.

To encourage compliance, defendant who refuses to pay up will be made responsible for the copyright owner’s attorneys’ fees incurred in registering the judgment. This isn’t as big a deterrent as you might think, though. The process is so streamlined that it won’t take your attorney more than an hour, plus expenses in serving the infringer (assuming you’re even using a lawyer).

And, you also get an injunction against further infringement by the infringement. No! Just kidding! The Board doesn’t have that power! If stopping the infringement is important, the small-claims process won’t work for you. Sorry!

Oh, but at least, you’ll have a judicial finding that you can use in a lawsuit for an injunction, right? Because that’s how it works in the trademark world. Well, it doesn’t work in the copyright world. Sorry! The statute is clear that the small-claims proceeding has no “preclusive” effect.

Protections Against Abuse

But what about potential for abuse? If certain law firms make lots of money by filing hundreds of “real” lawsuits for copyright infringement, doesn’t a streamlined process just make that much more profitable?

Well, yes, but the drafters and proponents of the small-claims proceeding recognized the danger and threw in some speed bumps that, it is hoped, will prevent abuse. First, the cap on damages will prevent claims-bundling (i.e., suing lots of defendants all at once). But that practice has been on the decline for a while. Second, that cap might make the claims less lucrative and make legal bullying less scary. But $15,000/$30,000 is still a lot of money to the vast majority of Americans, so the difference a judgment of $15,000 versus $150,000 is just the difference between being ruined and utterly ruined.

The other safeguards are more speculative. If the Board thinks a party (the copyright owner or the accused infringer) are engaged in shenanigans, it can award attorneys’ fees to be paid up to $5,000 (if you have an attorney, only $2,500 if you don’t). Professional litigants can probably price that risk in, and much will depend on the Board’s willingness to exercise this power. If the Board is anything like a real court, it will be very reluctant to exercise this power.

If a party engages in shenanigans twice in the same 12-month period, the Board must suspend the party from using the small-claims proceeding for 12 months and dismiss all pending claims. Again, this will depend the Board’s willingness to call shenanigans in the first place.

Finally, the Register may (if she feels like it) issue regulations about how many small-claims actions a given party is allowed to bring in a year. This will be a tough call. On the one hand, the process has to be as available as possible if it’s going to get any traction at all. On the other hand, if abusive proceedings dominate the system, the experiment will have failed. Since she doesn’t have to issue any regulations, I suspect the Register will take a wait-and-see approach. I’d be concerned that, once abuse become apparent, it’ll be too late to root it out by regulation.

Conclusion

If you are a copyright owner, the small-claims process is a positive development. Now you have a cost-effective way to enforce your copyrights for those common, minor acts of obvious infringement. You don’t even really need a lawyer.

If you are an accused infringer, stay away. There’s only a tiny percentage of cases where agreeing to the small-claims proceeding make sense for you. Otherwise, opt out. There’s virtually no upside for you and lots of downside.

Thanks for reading!

Rick Sanders

Rick is currently General Counsel for Software Freedom Conservancy. Previously, he has been practicing law as an intellectual-property litigator since 2000.