MAJOR LABELS’ BILLION-DOLLAR PAYDAY UNDER FIRE AS COX COMMUNICATIONS CHALLENGES ‘SHOCKINGLY EXCESSIVE’ DAMAGES VERDICT

MAJOR LABELS’ BILLION-DOLLAR PAYDAY UNDER FIRE AS COX COMMUNICATIONS CHALLENGES ‘SHOCKINGLY EXCESSIVE’ DAMAGES VERDICT

In December, a jury ruled that US-based internet service provider Cox Communications was liable for the infringement of over 10,000 music copyrights by its users. The company was ordered to pay Universal, Sony and Warner a whopping $1bn in collective damages – equivalent to just over $99,000 for each of the 10,017 works infringed. 

If you wanted to know the extent to which this news delighted the major record companies, you only need read the words of Warner Music Group CEO Steve Cooper from his company’s quarterly earnings call on Friday (January 31). 

Guest post by: Tim Ingham of Music Business Worldwide

Cooper noted Warner’s satisfaction with the ruling, which he pointed out was the fifth largest U.S jury award in the whole of 2019, and which, he said, “clearly demonstrates that juries understand piracy is not okay”. 

Cooper noted that WMG and/or the record industry had also brought similar cases against four other ISPs: Charter, Grande, RCN and Bright House, “all of which should proceed to trial within the next 12 to 18 months”. 

The inference is clear: with Cox being stung for ten-figure damages, a promising precedent has been set ahead of the record industry’s litigation against others working in the ISP space. 

But now there could be a spanner in the works. Cox Communications just lodged a fierce legal motion challenging the $1bn damages verdict – calling it “unprecedented”, and suggesting that the amount of money it’s being told to pay is “grossly excessive”. 

According to a Memorandum filed Friday (January 31) by Cox and obtained by MBW, the company calls for one of two new outcomes – either a remittitur (i.e. a reduction in the amount of damages awarded) or an entirely new trial. 

The Memorandum, filed with the Eastern District of Virginia Court, argues: “The $1 billion award is a miscarriage of justice; it is shockingly excessive and unlawfully punitive, and should be remitted or result in a new trial.” 

Cox adds: “The award of $1 billion appears to be the largest award of statutory copyright damages in history. This is not by a matter of degree. It is the largest such award by a factor of eight. 

“THIS IS BY ANY MEASURE A SHOCKING VERDICT, WHOLLY DIVORCED FROM ANY POSSIBLE INJURY TO PLAINTIFFS, ANY BENEFIT TO COX, OR ANY CONCEIVABLE DETERRENT PURPOSE.” 

“It is the largest such award for secondary copyright infringement by a factor of 40. It is the largest jury verdict in the history of this District by a factor of more than 30. 

“It is by any measure a shocking verdict, wholly divorced from any possible injury to Plaintiffs, any benefit to Cox, or any conceivable deterrent purpose.” 

Cox argues that the $1bn damages verdict “exceeds the aggregate dollar amount of every statutory damages award rendered in the years 2009-2016 by more than four hundred million dollars”. 

The firm cites what it calls the three previous biggest copyright statutory damages awards in the States: (i) Atlantic Recording v. Media Group Inc in 2002 ($136m); (ii) Disney Enters., Inc. v. Vidangel, Inc in 2019 ($62.4m); and (iii) UMG Recordings, Inc. v. MP3.Com, Inc in 2000 ($53.4m). 

Cox posits that all three of these verdicts “were rendered against direct infringers — people who actually misappropriated the copyrighted material for their own use and profit”. In most cases, it says, these infringers “were conducting businesses based upon copyright infringement” making them “adjudicated pirates”. 

“THE $1 BILLION AWARD THUS APPEARS TO BE THE LARGEST EVER AGAINST A [SECONDARY] INFRINGER SITUATED LIKE COX — BY A FACTOR OF 40.” 

As an ISP, Cox argues that such an accusation does not apply to its business, suggesting that rather than being a “direct infringer”, it should instead be classified as a “secondary infringer” in the December ruling. 

Cox then points out that the largest statutory damages ever awarded against a secondary infringer happens to be against itself – $25m in BMG Rights Mgmt. LLC v. Cox Communications, Inc. (2015). 

“The $1 billion award thus appears to be the largest ever against a [secondary] infringer situated like Cox — by a factor of 40,” it says. 

(Cox later appealed that $25m BMG ruling, and the two parties settled via a “substantial” payment to the music company in 2018.) 

Cox’s lawyers continue this line of attack to target the monetary amount awarded. 

“Awards of damages approaching $100,000 per work are all but unheard-of in cases involving more than a handful of works—until this one,” they argue. “In cases involving the infringement of digital music files, no award has exceeded $25,000 per work. 

“The most closely analogous precedent is BMG, in which the jury awarded $17,895 per work, or less than one-fifth of the [$1bn verdict’s] per-work award.” 

The filing adds: “Cox respectfully submits that the evidence in this case did not support the jury’s findings of direct, contributory, or vicarious liability as to any of the works in suit, and that at least 8,000 of the works in suit should not have been considered by the jury.” 

Cox also points out that the record companies “urged the jury to award massive damages based, in large part, on assertions of Cox’s massive profits”. 

As a private subsidiary of Cox Enterprises, Cox Communications does not publicly reveal its financial performance, but it has previously confirmed that in 2016, it turned over some $11bn annually

Cox argues that only the amount of profit it may have directly obtained directly from any user copyright infringement should have formed the base figure from which December’s damages verdict figure was extrapolated – as opposed to its overall company profits in a given period. 

It argues that in the period concerned, Cox provided broadband / internet services to roughly 4.5m subscribers, but that “at the most” there were approximately 31,000 alleged repeat copyright infringers amongst its customer base. 

“The actions of those 31,000 subscribers are so far removed from Cox’s enterprise-level corporate [profits] as to bear no rational relationship at all – never mind one that should form a basis for the jury’s verdict,” it says. 

In its summing up of why Cox believe the “magnitude of the [$1bn award] is shocking”, it writes: “As set forth at length above, the $1 billion award in this case is unprecedented. It is the largest copyright statutory damages award in history by a factor of eight and is 40 times larger than the verdict awarded (and ultimately vacated) in the very similar BMG case. 

“It exceeds by more than $400 million the aggregate dollar value of all copyright statutory damages awards from 2009- 2016. It exceeds by more than $100 million the total profits earned in 2014 by the parent companies of the 53 plaintiffs. 

“[THIS VERDICT] EXCEEDS BY MORE THAN $400 MILLION THE AGGREGATE DOLLAR VALUE OF ALL COPYRIGHT STATUTORY DAMAGES AWARDS FROM 2009- 2016.” 

“Even considered on a per-work basis, the award is extreme: the $99,830.29 per-work award is the largest ever given for infringement of digital music files. 

“Every previous case that we have been able to identify involving similar infringements has ultimately awarded per-work damages of $9,000 to $22,500.” 

You can read Cox’s full Memorandum In Support Of Its Motion For Remittitur (Or, In The Alternative, A New Trial) here. 

Cox is represented by Thomas Buchanan of Winston & Strawn LLP. 

According to Law360, if Cox’s motion is denied, the company can appeal to the Fourth Circuit. 

Speaking after the December $1bn ruling against Cox, NMPA President & CEO David Israelite said: “Today’s victory on behalf of music publishers and record labels who own over 10,000 copyrights is a clear message to ISPs like Cox who refuse to take responsibility for infringers on their networks. 

“The jury found that Cox was liable for its subscribers’ infringement to the tune of $1 billion dollars which serves as a warning to those who willingly turn a blind eye and enable their users to share music illegally. 

“Cox received hundreds of thousands of notices of infringement and did not adequately respond or comply with its obligations to stop its subscribers from infringing on peer to peer networks. 

“Cox had the right and ability to prevent the continued harm to music creators and it chose its own profits over complying with the law.”

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