Evolving Copyright and the Relationship With the Trans-Pacific Partnership Agreement (TPP)

Table of Contents:

I. Parallel Importation
II. Copyright Terms
III. Technological Protection Measures
IV. Fair Use
V. Marrakesh Treaty
VI. Libraries, Archives and Museums
VII. Statutory Damages
VIII. Orphan Works

The “intersessional”* round on intellectual property is currently taking place in Mexico City, Mexico. Although the intellectual property chapter still has many brackets and points of contention — the chapter is rumored to be 90 pages long due to the large number of brackets and alternative texts on the table — delegations are still treating the December deadline set forth by the trade ministers as the goal. Currently, the venue and dates for the next intersessional round on intellectual property still has not been set, but delegations have indicated that there will be at least one or, more likely, two intersessional meetings between now and the WTO Ministerial in Bali in December.

There are many contentious areas ranging from patents and pharmaceuticals to copyright and enforcement in the digital environment. These are areas that are evolving, both domestically (in the U.S. as well as abroad) and internationally and those negotiating the Trans-Pacific Partnership Agreement (TPP) should ensure that flexibility in the agreement is preserved to accommodate such evolutions. Within the domestic context, for example, the Supreme Court has routinely been overturning the Court of the Appeals for the Federal Circuit over the past several years in significant cases to reject patents and narrow the scope of patentability or change the presumptions regarding the granting of permanent injunctions.

For purposes of this blog, I focus on the evolution of copyright law and discussions regarding copyright reform (focusing largely on the U.S. context) from the start of the TPP negotiations to the present and how these changes relate to the U.S. proposals for the TPP (which are based on the leaked chapter from March 2011; admittedly, those proposals could be outdated and there may have been changes to the text or U.S. positions in this time period, but because of the complete lack of transparency in the negotiations, it is all that can be relied on). There have been increasing calls for copyright reform which have resulted in testimony by the Register of Copyright and a call for the “Next Great Copyright Act,” the Copyright Principles Project, hearings before the House Judiciary Committee, a USPTO “green paper,” a now-removed Republican Study Committee report recommending specific reforms, and bills being proposed in Congress, not to mention the numerous court cases involving copyright issues. This blog in many ways updates the copyright section of KEI’s August 2011 paper on Inconsistencies Between the USTR Proposal for the TPP and Current U.S. Law.

I. Parallel Importation
In the leaked text, the U.S. proposal includes a ban on parallel importation, applying a system of national rather than international exhaustion. In effect, a rightholder could prevent a person from purchasing a copyrighted good in one country then selling it in another.

At the time USTR tabled its IP text, a three-way circuit split existed in the United States between the Third Circuit (holding that the first sale doctrine applies regardless of the place of sale or manufacture), the Ninth Circuit (holding that the first sale doctrine applies only after a first domestic authorized sale) and the Second Circuit (holding that one can never parallel import and the first sale doctrine never applies to foreign made goods). The high profile copyright case reached the Supreme Court during the 2012-2013 term and on March 19, 2013, the Court ruled in a 6-3 decision that an author or rightholder does not have the right to prohibit or control parallel importation. The Supreme Court’s opinion interpreted current U.S. law as using an international exhaustion regime. According to the Court, there is no right to market segmentation:

Wiley and the dissent claim that a nongeographical interpretation will make it difficult, perhaps impossible, for publishers (and other copyright holders) to divide foreign and domestic markets. We concede that is so. A publisher may find it more difficult to charge different prices for the same book in different geographic markets. But we do not see how these facts help Wiley, for we can find no basic principle of copyright law that suggests that publishers are especially entitled to such rights.

Additionally, the Supreme Court opined that the importance of foreign trade supports international exhaustion:

Thus, we believe that the practical problems that petitioner and his amici have described are too serious, too extensive, and too likely to come about for us to dismiss them as insignificant—particularly in light of the ever­ growing importance of foreign trade to America. See The World Bank, Imports of goods and services (% of GDP) (imports in 2011 18% of U. S. gross domestic product compared to 11% in 1980), online at http://data.worldbank.org/indicator/NE.IMP.GNFS.ZS? (as visited Mar. 15, 2013, and available in Clerk of Court’s case file). The upshot is that copyright-related consequences along with language, context, and interpretive canons argue strongly against a geographical interpretation of §109(a).

The Supreme Court’s ruling in this case clearly clarified U.S. law in favor of international exhaustion and is thus clearly in conflict with the U.S. proposal for the TPP.

Additional coverage of the Kirtsaeng case is available at the following links: KEI amicus brief, Supreme Court oral arguments, analysis of the Supreme Court opinion.

II. Copyright Terms
The U.S. proposal on copyright terms mirrors the current terms in the U.S. (which came about through heavy lobbying by Disney and is often referred to as the “Mickey Mouse extension). These terms include a period of life of the author plus and additional seventy years, or for corporate works (such as a film) a period of ninety-five years or even one-hundred and twenty years for unpublished corporate works. These excessive terms come at a heavy cost the public, shrinking the public domain, increasing the costs of access to knowledge, contributing to the orphan works problems, and potentially causing the loss of books, movies, sound recordings and other copyrighted works before they can be archived. Copyright terms are a controversial issue, not only within the context of the TPP, but also within the U.S. domestic context.

For example, in March 2013, Maria Pallante, Register of Copyrights, testified before the House Judiciary Committee, supporting comprehensive copyright reform. Among other issues, she specifically addressed the issue of copyright terms noting that there is a “gridlock” created by excessive terms and suggested reverting back to a period of life plus fifty years and introducing formalities for copyright terms that exceed this period:

Congress . . . may want to consider alleviating some of the pressure and gridlock brought about by the long copyright term — for example, by reverting works to the public domain after a period of life plus fifty years unless heirs or successors register their interests with the Copyright Office. And in compelling circumstances, you may wish to reverse the general principle of copyright law that copyright owners should grant prior approval for the reproduction and dissemination of their works —for example, by requiring copyright owners to object or “opt out” in order to prevent certain uses, whether paid or unpaid, by educational institutions or libraries.

Additionally, in November 2012 the Republic Study Committee issued a report supporting comprehensive copyright reform. The fourth recommendation in the infamous RSC report suggested a reduction of copyright terms that actually goes below minimum international standards. Although the report was quickly removed, a copy is still available for download here. Regardless of the current status of the report, the fact that it was written and issued indicates that there is at least some support for a reduction in copyright terms. The conclusion of the report noted that “It is difficult to argue that the life of the author plus 70 years is an appropriate copyright term for this purpose – what possible new incentive was given to the content producer for content protection for a term of life plus 70 years vs. a term of life plus 50 years? Where we have reached a point of such diminishing returns we must be especially aware of the known and predictable impact upon the greater market that these policies have held, and we are left to wonder on the impact that we will never know until we restore a constitutional copyright system.” The recommended copyright term of the RSC report suggested a system of renewable terms as set forth below:

4. Heavily limit the terms for copyright, and create disincentives for renewal:
Because of the reasons explained in this paper, the constitutional conception of copyright was for a limited period of time. For our Founders this was 14 years for copyright with a potential renewal for another 14 years if the author was alive.

Current public policy should create a disincentive for companies to continue their copyright indefinitely because of the negative externalities explained in this paper. Unlike many forms of government revenue, generating revenue by disincentivizing activities with negative externalities is one way for the government to pay for its operations. This is a far superior way for the government to generate revenue rather than having a tax system that disincetivizes work.

Below is a suggestion for one such proposal:

A. Free 12-year copyright term for all new works – subject to registration, and all existing works are renewed as of the passage of the reform legislation. If passed today this would mean that new works have a copyright until 2024.
B. Elective-12 year renewal (cost 1% of all United States revenue from first 12 years – which equals all sales).
C. Elective-6 year renewal (cost 3% of revenue from the previous 12 years).
D.Elective-6 year renewal (cost 5% of revenue in previous 6 years).
E. Elective-10 year renewal (10% of ALL overall revenue – fees paid so far).

This proposal would terminate all copyright protection after 46 years. This is obviously a steep cliff, particularly from the extension of copyright from 36 to 46 years. But the point is to discourage indefinite copyright.

In considering the appropriate length of the copyright term, several questions must be considered including what the benefits are to the author, the costs to the public, and the appropriate balance to promote and incentivize new creative works. One significant question is whether there is economic evidence to support copyright term extensions.

Outside of the U.S., others have also questioned the wisdom of copyright term extensions. In 2011, the UK commissioned the independent Hargreaves report regarding intellectual property and growth, with a particular focus on a call for evidence-based policymaking. In that report, copyright terms were considered and concluded:

Economic evidence is clear that the likely deadweight loss to the economy exceeds any additional incentivising effect which might result from the extension of copyright term beyond its present levels. This is doubly clear for retrospective extension to copyright term, given the impossibility of incentivising the creation of already existing works, or work from artists already dead. Despite this, there are frequent proposals to increase term . . . The UK Government assessment found it to be economically detrimental. An international study found term extension to have no impact on output.

Despite the controversy over copyright terms that go beyond the minimum international standards, the U.S. proposal aggressively pushes for lengthy, perpetual terms. However, given its controversial nature and the current discussions in the U.S. regarding the current copyright terms, it would seem unwise to lock in periods of life plus seventy years, or ninety-five or one-hundred-and-twenty years for copyrighted works.

III. Technological Protection Measures
With regard to technological protection measures (TPM) or “digital locks,” the U.S. proposal in the TPP is highly prescriptive, includes only a limited closed list set of limitations and exceptions, and would make circumvention an independent and separate cause of action. It would also eliminate exceptions from liability for innocent infringers. On balance, the proposal appears to eliminate legitimate uses of many products simply by placing a digital lock on it.

As previously discussed in KEI’s paper examining the inconsistencies between U.S. law and the TPP, there is a circuit split and it is therefore unsettled as to whether circumvention of a TPM is a separate and independent cause of action or whether there must be underlying copyright infringement in order to be held liable for circumvention. This issue has not yet been heard by the Supreme Court and the law therefore remains unsettled in this area.

The U.S. proposal in the TPP contains a mostly closed-list set of very narrow exceptions to circumvention of a TPM while also including a three-year rulemaking process mirrored on the DMCA’s process of permitting an administrative or legislative procedure to add additional limitations and exceptions for a three-year period. This process is often time and resource consuming, taking more than a year from the time a proponent issues his request and the time that the exemption is granted or denied. The U.S. proposal in the TPP goes beyond the DMCA by imposing a “substantial evidence” burden on proponents.

During the most recent DMCA rulemaking process occurred in 2012, the Librarian of Congress failed to renew the exception to allow unlocking of cell phones and this loss of exemption went into effect in January 2013. Consumers were outraged that they would no longer be able to unlock their phones to use on different carriers and many petitioned the White House, which quickly responded. The White House response noted:

The White House agrees with the 114,000+ of you who believe that consumers should be able to unlock their cell phones without risking criminal or other penalties. In fact, we believe the same principle should also apply to tablets, which are increasingly similar to smart phones. And if you have paid for your mobile device, and aren’t bound by a service agreement or other obligation, you should be able to use it on another network. It’s common sense, crucial for protecting consumer choice, and important for ensuring we continue to have the vibrant, competitive wireless market that delivers innovative products and solid service to meet consumers’ needs.

This is particularly important for secondhand or other mobile devices that you might buy or receive as a gift, and want to activate on the wireless network that meets your needs — even if it isn’t the one on which the device was first activated. All consumers deserve that flexibility.

The White House’s position detailed in this response builds on some critical thinking done by the President’s chief advisory Agency on these matters: the Department of Commerce’s National Telecommunications and Information Administration (NTIA). For more context and information on the technical aspects of the issue, you can review the NTIA’s letter to the Library of Congress’ Register of Copyrights (.pdf), voicing strong support for maintaining the previous exception to the Digital Millennium Copyright Act (DMCA) for cell phone carrier unlocking.

Contrary to the NTIA’s recommendation, the Librarian of Congress ruled that phones purchased after January of this year would no longer be exempted from the DMCA. The law gives the Librarian the authority to establish or eliminate exceptions — and we respect that process. But it is also worth noting the statement the Library of Congress released today on the broader public policy concerns of the issue. Clearly the White House and Library of Congress agree that the DMCA exception process is a rigid and imperfect fit for this telecommunications issue, and we want to ensure this particular challenge for mobile competition is solved.

So where do we go from here?

The Obama Administration would support a range of approaches to addressing this issue, including narrow legislative fixes in the telecommunications space that make it clear: neither criminal law nor technological locks should prevent consumers from switching carriers when they are no longer bound by a service agreement or other obligation.

Soon after, a bipartisan bill was introduced in the Congress, led by Congresswoman Lofgren (D-CA), called the Unlocking Technology Act. The bill, though created in response to outrage over the restrictions against unlocking cell phones, is more broadly framed to address TPMs generally. Essentially, the bill would permit circumvention of a TPM provided that the circumvention is not done in a manner to infringe copyright.

Specifically, the bill would amend the DMCA to include the following language:

It shall not be a violation of this section to circumvent a technological measure in connection with a work protected under this title if the purpose of such circumvention is to engage in a use that is not an infringement of copyright under this title.

and that:

It is not a violation of this section to use, manufacture, import, offer to the public, provide, or otherwise traffic in any technology, product, service, device, component, or part thereof that is primarily designed or produced for the purpose of facilitating noninfringing uses of works protected under this title by circumventing a technological measure that effectively controls access to that work, unless it is the intent of the person that uses, manufactures, imports, offers to the public, provides, or traffics in the technology, product, service, device, component, or part to infringe copyright or to facilitate the infringement of a copyright.

Notably, this bill also includes a section directing the President to harmonize trade agreements:

The President shall take the necessary steps to secure modifications to applicable bilateral and multilateral trade agreements to which the United States is a party in order to ensure that such agreements are consistent with the amendments made by this Act.

With this bill in Congress, which has bipartisan support, it is unclear why USTR would continue to promote its highly prescriptive language on TPMs, including making circumvention an independent and separate cause of action apart from any underlying copyright infringement. Locking in these rules is ill advised considering Congressional support for amending the DMCA to permit circumvention of TPMs for uses that do not infringe copyright, for example where there is an existing limitation or exception or where fair use applies.

IV. Fair Use
Fair use represents a critical component of U.S. copyright law which has allowed U.S. copyright law to adapt to new technologies and advancements. It provides for balance in the copyright system and ensures the flexibility to create new limitations and exceptions, rather than confining these exceptions to narrow, closed lists. The U.S. fair use system could potentially be threatened based on interpretations of the three-step test. If a restrictive interpretation is accepted or adopted, if certain exceptions considered to fall outside the three-step test (such as the “Berne exceptions“), are made subject to this test, the U.S. fair use system may come under attack. It is important to note that the U.S. fair use system is one that is much more open and flexible than the WTO panel’s interpretation of the three-step test.

In the U.S., fair use has contributed greatly to the economy and a study done by CCIA found that these industries contributed trillions of dollars to the economy.

In the (now removed) Republican Study Committee report, a recommendation to expand fair use was included:

2. Expand Fair Use:

Right now, it’s somewhat arbitrary as to what is legally fair use based upon judicially created categories. One example: parodies are considered protected by fair use but satire is not. There’s an excellent book (and a shorter paper) called Infringement Nation that details how things you do every single day are infringing and leave every single person liable for billions in damages each year (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1029151).

In the Copyright Principles Project, a report convened by Pamela Samuelson and included participating by wide ranging experts across various sectors, served as the basis for a hearing on copyright reform in the House Judiciary Committee in May 2013. One recommendation of the Copyright Principles project provided:

Recommendation #17: Copyright law should recognize that there are more fair use purposes than is recognized in the current statute.

Another important limitation on U.S. copyright law is embodied in its fair use provision. Fair uses of copyrighted works are not infringements. The Supreme Court has recognized that fair use helps to mediate tensions that would otherwise exist between copyright and free speech and expression values. It also helps to ensure that second authors can build on pre-existing
works so as to promote the progress of science. Fair use law, in fact, serves a wider variety of policies than this, and we think an improved fair use provision would more accurately reflect the range of social policy purposes for which fair use is often used in practice.

Fair use has also been found when:

(1) a second author uses the first work to criticize it or create a parody, or otherwise transformatively recasts the work in the course of making a new work;
(2) a second author productively uses some or all of an earlier work in the course of news reporting, teaching, scholarship, artistic expression, or the like;
(3) a second author makes incidental copies that enhance access to information, such as by reverse engineering computer programs to get access to information necessary to create an interoperable program;
(4) a competitor uses part of the author’s work to engage in comparative advertising or otherwise to promote fair competition;
(5) a person makes private noncommercial uses that do not compete with or otherwise undermine the author’s market;
(6) market failures prevent the development of a viable market for clearing rights;
(7) administrative, legal, or other governmental use of the work is necessary to carry out legitimate government purposes;
(8) courts are faced with a use not contemplated by Congress and where the fair use balancing process will result in an interpretation of the law consistent with copyright purposes. The amount and substantiality of the taking and the likelihood of harm to the author’s market should, as now, be given due weight in determining whether a use is fair or unfair.

There are also cases before U.S. federal appellate courts regarding fair use, involving e-reserves, digitization and use for persons who are visually impaired.

The purpose of the fair use system is to ensure flexibility and ability to adapt to new circumstances, technologies, or to address problems that arise within the copyright system. With calls to expand fair use or to clarify that fair use extends beyond the illustrative examples in the “fair use” section of the Copyright Law (Section 107), plus the nature of the fair use provision, it is clear that the fair use system is one that continues to evolve and adapt and USTR therefore should not try to restrict its use through the TPP.

V. Marrakesh Treaty — Limitations and Exceptions for Persons Who are Visually Impaired
Significantly, in June 2013, a successful diplomatic conference concluded resulting in the Marrakesh Treaty to Facilitate Access to Published Works for Persons Who are Blind, Visually Impaired, or Otherwise Print Disabled. At the signing ceremony, fifty-one countries signed, a record for any WIPO treaty on signing day and the treaty now has fifty-five signatories. Amongst the TPP countries, Chile and Peru have already signed and the United States has indicated its intention to sign and ratify the treaty, as well.

Significantly, and related to the discussion of technological protection measures in Part III, supra, the Marrakesh Treaty includes the following language:

Article 7
Obligations Concerning Technological Measures

Contracting Parties shall take appropriate measures, as necessary, to ensure that when they provide adequate legal protection and effective legal remedies against the circumvention of effective technological measures, this legal protection does not prevent beneficiary persons from enjoying the limitations and exceptions provided for in this Treaty.

However, as noted above, the U.S. proposal for the TPP would make it a separate and independent cause of action to circumvent a TPM, creating liability for circumventing a TPM for the purposes of making a copyrighted work accessible even if there is an existing limitation and exception to benefit persons who are blind or visually impaired. In order to ensure that the Marrakesh Treaty can have full effect, the TPP should take care to ensure that persons who are visually impaired can fully take advantage of limitations and exceptions to copyright law that they may benefit from even where TPMs have been applied. Proposals in the TPP that would conflict with the Marrakesh Treaty should not be included.

Furthermore, given the successful diplomatic conference for the Marrakesh Treaty and clear international will to promote access to copyrighted works for persons who are blind, visually impaired or otherwise print disabled, the U.S. and other TPP parties should consider including principles in the TPP to benefit persons who are visually impaired, including permitting the circumvention of TPMs and cross-border sharing of accessible format works. Based on the U.S. leaked text, there are very few positive proposals and it appears that the proposals simply benefit rightholders rather than including the necessary corresponding balance or limitations and exceptions, and this is one concrete area where positive proposals could be included in the TPP.

VI. Libraries, Archives and Museums

The Copyright Principles Project also recommended updates to limitations and exceptions benefiting libraries, archives and museums:

Recommendation #19: Copyright exceptions for libraries, archives, and museums should be updated to better enable preservation and other legitimate uses in light of ongoing technological change.

Libraries, archives, and museums are cultural institutions created to serve the public good by making books, journals, ephemera, artifacts, and other materials available in order to increase knowledge, taste, and culture and to enhance the ability of citizens to interact with the world around them. The public has a strong interest in the preservation of the cultural record. Libraries, archives, and museums have the institutional mission to perform this critical function. The public shares a similarly strong interest in access to
works, information, and artifacts preserved by these institutions. Libraries, archives, and museums are generally willing to undertake this task only if they can make these preserved copies available to the public.

Copyright law should encourage libraries, archives, and museums to fulfill their missions, while also taking into account the effect of such policies on the market for copyrighted works. Providing access to copyrighted works, reproducing portions of works upon the request of a user so the user can make a non-infringing use of the material, and encouraging research and scholarship are critical not only to these institutions, but also to society. Moreover, these activities further the ultimate constitutional purpose to promote the progress of science.

Although the exact contours of library, archive, and museum exceptions need to be carefully defined, these institutions undertake many activities that copyright law should enable to some extent and with appropriate safeguards to protect the rights of copyright holders. These include the following:

(1) reproducing copies of lawfully acquired copyrighted materials for the purposes of preservation and security;
(2) curating and preserving collections of publicly available online content based on the needs and interests of local communities, and making them available to users;
(3) replacing copies of lawfully acquired copyrighted works that have been lost or stolen or that are damaged or deteriorating;
(4) converting the format of works when the equipment for perceiving the work is obsolete and the copyright holder has not distributed the work in the newer format;
(5) making both preserved and replaced copies available to users under the same conditions as the original copies when
original copies and replacement copies are not reasonably available; and
(6) reproducing single copies of small portions of all types of works, regardless of format, for purposes such as scholarship, research, or private study, upon the request of a user.

In addition, libraries, archives, and museums should be able to outsource these privileged acts as long as adequate safeguards are in place to protect copyright owners.

VII. Statutory Damages
Statutory damages, also known as pre-established damages, are a system that are used as a deterrent and are set at punitive levels rather than compensatory levels. In the U.S. statutory damages can be extremely high and are often criticized because of the punitive and excessive nature. Despite the controversy over statutory damages, the U.S. proposal for the TPP includes mandatory availability of statutory/pre-established damages with a requirement that they be set “in an amount sufficiently high to constitute a deterrent.” Statutory damages thus result in excessively high awards that do more than simply compensate the rightholder for any injury caused by the infringement, but instead represent punitive measures.

As with the areas above, there have been multiple calls to reform the law regarding statutory damages. Maria Pallante, Register of Copyrights, for example provided testimony to the U.S. House Judiciary Committee listing several areas that could be included as a part of copyright reform including “providing guidance on statutory damages.” Likewise, the Republican Study Committee report made the following recommendation:

1. Statutory Damages Reform:

Copyright infringement has statutory damages, which most copyright holders can and do use in litigation (rather than having to prove actual damages). The government sets a range – which is $750 to $30,000 per infringement – but that goes up to $150,000 if the infringement is “willful.” Evidence suggests that the content holder almost always claims that it is willful. This fine is per infringement. Those rates might have made sense in commercial settings (though even then they arguably seemed high), but in a world where everyone copies stuff at home all the time, the idea that your iPod could make you liable for a billion dollars in damages is excessive.

Further, this system creates a serious clogging of the courts, because copyright holders now recognize that they can accuse anyone of infringement, and include the threat of $150,000 awards per violation. But in reality, most people then settle for less than that sum, say $3,000. Scaring a large number of potentially innocent people into settling should not be an effect of copyright law.
Copyright awards were meant to make the copyright holder whole – they were not supposed to be punitive. Reforming this process is an important element of federal tort reform, which unlike other forms of tort reform is clearly within the federal prerogative.

In addition to the Register of Copyrights and the Republican Study Committee, the Copyright Principles Project suggests changes to the regime of statutory damages — if they are to be retained under U.S. law, at all. The Copyright Principles Project made the following recommendation:

Recommendation #10: If copyright law is to retain the right to elect to recover statutory damages in lieu of actual damages, guidelines for awarding statutory damages in a consistent, reasonable, and just manner should be developed.

Copyright owners have long been entitled to be compensated for pecuniary harms that infringement inflicts on them, such as the license fee the owner would have charged, a royalty stream the owner would have gotten, or profits the owner would have made but for the infringement. Copyright law also allows successful plaintiffs to force infringers to disgorge any profits attributable to that infringement. This disgorgement plays a crucial role in deterring infringement and preventing unjust enrichment. These remedies, taken together, remove or substantially diminish the incentive that a potential infringer might otherwise have to force the owner
into an involuntary exchange of the right for only a compensatory award, such as a license fee. These core parts of the current copyright remedial scheme are sound.

Present law also allows copyright owners who have promptly registered their claims of copyright to choose, in lieu of an award of actual damages and infringer’s profits, an award of “statutory damages” in an amount ranging from $750 to $30,000 per infringed work in the ordinary case, and up to $150,000 per infringed work in cases of willful infringement, as the court deems “just.” Courts can reduce statutory damages to $200 when an infringer proves that he was not aware of and had no reason to believe his conduct
was infringing, and to $0 if the good faith user is affiliated with a nonprofit educational institution. In practice, however, the lower level of statutory damages is hardly ever used.

Statutory damages sometimes provide reasonable compensation when actual damages and infringer profits are difficult or expensive to prove or when damages and profits are low. At the higher end of the scale, statutory damages are thought to provide extra deterrence or punishment for egregious infringement.

However, the wide numerical range of permitted awards, coupled with the lack of standards or guidelines for awards, the ability of the plaintiff to unilaterally elect an award of statutory damages at any time in the litigation, and the willingness of courts and juries to decide that infringement was willful if the defendant should have realized his acts were infringing, has too often led to awards that seem arbitrary and capricious, inconsistent with awards in similar cases, and sometimes grossly excessive or disproportionate when compared with a realistic assessment of actual damages and profits. The unpredictability of statutory damages sometimes has an undesirable chilling effect on some conduct that, if challenged, would be lawful.

It would be possible for Congress to develop guidelines to ensure that statutory damage awards are just. Courts could also, through case-by-case analysis, build a principled jurisprudence on statutory damage awards, but this has not happened thus far. If statutory damages are to be retained in U.S. copyright law, guidelines for their just application should be developed.

Testifying before the House Judiciary Committee in May 2013, Pamela Samuelson expanded upon this recommendation, noting that it may be wise to look at the regimes of other countries and making the following observations:

The unpredictability of statutory damage awards and the risk of grossly excessive awards is particularly troubling for entrepreneurial technology companies and other entities that may devise innovative ways for users to interact with copyrighted works. Because statutory damage awards must be levied based on the number of works alleged to be infringed with a minimum of $750 per work, products and services that enable use of thousands or millions of works can put their developers at great risk, even as to products or services that if litigated would ultimately be deemed lawful.

A recent empirical study has shown that the potential for grossly excessive statutory damages has had a chilling effect on investments in innovative technology products and services. At a time when the United States aspires to grow its economy and support innovation, the excessive deterrent effect of copyright statutory damages under U.S. law should be of concern to members of Congress.

[. . .]

In addition, grossly excessive statutory damage awards have contributed to public disrespect for copyright law. The well-publicized jury awards against filesharers Jammie Thomas-Rasset ($1.92 million in one of her trials) and Joel Tenenbaum ($675,000) may have been gratifying to the plaintiffs in those cases, but it is impossible for members of the public to consider such awards just. These awards also starkly contrast with judge-rendered awards in a dozen or so other file-sharing cases which were based on the statutory minimum per infringed work. To be consistent with those rulings, the award against Thomas-Rasset would have been $18,000 and against Tenenbaum $22,500. To many members of the public, even these awards might seem excessive, but at least they are far less excessive than what the juries awarded.

[. . .]

It is worth realizing that while statutory damage awards have a long history in U.S. copyright law, very few nations with substantial copyright industries have statutory damage regimes in their copyright laws. And those nations that have adopted such regimes have limits built in to these rules to curb the risk of unjust awards. It would be worthwhile to study these other regimes to see if there are useful lessons to be learned from them. (footnotes omitted)

Because of the punitive nature of statutory damages, they are often excessively high and therefore inappropriate measures of damages. Given the concerns in the U.S. regarding the statutory damages regime in place, it is an area that Congress could try to reform and USTR should be cautious in tying Congress’ hands on this issue.

VIII. Orphan Works
The U.S. proposal for the TPP included high levels of enforcement and high measures of damages for infringement. If accepted, the U.S. proposal would mandate damages for infringement even where the alleged infringer did not know or have reasonable grounds to know he was infringing, thereby extending the scope of damages to innocent infringers.

In addition to providing for statutory damages, another measure of damages proposed by the U.S. requires judicial authorities to consider the suggested retail price. This mandatory consideration is highly inappropriate because the right holder will very rarely—if ever—receive the full suggested retail price of the product. Right holders generally receive only a percentage of the retail price because of the multiple intermediaries and costs existing between the right holder and the final sale. The suggested retail price generally covers other costs, including production and overhead that the right holder would have paid in the ordinary sale of the product but would not have paid out in the case of infringement, potentially resulting in an over-calculation of appropriate damages. The proposed text by the U.S. does not appear to make concessions for innocent infringers and does not address orphan works solutions, many of which involve limitations on damages.

The Copyright Principles Project, again the basis for the first House Judiciary hearing on copyright reform held in May 2013, recommends limitations on remedies for those using orphan works. This recommendation is in line with two previous bills in Congress, including the Shawn Bentley Orphan Works Act, supported by the Library of Congress to place limitations on damages for use of orphan works.

Recommendation #21: Congress should limit remedies as to those who reuse in-copyright works whose rights holders cannot be found after a reasonably diligent search.

Copyright terms today are, in comparison with historical practices, exceptionally long—ninety-five years from first publication for corporate authored works and life of the author plus seventy years for individually authored works—owing to numerous copyright term extensions by Congress. Only rarely are works from the 1920s through 1960s still commercially available. Yet, copyrights may still be in force long after the commercial life of a work has ended. Many of these works do have considerable value, however, for historical and other research purposes, but reuses for these purposes are limited because of copyright constraints.

Especially problematic are the inhibitions on reuses of these works when the rights holder cannot be located after a reasonably diligent search. The U.S. Copyright Office has recognized this “orphan works” problem and has recommended legislation to enable those who make reasonable efforts to locate rights holders to use them, both to make orphan works available in their original form (e.g., on a website containing historical documents) and to make derivative uses of them (e.g., a movie based on a short story from the 1930s). This legislation would substantially limit remedies against good faith reusers if the owner of a particular work later comes forward. Works that are true orphans would be freely reusable by all.

The CPP supports legislation to allow reuses to be made of orphan works in line with the Office’s recommendations. Until this legislation passes, we hope that courts will consider efforts to locate the appropriate rights holder and the out-of-commercial-circulation nature of works as part of their fair use analysis in cases involving the reuse of older works.

The orphan works problem should be significantly ameliorated if the copyright registration regime is substantially reinvigorated, as discussed above. A presumption might well be established that if a work has not been registered within a certain period of years (e.g., fourteen years after creation), it could be presumed an orphan and available for reuses. A later registration by the appropriate rights holder might preclude some future nontransformative uses, but this should not prevent a good faith reuser from enjoying the fruits of his or her own creation based upon use of an underlying work that he or she reasonably believed to be an orphan.

Additionally, the USPTO’s recently released green paper also supports addressing the orphan works issue. While the green paper did not make many specific recommendations other than to explore particular issues, after reviewing the international landscape, it noted that “the time is ripe to address the orphan works issue, and to ensure that the United States can play a leadership role in shaping international thinking”:

Outside the United States, a number of countries have either enacted or recently proposed orphan works legislation. Canada has had such legislation since 1985, offering government-issued licenses for the use of orphan works on a case-by-case basis. Hungary, Japan, Korea, and India all have some form of government or compulsory licensing scheme for orphan works, and China is considering similar legislation. In the Nordic countries, the technique of extended collective licensing has been used to permit the licensing of orphan works through collective management organizations. The U.K. recently passed a law to permit government licensing of orphan works, although the details of implementation will not be finalized this year.

Treatment of orphan works is now being harmonized across Europe. In October 2012, the EU adopted a directive on orphan works, which is to be implemented by all Member States by October 29, 2014.170 The Orphan Works Directive will allow certain public interest entities to make limited use of specified categories of orphan works “only in order to achieve aims related to their public-interest missions, in particular the preservation of, the restoration of, and the provision of cultural and educational access to, works and phonograms contained in their collection.” A diligent search to locate the copyright owner is required in the Member State of first publication or broadcast. But once a work is deemed orphaned in one Member State it will be deemed orphaned throughout the EU, with a list of such works to be maintained in a single registry. If the owner subsequently appears, she will be entitled to fair compensation.

In October 2012, the U.S. Copyright Office returned to the issue with a Notice of Inquiry calling for public comments on (1) changes in the legal landscape since 2008 with respect to using orphan works on an occasional or case-by-case basis, and (2) solutions for the new issue of the use of orphan works in the context of mass digitization. The Task Force believes that the time is ripe to address the orphan works issue, and to ensure that the United States can play a leadership role in shaping international thinking. At the domestic level, the Task Force will support and provide input to the Copyright Office as it examines the issue of orphan works. (footnotes omitted)

Both domestically and internationally, it would seem that efforts are being made to address the orphan works problem. Given the size and scope of the TPP, new global norms are being set and these norms should be flexible to allow countries to address known problems in the copyright system, such as orphan works. By proposing such prescriptive rules regarding remedies without preserving the space to limit injunctions and damages, solving the orphan works problem may become more difficult.

The above discussion highlights several areas that are evolving or being considered for reform both in the United States as well as internationally. Some of these changes have come around during the period that the TPP has been negotiated, while other issues have been long discussed. These are important issues that may be reformed and changed over time, in part to address problems and inefficiencies that arise whether because of abuses by the rightholders or simply as a by-product of the current system. It is important to ensure that the rules in the TPP do not prevent necessary reform or block the ability for countries to change their laws to adapt to new technologies. With many discussions regarding copyright reform as well as recent Supreme Court decisions on intellectual property, the evolving nature of copyright law should be carefully considered in determining the appropriate balance in the TPP.

*The term “intersessional” is likely a misnomer as it is widely rumored that there will be no more full rounds of negotiations. Many chapters in the TPP have closed, save for the political issues, and it is expected that only the outstanding chapters will meet, and will do so individually.