Thursday, May 10, 2012

GW Roundtable on IP Small Claims

David Kappos, USPTO: small claims has come up before.  Small rights holders constantly say that federal litigation is incredibly costly, discovery is monumental, the whole process is way too expensive and unaffordable to the most vulnerable participants: small rights holders are priced out of the market.  Inventors should not be distracted by litigation.  Same is true with copyright: many creators can’t afford to defend the fruits of their creations.  Any small claims procedure has to be guided by basic constitutional principles.  The time is now to protect creators/provide a model for other countries.

Maria Pallante, US Copyright Office: right now in middle of study, due Oct. 2013 to Congress; may or may not have recommendations for statutory change.  Agreement that we should make copyright work more smoothly; independent creators are primary focus for our office: small rightsholders, small presses, contributing diversity of views and ensuring they have exclusive rights.

Paul Storer, UK IP Office

Mostly been working on reforming patent court.  Part of larger access to justice project.  1989 court wasn’t successful because overtaken by general changes in civil litigation.  Differentiate lower court from higher court.  Streamlined procedures for patents: statement of case—clear judicial guidance on what the judge expects from a case presentation.  Focuses legal representatives’ pretrial effort and time on how to bring the case.  Time scales also for statement of claim, defense, counterclaim. Clear case management rules which empower the judge to handle the case at conference on the basis of what’s been filed.  Court will make an order in relation only to specific and identified issues.  May order disclosure, experiments, witness statements, expert reports, cross examination, and other if it seems likely to be more helpful than costly.  Guidelines on trial length: generally 2 days.  (Was named as the patent county court, but always misnamed—industrial design, now including other things like performers’ rights/related rights.) Fixed scale of costs, £50,000 (that would be a patent case with validity in question; judge wouldn’t expect nearly as much for a copyright or design claim).  Focuses on representatives’ minds that there’s a maximum for going forward.  Our patent attorneys have rights of audience within the court so they don’t have to instruct legal counsel, making it cheaper.

Most interesting reform: limit on damages within the court, £500,000.  To ensure that the court heard cases appropriate for streamlined procedures. Ensured no preaction disputes on appropriate forum.  May seem low; over 75% of respondents to our call for evidence agreed that was the right amount, but the figure is under review. Reforms in the works that will keep high-tech cases from being forced into high court.

3 tracks in civil litigation: small claims (under £5000), fast track (under £25,000), and multitrack, all defined by limits on damages.  All IP allocated to multitrack where costs aren’t as constrained.  Our proposal was to adapt general small claims for IP.  Allocation will be according to value, but ministry of justice decided to double general small claims amount to £10,000 and therefore so will we.  If defendant contests, judge will be final arbiter.  Hearings are informal; evidence is not necessarily taken under oath; experts are only permitted at judge’s discretion; legal representation isn’t necessary; cost recovery is minimal--£90 for lost earnings, he thinks £260 for legal costs. Most claims will be heard on paper and will be mediated; most will not reach hearings.

IP-specific: interim injunctions permitted under general small claims, but we’ve chosen not to allow them for IP. They’re available under streamlined procedures at comparable cost and the procedures allow a bit more scrutiny.  Streamlined procedures are already available, but not many applications in the past year.

Online infringement: same as physical infringement, and same litigation rules should apply.  Title/infringement still need to be proven.

Scope: unregistered design right/trademarks/performers’ rights/plant breeders’ rights/etc.  Patents and registered designs are outside the small claims scope, but still can get streamlined procedures.

Q: what happens if a party is dissatisfied with the choice of an IP specific tribunal?  Is there removal/review?

A: As the result of the call for evidence, we found that many claims, such as for nonpayment of royalty, have been brought in general courts, even though they shouldn’t have been.  All IP claims are governed by the IP rules and should be in the Patent County Court.

Q: Costs are capped—what does that mean?

A: recoverable costs from the losing side.  Can still pay your lawyers more, but if it will cost you £100,000 you may want to shop around.  Filing fees are on a sliding scale dependent on value—no different from general track; minimal/negligible for the smallest claims under £500.

Q: mediation: is it mandatory?

A: No, but in April 2013, all claims in small claims track, under £10,000, will automatically be referred to mediation.  But there is no compulsion to mediate.  Some respondents said they wanted specialist IP mediators, but Ministry of Justice agreed that, at such a low level, the importance is facilitation of mediation rather than specialization; though we do have some specialists.

Court can still have jurisdiction over larger claim if both parties agree, or if the claimant agrees to limit size of claim to £500,000.  High court also has streamlined procedures allowing case to be heard on paper alone if both parties agree.  No scale of costs (limit on cost recovery) in a high court proceeding.  Under statute, judge can determine whether something should be heard in high court, taking into account the parties’ financial positions.  There are rules governing transfer if, for example, damages turn out to be £600,000; judge may have ability to cap costs.

Pam Samuelson: what kind of review is available?  Do they just render a judgment or also issue an opinion?

A: Decision is appealable to the circuit judge.  Judge has the right to decide whether or not to issue an opinion.

Bob Brauneis, GWU Law: Constitutional issues in small claims exist: jury rights?  Collateral estoppel?  Wouldn’t make sense if the small claims court could only issue injunctions.  How do we set up a procedure preserving sufficient access to a jury to satisfy the Seventh Amendment and also ensure that many disputes will be resolved without juries: provide defendants incentives not to choose a jury trial.

Richard Pierce, GWU Law

Article III: it’s fine to take a class of disputes previously disputed by Art. III courts and reassign to agency, as long as they’re subject to plenary review by a court.  The SCt opinions of late are a mess.  Scalia: If we gave the PTO/Copyright Office the power to impose penalties, that wouldn’t be a problem, even if it’s $100 million. As soon as you start saying it’s private party v. private party, must go to Article III.  Breyer: If Congress thinks it’s a good idea, and it’s not nutty, it’s fine: we can call it a public rights dispute and Congress can allocate it to an Art. I tribunal. The other Justices are somewhere in the middle.  Pattern of opinions: every case of attempted reallocation from Art. III to Art. I court (bankruptcy), the answer is no.  But allocating to agency, the government has won the cases.  Hard to make sense of that.  Last Term, for the first time, the Justices gave a reason, in another bankruptcy case.  Claim at issue derives from regulatory scheme/resolution by those with expertise is deemed essential to a regulatory scheme: right should be integrally related to a regulatory objective.  Forget about an Art. I court.  What might pass muster is Congress expanding the powers of the Copyright Office/PTO to create an adjunct office that makes decisions.  But then must explain how this is related to regulatory functions/requires expertise.  Can also allow opt-out from Art. III, though some Justices worry about voluntariness of such agreements.  Also a matter of Art. III protection of courts from Congress: that’s not something an individual can waive.  (Sounds very unlike FAA jurisprudence.)  Can be done but must be careful.

7th Amendment: very similar questions; only new thing added is law v. equity.  7th Amendment doesn’t apply to injunctive relief, but if it’s traditionally required a court of law (over $50), then you have trouble.  Logically, the Art. III jurisprudence should apply to when a jury is required, but the more recent cases apply a very formalistic approach. 

Due process: Considerations include: risk of error of the new procedures, coupled with likely reduction in error from adding procedural safeguards; how significant the risk is ($50 can be a lot if you’re on welfare).  Courts rarely object to hearings held just on the papers; discovery is never constitutionally required; oral hearings with cross-examination are sometimes required (e.g. if credibility will be at issue); access to counsel of your own choosing on your own nickel is generally required.

These considerations are significant constraints on design.  Anything chosen will definitely get to the SCt, at least eventually.

Legal regime that has no counterpart in the federal gov’t.  Closest would be PTO procedure as described by Justice Thomas if PTO refuses to issue a patent—Thomas says, the hell with the APA, you get a whole new proceeding in a court.  You could get away with a design like that, but then the Q is how valuable given the opportunity to go to plenary review.

Pam Samuelson: is the Copyright Office different given that it is not Art. I but part of Congressional branch?

A: The whole Copyright Office system is probably unconstitutional; adding powers to an office already in serious INS v. Chadha doubt would be extremely risky.  At least 4 votes to strike down the whole thing, much less a new procedure, which is a risk of taking a new procedure to the SCt.

Q: can we consider present value of $50?

A: No.  Already resolved in case about judges’ salaries.  Which discount formula would apply?

Q: waiver: assume 30-day option to agree to another tribunal and be bound.

A: 5 Justices once approved that in an arguably analogous context.  If it’s voluntary, but underneath that label lies a whole lot of dispute about what constitutes voluntariness (then again, the courts approve plea bargaining!).  Some proposals include: if you go the court route, then we increase costs to you—and that immediately raises the Q of whether it’s a voluntary waiver.

Q: my penalties would only be the default cost of litigation.

A: if that’s all, probably ok.  The other Q is whether a private party can waive the rights of Art. III courts—got 4 votes in a case a few decades ago.  Not clear how many votes today.

Q: how do local small claims courts get around the 7th Amendment?

A: No systematic study.  You don’t like the result, you can start over fresh in a court of general jurisdiction.  (This is what happened in the case of the Honda Civic Hybrid owner who opted out of the settlement and won her small claims judgment, which was then reversed on appeal.)

Q: in California, only the D has a right of de novo review.

A: Not Art. III court.  Any state can do that if it wants to, subject to due process constraints.

Q: some proposals suggest it should be pro se only; a lot of state small claims courts are that way, e.g., Maryland.

A: Must be reconciled with due process rules allowing people to choose representatives, who may sometimes be nonlawyers.  Trial de novo option for losing party is one way to reconcile pro se rules with due process.

Note that congressional output has been lower by 1/3 in the last 2 years than the lowest level in the past 100 years.  Plus, Congress has to act to avoid going over the budget cliff; if they do that, will they have any time left over?  In the UK, the bar and all relevant interest groups apparently came to consensus on what should be done, but not clear the US bar can do that. 

Copyright roundtable

Brauneis: what’s the target?  What claims aren’t getting heard?  We might not be able to design a procedure with $100 claims in mind.  Various numbers have been proposed as maxima: from $10,000-80,000.  Is there a figure below which it really becomes difficult/impossible to litigate in current federal court?

Sam Mosenkis, ASCAP: among his members, once it hits $10,000 for the fair market rate for what a license would be, they seem to file a complaint.

David Nimmer, Irell & Manella: $80,000 because federal litigation isn’t worth it for a $60,000 claim.

Michael Grecco, American Photographic Artists: agrees, should be as useful as possible.

Brauneis: inflation plays a role.

Sandra Aistars, Copyright Alliance: didn’t take a position on exact number, but whatever limits placed need to take into account other parts of the structure. If discovery is limited, don’t set up a system where claims will be substantial without adequate opportunity to examine the evidence. 

Brauneis: true, issues are intertwined, and change in one affects answers about others.

Eugene Mopsik, Am. Soc. Media Photographers: $10-25,000—anecdotally, vast majority of instances are $10,000 and under in terms of licenses that members would have charged.

Grecco: if you’re at the point of infringement, what would have been charged goes out the window. There’s got to be some compensation—statutory damages—for having to take a case into any system, hire a lawyer. 

Mosenkis: we go for statutory damages, but most judges aren’t going to award $30,000 for a $1200 license—they award enough to cover the costs/fees.  But we (ASCAP) can often get 6 awards of $5000 each.

Victor Perlman (ASMP): it’s often a settlement amount: the photog. often wants what would have been a reasonable licensing fee.

Samuelson: are we trying just to compensate small owners outside the high-cost federal system? The idea that small claims would result in statutory damage awards out of proportion untied to actual damages seems worrisome.  Compensation could be the main point and the cases pretty straightforward. If someone is a willful infringer, take them to federal court for statutory damages.  Small claims = compensatory approach makes sense; directed towards little guys.  If there is such a process, some part of the value is deterring smaller infringements that are below the current federal court threshold.

Brauneis: screening—some issues may not be suitable for small claims treatment, not just as a matter of financial eligibility but as a matter of what we’re targeting.

Jay Rosenthal, Nat’l Music Publishers Assoc.: Small labels, artists bemoan internet policing—ignored DMCA notices.  At the top of the list of concern: DMCA is broken/unusable.

Aistars: Agree.  Whatever proceeding we come up with should limit discovery, and that means avoiding complex claims that might not be appropriate—situations involving additional claims: Lanham Act, TM, breach of contract, etc.

Mosenkis: if this is the type of proceeding that requires a lawyer, it shouldn’t be a small claim.  Black and white: litigate on paper.  No one’s debating ownership, fair use, §110 exemptions, etc.

June Besek, Columbia: One reason to keep max lower is that you wouldn’t need a lawyer—might think you don’t need a lawyer for $10,000 but different for $80,000.  One thing that stops people from going to court is that it’s hard for most people to find an affordable lawyer.

Grecco: Actual damages isn’t a deterrent in any way. Risk management at large corporations just figure they can infringe enough and if they have to pay the license, 80% still never found the infringement or did anything about it.  Compensatory damages is not enough. 

Samuelson: Not suggesting that there aren’t small scale infringements. But if you’re going to design a system for those creators, it would be better to know what their issues are and how a particular remedy would work for them.

Brauneis: Contract claims paired with copyright claims. National Writers’ Union: over 2/3 of grievances over online infringement did involve claims in which there was a contract with the publisher but the publisher allegedly overreached.  If it turned out that many of these small claims did involve copyright plus contract, a procedure that didn’t take that into account might not adequately serve them.

Alicia Calzada, Nat’l Press Photog. Ass’n: For our membership, there’s almost always a potential fair use argument, so our membership would almost always be excluded if you can use a fair use defense to defeat a tribunal’s jurisdiction.  This will cut out a large number of journalists.  Huge 1A issue in that photojournalism doesn’t survive if it’s not profitable.

Mosenkis: more complex cases—what would the litigation fees be?  Just from cost/benefit analysis—defenses can become costly if there’s a need for depositions.

Richard Pierce: much better chance of convincing SCt that infringement is integrated with the function of the Copyright Office than contract cases—3 different bankruptcy cases have said “that’s what courts do; doesn’t require special expertise.”

Nimmer: In the UK, contract disputes are included within the subject matter of the IP, but in the US it’s more complicated.  Plaintiff can elect to say you violated the contract and therefore it’s infringement, or can say it’s breach of contract and get exclusive state court jurisdiction. It all depends on the contract.  Typically contracts are drafted by publisher so author elects federal jurisdiction/copyright.  Congress could pass a law changing jurisdiction allowing copyright claims in state court when the amount in controversy is under $20,000 or when the infringement arises out of a breach of contract.  Same with current Lanham Act.  Could avoid constitutional problems.  Many SCt cases in which there’s a problem with 11th Amendment suing states for IP violations in federal court—Congress can solve that with state jurisdiction at the same time.

Jay Rosenthal: compulsory licensing under §115, if there’s a violation of the license, one could pull the license and then have an action against the party.  That would be a useful remedy for our members.  Until recently, not many people took the compulsory license, but that’s changing.  Most online services are going to file NOIs and go for compulsory license. Would be helpful to allow small claims against these services before they go out of business.

Victor Perlman: as soon as the system involves lawyers, you’ve defeated the purpose. As soon as you have discovery, you run into soft costs that haven’t entered into the discussion—time, effort and emotional angst for individual creators is just horrific, especially for sole proprietors who have to choose between litigating and getting business.

Me: The problem here is that we have some potentially large defendants and some potentially small ones, and without thinking about that we won’t have a great handle on remedies/procedures.  The problem of the big company that doesn’t bother to license is different than the problem of the small defendant.  Why not think about a dual-track system based on defendant and plaintiff size?

Kim Tommaselli, Independent Film Alliance: small to medium sized companies, and majority of our members have films where the license fees could be $10,000 or more, so the cap should be more.  Huge gap between $10,000 and what federal litigation costs.  Arbitration/lawyer representation: can allow discovery or lawyer representation based on the complexity of the case.  Ability to bring all claims against one defendant would be very useful.

Brauneis: parties may have very different views about whether the contract allows certain uses.

Aistars: Yes, consider your potential defendant!  Also with respect to the contracts issue.  If it’s not photographer-publisher, with bargaining power issues, contract could also agree to arbitration.  (Of course arbitration can be highly biased against the little guy, as we’ve seen.)  Other area of complexity: copyright ownership disputes.  May not be appropriate in alternative dispute resolution.

Brauneis: Procedure workable without a lawyer: one model. Must be constrained to very simple claims and very low monetary amounts for that to work. Then there’s a second model: stuff that doesn’t work federally because of the costs.  That’s a different approach, with a higher maximum amount in controversy and more allowable defenses.

Grecco: constitutional issues precluded us from proposing a real small claims without a lawyer. We want to do something within existing rules. Rocket dockets/expedited trials.  Can we create something else that can survive the SCt/that can get passed?

Maria Pallante, Register of Copyrights: Small press v. author: they may not know what the contract means—ran into this with Google Books. We like to say that’s just about old books, but contracts will always be unclear.  Something the Office may explore.

Rosenthal: one owner v. another.  In general, comments from publishers & songwriters—they are scared of a small claims court working out song splits.  (A real Judge Judy situation.)  But these folks do need cheaper ways to figure this out—maybe a cheaper mediation process.  (The Screenwriters’ Guild model, as explained by Catherine Fisk?  Lots of arbitrations, lots of dissatisfaction, but generally seems better than the alternatives?)

Paul Storer: Flagrant, willful, repeated infringement: judge can award additional damages.  Maybe when you have a license for 10 computers, but installed it on 20.  Particularly software rightholders seek additional damages.  Larger enterprises: there is a right of publication for successful claimants—there is a reputational hit for the larger enterprise if they’ve repeatedly and consistently taken works to which they had no right.

Grecco: here it’s corporate policy. Risk management: how much can we take?

Storer: begs the question whether anything will be a deterrent.

Alicia Calzada: if there’s a nonlawyer procedure, what happens when the defendant shows up with a lawyer?

Mosenkis: should be possible to proceed pro se.

Perlman: wish list.  Corporation could have a representative—that might be someone who’s admitted to the bar. But in a People’s Court system, the judge has a fair amount of discretion to control the flow of dialogue so there’s some equalization.

Aistars: might not advocate for a no-lawyer rule, but account for straightforward cases that can be dealt with in paper filings. Look at the UDRP model: when you can essentially fill out a form.

Brauneis: target is a proceeding in which a nonlawyer could be comfortable bringing a claim.

Grecco: some artists might want a lawyer, even in front of a magistrate/arbitrator/mediator.  Ban on lawyers is not a good option.

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