Copyright Enforcement And Compliance In The Publishing Industries After Lowry's Reports v. Legg Mason: Top Ten Lessons - Part I

Wednesday, February 1, 2006 - 01:00
Scott E. Bain
Thomas W. Kirby

Publishers of newspapers, newsletters, magazines, journals, and other periodicals typically rely on the sales of subscriptions and use licenses to support and grow their businesses. When subscribers or others regularly copy and distribute such periodicals to non-subscribers without authorization, particularly over electronic networks such as the Internet, it can be devastating to a publisher's business. While many and probably most subscribers are honest and law abiding, we have found in recent years that systematic infringement occurs surprisingly often in the business world, even within otherwise widely respected institutions. The most striking example was the case of Lowry's Reports, Inc. v. Legg Mason, Inc., 302 F. Supp.2d 455 (D. Md. 2004), which we litigated on behalf of the plaintiff publisher Lowry's and its President, Paul Desmond. The resulting $20 million verdict was a watershed moment in the publishing industry, demonstrating to copyright owners as well as subscribers and users the potential seriousness of copyright violations, and importance of developing and maintaining compliance programs (on the part of subscribers and their employers) and consistent enforcement programs (on the part of publishers).

The Lowry's saga began with an innocent phone call by a Legg Mason ex-employee to Lowry's, inquiring how to "continue" to receive the Reports at his new employer. Further conversation led to information that Legg Mason had been posting Reports from a single subscriber on its internal firm-wide intranet, distributing copies by fax, and significantly multiplying its single subscription in related ways. Subsequently, Legg Mason failed to satisfy Lowry's that it had conducted a sufficient investigation and disclosed all infringement, and Lowry's declined to settle for the relative pittance of some variation of "lost revenues." Knowing full well that Legg Mason had the resources to put up a difficult fight - which it did - Mr. Desmond nevertheless decided to take a stand. The jury vindicated his determination, and widespread press coverage has spread the message that infringement is now risky business.

The Lowry's verdict has prompted many major corporations to reexamine their copyright compliance programs and to conduct periodic "license" audits with respect to their subscriptions. It also has provided a substantial tool for use in enforcement efforts by publishers. Our firm alone has litigated and/or settled well over thirty publisher claims of copyright infringement in the two years after the Lowry's verdict, and others no doubt have pursued similar claims. There are some substantial lessons to be learned from the Lowry's case and its aftermath. We have assembled a "top ten," in no particular order as follows.

1. Modern copyright law does provide the tools to meaningfully fight infringement, even for the "little guy."

Congress recognized the substantial importance of copyrighted works and the copyright industries ( e.g., publishing, film, music, computer software) to the U.S. economy, the difficulty of detecting infringement, and the importance of preventing infringement, particularly in the "digital age." Thus, Congress provided in the Copyright Act a uniquely potent remedy for infringement. Where works have properly been registered (see Lesson 2), the copyright owner is entitled to recover "statutory damages" of $750 to $30,000 per infringed work (not per infringing copy), in the discretion of the jury or judge, based on all of the facts and circumstances surrounding the infringement. 17 U.S.C. § 504(c). Such facts typically relate to the nature of the works, the use and circumstances of the infringement, the economic consequences of the infringement, and various factors related to deterrence and punishment, among others.

Moreover, if the infringement was "willful," meaning that the defendant knew "or should have known" that it was infringing, the amount can be increased up to $150,000 per infringed work. Obviously, then, statutory amounts may far exceed lost subscription revenue or other measures of "actual damages" or defendant's profits from infringement. Where the defendant engaged in a pattern of systematic infringement involving multiple works, such as regular infringement of daily periodicals or online infringement of many works, statutory damages potentially could reach jaw-dropping levels.

The Lowry's case also highlighted the significance of a right to a jury determination of statutory damages. Historically, judges determined the amount of statutory damages. It is fair to say that judges often are considered more conservative than juries in their award of damages. In 1998, however, the Supreme Court determined that litigants have a right to a jury assessment of statutory damages. See Feltner v. Columbia Pictures Television, Inc. 523 U.S. 340 (1998). Not all plaintiffs have exercised that option, perhaps in light of uncertainty as to how juries would view copyright infringement in this digital era of seemingly-ubiquitous and sometimes "accepted" copying. Lowry's seems to indicate that juries are not necessarily sympathetic to infringement.

Finally, the Lowry's case itself is a significant tool in enforcement. It is one thing for subscribers to recognize the theoretical possibility of large statutory damage liability; it is quite another to see it actually happen. Lowry's is believed to be the third largest copyright jury verdict in history, and the first statutory damage award of its kind in the publishing industry. Publishers and subscribers have taken notice.

2. To take advantage of lesson number one and protect your rights, you need to lay the groundwork with frequent and proper registrations.

Statutory damages only are available for works registered by the U.S. copyright office (not simply mailed by the copyright owner) prior to infringement or within three months of publication. The Copyright Office provides several streamlined methods for registering periodicals in "groups," thereby easing the burden on the copyright owner. Fortunately, Lowry's Reports had a regular practice of registering most of its issues on a bi-monthly basis, thereby ensuring timely registration of more than two hundred issues that turned out to be infringed. Had Lowry's not registered in a timely manner, it likely would have been relegated to a minimal settlement based on some variation of lost subscription revenue.

3. A subscription contract can provide an important supplement to copyright protection.

In addition to registering its copyrights, Lowry's required all subscribers to sign a subscription agreement that not only prohibited copying, but also precluded subscribers from disclosing the proprietary "Lowry's numbers" that were included in each Report. While these numbers, as factual data, were not themselves copyrightable, they were substantially valuable to Lowry's and the result of a highly confidential algorithm used to predict stock market behavior.

The subscription contract thus served two very useful purposes: first, to reemphasize that Legg Mason was on notice as to what it could and could not do with the Lowry's Reports, including copying restrictions; and second, to provide an independent legal claim - breach of contract - based not only on Legg Mason's copying but its disclosure and distribution of uncopyrightable information from the reports. A contract might serve similar purposes in other cases.

4. Provide clear, frequent, and obvious warnings at every opportunity.

Providing copyright notice, usually in the form of "Copyright 2006 [Name]" on every publication prevents an infringer from being able to claim "innocent" infringement, which otherwise could reduce statutory damages to $200 per infringed work. In addition to regular copyright notices, Lowry's also provided ubiquitous and frequent warnings and explanations regarding copyright - in every Lowry's Report, in every email including a Report, on its web site, in the subscription contract, etc. Lowry's even went so far as to mail separate, periodic reminder letters to subscribers. These model practices go a long way toward establishing willfulness when infringement occurs. Indeed, Legg Mason's claims that it did not know that its internal copying was wrong looked downright foolish in the face of this deluge of warnings shown to the jury.

5. Use available tools to detect infringement.

Sometimes publishers may learn of infringement by accident, but a more prudent and well planned enforcement approach is to use a combination of (i) DRMs, or digital rights management tools (if you are publishing electronically), and (ii) clear invitations and incentives to subscribers to report any wrongdoing or suspicious activities they learn about. Lowry's included such an invitation in each of its issues. Other clients have used DRMs with some success to prevent and learn about infringing activities. While no DRM can detect everything, and infringing activity sometimes is still difficult to detect and measure, certain third party software tools such as FileOpen, ReadNotify, and others have been used with apparent success to detect and pursue those who illegally print multiple copies of publications, or email them to non-subscribers. Your lawyer can advise you and help you investigate an appropriate DRM for your particular situation, and assist you in implementing it in a way to minimize the possibility of backlash by infringers once caught.

6. Don't tip your entire hand at the outset.

A common mistake by publishers and sometimes even their lawyers is to immediately contact an infringer, disclose everything the publisher knows, and immediately demand compensation for that infringement. We believe that is the wrong approach.

Instead, our approach, vindicated by the Lowry's case and many other recent claims, is to first inform the alleged infringer that we are aware of copyright violations, and demand a full investigation and disclosure if the infringer desires to settle the claim without a lawsuit. To provide a starting point for the investigation, we will often give general information such as the name of the publisher and names of all subscribers (not just the known infringer) at that company. But we have found that the only way to assure that we are told the full scope of copying that occurred is to withhold certain information at the outset, including the number of issues we know about (e.g. by DRM) and number of copies made. Otherwise, the infringer inevitably provides a report that "no additional infringement occurred beyond what you told us."

In many if not most cases, this method prompts infringers to disclose far more infringement than our client initially knew about. And it assures that we are reaching a settlement with full knowledge of the situation. If an infringer refuses to investigate, or refuses to disclose the results of its investigation without first being told what the copyright owner already "knows," sometimes this information can be dislodged by sending a draft complaint or otherwise making it known that the client will sue. If the infringer still refuses, then there is a good chance that there were substantial violations, and the claim is a good candidate for a lawsuit. (Continued next month)

Scott E. Bain, a partner in Wiley Rein & Fielding's Intellectual Property Practice, specializes in the litigation, licensing and acquisition of copyright, patent, trademark and other intellectual property rights in the fields of broadcasting, entertainment, publishing, software, consumer electronics and education. He can be reached at (202) 719-7485. Thomas W. Kirby is a senior litigation partner handling complex, policy-oriented trial and appellate matters nationwide. Counsel in more than 70 published cases, he focuses on copyright and trademark, First Amendment, Commerce Clause and election law, as well as class actions and commercial disputes. He can be reached at (202) 719-7062.

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