A Glimmer of Hope That the Copyright Claims Board (CCB) Won’t Turn Into a Troll Factory

This is much-delayed blog coverage of the Copyright Office’s Notice of Proposed Rulemaking addressing “procedures related to conducting an active proceeding, post-determination review, smaller claims, and the conduct of parties.”

The NPRM would allow (1) anyone in a corporate family to bring no more than 10 CCB proceedings in any 12 months (though gaming may still be possible through exclusive licenses or ownership transfers), and (2) a law firm to represent clients in no more than 40 CCB proceedings in any 12 months. These caps, if adopted in the final rule, should limit CCB-related trolling.

A review of the economics will explain why. The CCB can award no more than $30,000 per proceeding. For any copyright owner, that sets a theoretical maximum of $300,000 in total CCB damages in a year. While $300k/year is a lot of money, the realistic maximum is lower. Among other things, the cap is $15k per work, so it would require the copyright owner to proceed only against defendants who have infringed 2 or more of the owner’s works and to get the maximum damages for both. Also, if a defendant opts-out of the CCB (which is what I recommend), the proceeding still counts towards the 10 cap.

Given this cap on total revenues, any aggressive copyright owner is going to want to bring more than 10 enforcement actions/year, and that will necessitate going to federal court. But if the owner is already going to federal court regularly, it may achieve economies of scale by consolidating all of its litigation there rather than simultaneously juggling CCB and federal court dockets. Plus, the copyright owner can get attorneys’ fees and uncapped damages in federal court. Thus, the 10 proceedings/year cap likely will encourage aggressive copyright enforcers to stay in federal court and skip the CCB altogether.

The 40 proceedings/year cap on law firms is also significant. It sets a theoretical maximum of $1.2M in damages per year. Using a typical contingency fee of 25%, the law firm has a theoretical cap of $300k/year in legal fees from the CCB. [Note: there’s no magic to the 25% fee. Firms could charge higher contingency rates or charge per-hour; but the low economic stakes of CCB claims necessarily will keep fees down.] Again, $300k/year is a lot, but if the realistic maximum is lower, then it falls well below the amount that most lawyers would expect to gross in a year. If so, it won’t be economically feasible for any lawyer or law firm–even solo practitioners–to “specialize” in CCB proceedings. This will deter any trollish firm from developing a dedicated CCB practice. Instead, the economics dictate that CCB practice will need to be just one part of a lawyer’s portfolio. However, because the CCB has unique rules/procedures and little economic upside, many lawyers will stay away from the CCB entirely to avoid the malpractice risk. Meanwhile, those same lawyers will regularly appear in federal court for their enforcement actions, creating economies of scale, and they will prefer the bigger damages and attorneys’ fees potential in federal court. As a result, I expect most law firms doing copyright enforcement won’t be eager to master the CCB, won’t see any value in steering clients towards it, and will prefer federal court.

Based on this analysis, the caps seem to deter many potential CCB users. If the plaintiffs’ lawyers aren’t steering clients towards it, and if both the firms and copyright owners see more value in consolidating cases in federal court, the CCB will most likely cater to the copyright owner who doesn’t have a lawyer and views an occasional small claims proceeding as its best hope; and possibly the rare circumstances where a CCB proceeding will be more lucrative than a federal court proceeding (like where the owner has an unregistered copyright and would prefer the statutory damages available only in the CCB). If these become the main CCB use cases, I imagine there will be dozens of CCB cases in a year, not thousands or even hundreds, and the CCB will not be an especially important adjudicatory venue.

[That outcome would again highlight the question of why the CCB was a top Congressional priority at the height of Trump’s attempted coup.]

Note that the caps don’t solve all of the trolling concerns. Copyright trolls and their lawyers can send an unlimited number of demand letters threatening CCB proceedings. However, I don’t see why they would prefer wielding the CCB as a hammer when they can send scarier letters threatening federal court cases with bigger damages and attorneys’ fees. Another trolling concern: the CCB’s notice function matters only if (1) the plaintiff has identified the right defendant, and (2) the plaintiff has identified the right contact information. I still fear the defendant identification and service pieces are problematic holes in the system.

Question for Professional Responsibility Geeks

I’m wondering if the 40 proceedings/year cap on lawyers is constitutional because it impacts a client’s right-to-counsel. Some examples of how that could happen:

  • A copyright owner might retain or be working with a lawyer where the CCB is an option for the client, but the lawyer might have to decline that representation if the lawyer has already reached the 40 cap.
  • The restriction doesn’t distinguish between plaintiff and defendants, so a client sued in the CCB who has a long-time copyright lawyer might need to retain different counsel if the defense counsel has hit the cap. This seems especially problematic in large firms. How will a firm of 1,000+ lawyers manage this cap across thousands of clients?
  • Both of these scenarios implicitly pit a client’s interests against the interests of other clients, which is a pervasive conflict of interest for the lawyer.
  • The 40 proceedings/year cap seemingly applies to both defense-side and plaintiff-side work, so if a firm files plaintiff-side proceedings, it consumes its capacity on the defense side too (and vice versa). The Copyright Office probably ought to treat plaintiff- and defense-side representations differently. Other than for symmetry, I don’t see any compelling reason to cap the number of defense-side representations.

What puzzles me is that I can’t recall seeing a cap on lawyers in other adjudicatory functions, though I wouldn’t be surprised if such caps exist. (I see the CCB’s proposed cap as qualitatively different than typical small-claims court, which sometimes ban all lawyers categorically). Can these numerical caps on representation survive a Constitutional challenge? Would the Copyright Office be able to defend on the basis that the CCB is optional (i.e., the lawyer could still represent the client in federal court)? That doesn’t solve the problem for me, especially because the CCB has some exclusive benefits (such as the statutory damages for works that were not timely registered).

Though I like the cap on lawyer proceedings, we should oppose it if it’s unconstitutional. I’d be grateful for any perspectives on that question.

Other Issues

Two other standout items in the lengthy NPRM:

  • Smaller Claims. For claims under $5k, (1) only 1 hearing officer will be assigned, instead of the normal 3, (2) only limited discovery will be permitted (standard interrogatories, requests for admission, and document production requests only), and (3) no expert witnesses will be permitted.
  • Sanctions for bad-faith conduct. The proposed rules say “Bad-faith conduct occurs when a party pursues a claim, counterclaim, or defense for a harassing or other improper purpose, or without a reasonable basis in law or fact.” The board can award attorneys’ fees and costs in that case. If a party or a representative engages in more than 1 bad-faith conduct in any 12 month period, the party/representative shall be barred from the CCB for 12 months along with dismissal of pending CCB cases. This all sounds OK, but it will depend on how vigorously the hearing officers applies the bad-faith standard, especially to pre-investigation efforts by the copyright owner. Also, an interesting consequence: a lawyer’s misbehavior for client A might cause the dismissal of a proceeding for client B. I’m not sure if that works.

Prior Posts on the CCB